Container ships keep piling up at Singapore port, sending sea freight rates soaring

The bunching up of container vessels outside one of the world's busiest maritime trade hubs - caused by ships avoiding the Red Sea due to Houthi rebels' attacks - means there's more cargoes trapped in shipyards for longer. That's pushing freight rates ever higher, with no immediate end to the congestion in sight.

For the manufacturers and exporters needing to get their finished products out of the city state, that means there may be little choice other than to hold on to their inventories longer than they'd like to.

Jefferies LLC analysts led by Omar Nokta wrote in a note, "Congestion is a growing risk as peak season is under way amid a reshuffling of the fleet."

The Yemen-based Houthis have been attacking vessels in the Red Sea since last October, in retaliation for Israel's assault on Gaza. The situation in the vital waterway has intensified from early this year, with a second vessel sinking after being struck.

That had resulted in shipowners opting not to transit the Suez Canal and taking the longer route around the Cape of Good Hope at the southern tip of Africa. That means now they don't get a chance to refuel or unload cargo at ports in the Middle East, leading to worsening congestion in the waters off Singapore.

A lack of immediate alternatives to Singapore in the region is making the logjam even worse.

Nearby ports, such as Port Klang and Tanjung Pelepas in neighbouring Malaysia, aren't easy substitutes because they aren't as well-connected as Singapore, said Jayendu Krishna, a director at Drewry Maritime Services. So outbound cargoes may not be able to reach their destinations on time if they don't leave from the city state, he said.

Weekly mainline service connections - a measure of how many other ports have a direct shipping link with a given harbour - for Singapore were at 148.7 in the second quarter, data from Drewry showed. That's nearly twice the number of Port Klang and more than three times the figure for Tanjung Pelepas.

There are also considerations such as trucking and additional transport costs for cargo diversions, as well as possible customs clearance issues, Krishna said.

"A return to normal trade patterns is increasingly unlikely during 2024 and diversions could potentially stretch out to 2025 and beyond," Jefferies' analysts said…It's also possible for container lines to start using alternate ports like those in Malaysia, although they will be limited by the capacity constraints in Tanjung Pelepas and Klang.

And given the shipping peak season has arrived earlier than usual this year, it is likely to end sooner, according to Jefferies. That means freight rates should start to ease by September, the analysts said.

"If the problem persists for some time, liners will adjust their schedules," said Drewry's Krishna. "Therefore, eventually congestion will not be there even if the Red Sea crisis persists."