Container spot rates continued their downward trend this week, influenced by China’s upcoming Lunar New Year celebrations marking the Year of the Snake.

Drewry’s World Container Index (WCI) recorded an 8% drop for the transpacific route from Shanghai to Los Angeles, settling at $4,813 per 40ft container, while the Shanghai-New York route dropped by 7%, ending at $6,377 per 40ft. Xeneta’s XSI index also saw a 3% decrease, with rates for the transpacific market reaching $5,162 per 40ft.

However, the most significant declines were observed in Asia-Europe trade, where signs of an emerging rate war have materialized.

The WCI’s Shanghai-Rotterdam route plunged by 19% week-on-week to $3,434 per 40ft, a 31% drop compared to last year. Meanwhile, the Shanghai-Genoa route dropped by 10%, reaching $4,562 per 40ft.

One offer from a Chinese forwarder indicated rates as low as $2,300 per 40ft from Shanghai to UK ports, signaling that at the lower end of the market, rates can be found about $1,000 below the index.

The Shanghai International Freight Index (SCFI) also showed a decline, but more moderate, with a 6% drop on Shanghai-North Europe rates. However, the SCFI only records quotes for the upcoming week, and activity in the next two weeks is expected to be slow.

The resumption of Suez Canal transit, particularly after the ceasefire between Hamas and Israel, could lead to major shifts in rate pricing. This could trigger a severe overcapacity crisis, as more carriers return to the shorter Suez route.

Sea-Intelligence CEO Alan Murphy stated, “If we see a gradual return to Suez routing, rates are going to drop significantly. For shipping companies and their investors, this ceasefire may be bad news, as the current high rates are largely supported by capacity constraints from round-Africa services due to the Red Sea crisis.”

Analysts expect this return to the Suez route to lead to temporary port congestion in Europe, as the industry adjusts to the new routing. This may cause delays and increased rates in the short term.

Despite these short-term challenges, Murphy anticipates that rates will eventually continue to fall. “After a period of disruption with port congestion, spot rates are expected to decrease rapidly, likely mirroring the sharp declines seen in 2023,” he said.

In November 2023, rates from Asia to Northern Europe were already below break-even levels, around $1,000 per 40ft, suggesting that further declines are possible before carriers start incurring losses.