Drewry intra-Asia index snaps six-week record run: $1,503 per 40ft, still 209% up YoY

The Analysis

A one percent dip after six straight weeks of records, and my reaction was not relief. Drewry's Intra-Asia Container Index came in at 1,503 dollars per 40ft box on 8 October, down 1 percent, and that ends the record run. The number that actually made me sit up is a different comparison: rates went flat through Golden Week this year, against a 12 percent fall in the same week a year ago. When the week that is supposed to be weak refuses to be weak, it tells you the tightness is not coming from demand.

Let me put the figures out first and then tell you what I make of them. The index is 1,503 dollars per 40ft box, down 1 percent on the week. Shanghai to Laem Chabang fell 3 percent to 1,690. Shanghai to Manila fell 3 percent to 1,027. Shanghai to Yokohama fell 3 percent to 1,052. The Singapore and Tanjung Pelepas legs went the other way, up 2 percent each to 2,123 and 2,100. Shanghai to Jebel Ali did not move at all, holding at 8,662. Average berth waiting time in Week 40 was 74 hours at Shanghai and 58 hours at Ningbo. And the index is still 209 percent above where it sat a year ago. That is the news. Everything after this is interpretation.

I do not want you to read the 1 percent as a turning point. Six consecutive weeks of records means one week had to stop the streak sooner or later, and a single point is not even noise. It can be nothing more than a couple of carriers shifting a mid-week promotion by a day. The signal comes in week two and week three. If the next two weeks keep sliding and it is the same lanes doing the sliding, that is a direction. If the following week ticks back up, then this 1 percent was the market catching its breath. What I am doing with it is logging it, not rebuilding a fourth-quarter budget on it. Anyone who has done this a while knows the most expensive mistakes get made in the first week something looks cheaper, because everyone has been waiting for a line pointing down and the hand gets itchy.

For what it is worth, here is the shape I look for before I call a top. Three consecutive down weeks is the minimum, and the size of the fall has to widen rather than narrow, because a market that is genuinely loosening accelerates: 1 percent, then 3 percent, then 5 percent, with more lanes joining each week. Alongside that, the queues have to shorten. Rate and berth time move together in this market, and when they stop moving together you are usually looking at a paper move rather than a physical one. Anything less than that, and I treat it as a week.

The Golden Week comparison is the hard information here. Chinese factories shut over the holiday, volume drops, and intra-Asia rates have always softened in that week. Last year they fell 12 percent. This year they went flat. There is only one reading of that: the tightness is not being held up by demand, it is being held up by a shortage of effective capacity. Even with the seasonal volume out of the market, the space did not come back. What that means for you is blunt. Do not plan to buy cheap space off the back of a seasonal lull, because that trick is not working this year. If your fourth-quarter sourcing plan has a line in it saying we will negotiate in the November dip, cross it out.

Take the 209 percent year-on-year figure and hold it against your own budget, because this is where the real damage is. Up 209 percent means the index is 3.09 times where it was, which puts last year's level at roughly 486 dollars a 40ft box. So on the same lane, for the same box, you are paying about 1,017 dollars more than you were twelve months ago. Assume 40 boxes a month and that is 40,680 dollars a month, or close to 488,000 dollars across a year. That is not freight going up. That is your whole cost structure moving up a step. I have watched far too many companies run the year on last year's rate basis and then get surprised once a month in the variance meeting, and then not change the basis. If the model sitting in your finance team's spreadsheet still carries last year's number, that sheet has been wrong for ten months.

There is a second-order effect of that gap that hits your selling prices rather than your costs. If you quoted a customer in March at a freight assumption of somewhere near 486 dollars a box and you are now paying something near the index level, the difference of roughly 1,017 dollars a box is sitting inside your own margin, not in a freight line anyone is looking at. Assume 40 boxes a month and that is about 40,680 dollars a month of quiet leakage. The fix is not to go and renegotiate every contract you have, because most of them will not let you.

The fix is to shorten the validity window on every new quotation you issue from here, to something like 14 days rather than 90, and to put the freight basis and the date of that basis on the face of the quotation so that the next re-quote is mechanical rather than emotional. I have watched companies lose an entire year of gross margin this way, and the post-mortem always reveals the same thing: nobody had put a date next to the freight number.

The split between the lanes has something in it as well. Three Southeast Asia lanes all fell 3 percent together: Laem Chabang at 1,690, Manila at 1,027, Yokohama at 1,052, all heading the same way. Singapore and Tanjung Pelepas went up 2 percent, to 2,123 and 2,100. That is not random. Singapore and Tanjung Pelepas are transhipment hubs. When hub lanes rise while direct Southeast Asia lanes fall, it usually means one thing: mainline carriers are pulling space back onto their hub networks, and the hub leg is getting more expensive.

That lines up with what Maersk and Hapag-Lloyd have been doing to the Gemini network. The concrete consequence for you is this: if your cargo moves into Southeast Asia by transhipment, you are paying the hub price, not the direct price, and the hub price is still climbing. So the inference that a falling index means your lane is getting cheaper may simply not hold, and which side you are on depends on whether you ship direct or through a hub.

If you are on the hub side of that split, there is a specific question to put to your carrier this week. Ask whether the cargo you move into Southeast Asia can be booked on a direct sailing rather than through Singapore or Tanjung Pelepas, and ask what the direct option costs and how long it takes. Direct is not automatically better, because direct services on the thinner lanes can be weekly at best and the vessel may be smaller, so you may trade a lower rate for a worse frequency. But you cannot make that trade-off without the two numbers side by side, and most shippers I meet have never actually asked. The other thing to check is whether your current routing still matches what you are being charged for, because I regularly find cargo billed on a hub routing that has quietly been moved onto a direct service, with the price never revised.

Berth waiting time is the other half of the answer, and it is the half I weight more heavily. Average wait in Week 40 was 74 hours at Shanghai, 58 hours at Ningbo. Seventy-four hours is 3.1 days, fifty-eight is 2.4 days. A Shanghai to Laem Chabang sailing runs about five days at sea. Do that arithmetic and the ship is waiting outside the port for nearly as long as it spends actually steaming. A ship waiting is capacity disappearing, and it is the least controllable kind of disappearing, because you cannot book it, forecast it or claim for it. That is the physical reason the rate will not come down. The capacity is not being eaten by demand. It is being eaten by the queue.

You can measure this in your own book without waiting for Drewry to publish, and I would rather you did. Take your last twenty shipments out of Shanghai and compare the berth date against the berth date the carrier gave you at booking. If the slippage is running beyond about two days, your transit assumptions are wrong by that much, and every promise your customer service team has made off those assumptions is wrong by the same amount. Twenty shipments is a small sample but it is your sample, and it beats a regional average you cannot act on. Once you have the number, add it to the transit time in your quotation templates as a stated planning allowance rather than leaving it as a surprise that lands on someone's desk in week six.

There is also a cash angle to the queue that most finance teams never see. If a shipment sits 74 hours at Shanghai before it even starts moving, and your terms are against bill of lading date rather than against arrival, then those three days sit between you and your money as well as between you and your cargo. Assume 40 boxes a month, assume 80,000 dollars of cargo value a box, and assume 8 percent annualised cost of capital: three days on 3.2 million dollars of goods in transit is roughly 2,100 dollars a month, or about 25,000 dollars a year. That is real money, it is invisible on the freight invoice, and the only way to get it back is to shorten the queue or change the payment terms, not to negotiate the rate.

Put those two together and you can see why the 1 percent leaves me cold. Rates are set by available space. Berth queues take a bite out of available space, hub network redesign moves another slice somewhere else, and whatever is left is what gets quoted. Seasonal demand fell away, available space did not come back, and the price sat still. So when I try to work out where this goes next, I am not looking at that one point on the index. I am looking at two things: the berth hours at Shanghai and Ningbo, and whether the hub legs are still rising. Berth hours coming down is the real loosening signal, and it shows up two or three weeks before the rate does.

Let me do the money in a way you can use directly. Assume you ship 40 boxes a month out of Shanghai to Laem Chabang at 1,690 dollars. This week's 3 percent fall saves you 50.70 dollars a box, which is 2,028 dollars a month across 40 boxes. That is close to invisible on a P and L. Now look at what the congestion costs you over the same quarter. Assume a shipment sits two extra days on average because of berth waiting, assume the cargo value is 80,000 dollars a box, and assume your cost of capital is 8 percent a year. Forty boxes held two days is roughly 1,400 dollars. Sit with that comparison for a second: what you gain from the rate falling can easily be less than what the queue is taking out of your cash. That is why I keep telling customers to stop watching the index and start counting how many days their boxes are standing still.

On what you should actually do now, this is my order of priority. Go through your fourth-quarter contracts that are not locked yet, and any that were built on last year's basis gets the basis rebuilt this week, from roughly 486 to the 1,500 level. On Shanghai versus Ningbo, you now have a concrete reason to choose: 58 hours against 74 hours is a 16-hour gap, close to 0.7 of a day. If a shipment is tight on delivery and the drayage cost from your factory to either port is similar, that 0.7 of a day is free money and you should take it.

Push your booking lead time out from two weeks to three or four, because at a port with a three-day berth queue, one late day can cost you a whole sailing. And here is the one everybody forgets: go and read your demurrage and detention clause and find out whether berth waiting counts as carrier exception. In almost every contract it does, which means the days your boxes sit while the ship queues are your days, not the carrier's. Sorting that out is worth far more than grinding 50 dollars a box out of a forwarder.

Let me also be clear about the traps. The easiest one is treating the index as the price of your own lane. This index is a basket of intra-Asia lanes, and your Shanghai to Manila move is one component of it. It happened to move in line this week, but it does not have to, and your quote comes off your lane, not off the basket. The second trap is seeing Shanghai to Jebel Ali at 8,662 and assuming the Gulf market works like the intra-Asia market.

Those are two different markets. The Gulf number is high because of diversions and war-risk cover, the logic is not the same, and mixing them up in a negotiation will cost you credibility. The third trap is cutting safety stock while the price is flat. Flat is not loose. Seventy-four hours of berth waiting says boxes are still tight in rotation, and if you cut stock now and the queue jumps another few hours, what breaks is your production line, not your freight budget.

One more thing on negotiating posture, because it is the question I get asked most when a market looks like it might be rolling over. Do not rush to sign a twelve-month fixed rate at 209 percent above last year just because you are frightened of it going higher, and do not sit entirely in spot because you are convinced it is about to break. The structure I prefer at this point in a cycle is a twelve-month volume commitment with a quarterly rate review tied to a published index, with a collar: a floor below which the rate will not fall and a ceiling above which it will not rise, usually set at plus or minus 15 percent around the start rate.

You give up some upside if the market collapses and you give up some downside protection if it doubles again, and in exchange you get a number your finance team can plan on. Carriers will agree to this when they think the market is near a peak, and their willingness to agree to it is itself information about where they think the peak is.

And if you are planning stock into the first quarter of next year rather than just the fourth, the flat holiday week changes that answer too. A market that will not soften in its weakest seasonal week is unlikely to soften much in January, which means building inventory ahead of Chinese New Year is going to be expensive on freight and expensive on the queue at the same time. Assume a six to eight week cycle from booking to shelf, work back from the date the goods have to be on the shelf, and do that arithmetic today, because the binding constraint this time is the cycle time and not the rate.

Where I land on the next few weeks is simple enough. That 1 percent does not count. The flat week is the real news. Being 209 percent up year on year tells you that every quote, every budget and every price you built this year off last year's freight is too low. When rates genuinely come down, berth hours will tell you first, not the index. Until that signal shows up, the useful work is not waiting. It is correcting your cost basis, lengthening your booking lead time, and putting the cost of inventory sitting through a berth queue into your unit price. None of those cost you a dollar in freight, and each one is worth more than hoping for a fall that has not arrived. That is the order I am running with my own customers, and the index column stays where it is, watched and untouched.

↑ Back to the key points

— By Leo