Geopolitics & Container Shipping Rates

A container ship sailing from Taiwan to Shanghai travels roughly 600 nautical miles. The same ship sailing from Shanghai to Los Angeles travels roughly 5,700 miles. Even though the ship sailing to Los Angeles travels 9.5 times farther and incurs dramatically higher fuel cost than the travel to Taiwan. The most mind blowing fact about this is that even with these differences, long-term contract rates for these completely different trade routes are roughly the exact same. (roughly $2,000 per 40ft equivalent unit) Contract rates have surged for short-haul runs between China and Taiwan (since the beginning of this year), which can be attributed to geopolitical risk.

“It’s quite fascinating: $2,000 from China to Taiwan, the same as going across the biggest ocean in the world. One has to think about that…This situation [China-Taiwan rates] is very idiosyncratic … but we’re going to see a lot of this…”

Erik Devetak, chief product and data officer for Xeneta
China – Taiwan vs Japan

Highlighting the degree of recent moves in long-term rates, a comparison of two intra-Asia lanes when shown below:

“At the start of this year, the rates were basically equal. You were paying the same to Japan as you were to Taiwan. Now the two have moved in clearly quite different directions…The spread between them is increasing. It has increased to almost $750 [per FEU], which is about half the rate you’d be paying just to get into Japan. It’s not quite the same in the spot market…”

“The spot market spread is increasing, but not to this extent, largely due to the fact that this is a trade that is at the seat of geopolitical risk. When you’re looking at doing those long-term contracts, that risk is much heavier than it would be on the spot market with that shorter time scale where you’re more certain of how things are going to go.”

Emily Stausbell, Market Analyst at Xeneta

“There are risks of disruptions, from military exercises and so on. That risk is more of an unknown long-term risk, so the longer the contract, the more risk you’re taking. I think we are starting to see ocean carriers systematically take geopolitical risk into consideration when pricing long-term contracts. Going for a long-term contract into Taiwan, that carries risk. I also wonder how geopolitics will affect the length of the contract people are willing to take, because with a more uncertain world, in terms of geopolitics and therefore also indirectly in terms of supply chains, longer-term commitments potentially become less appealing to the supplier.”

Erik Devetak, chief product and data officer for Xeneta

During the COVID-era boom, widening spreads in freight rates between various port pairs were common. Now those same spreads are now shrinking. The current spread of Taiwan and China rates versus other pairs is a unique outlier underscoring the role of geopolitical risk.

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