Why shipping demand falls and spot rates rise?

Why shipping demand falls and spot rates rise?

Demand for ocean shipping is traditionally measured in “ton-miles”: volumes multiplied by distance. So here’s the paradox: in 2022, the number of ton-miles for transportation has fallen, as most USA cargo is headed to Europe instead of going a long way to Asia. Yet spot rates for transportation have skyrocketed to $500,000 per day.

How is that possible?

This paradox was addressed at Marine Money’s New York ship finance forum. The answer, which provides an essential lesson in understanding demand across all shipping segments, is that it’s not about ton-miles.

Not ton-miles

There are two reasons spot rates have risen sharply despite falling ton-miles: the effect of time or “ton-days” (volume times the time of the voyage) and the impact of commodity prices on vessel availability.

When forecasting the balance of supply and demand, it’s not just about ton-miles. While this is an essential element, we also focus on the impact of time.

Freight demand is often perceived as the absolute amount of freight loaded and shipped. A shipping professional knows that a cargo crossing half the globe will create a greater demand for carrying capacity (i.e., ton-miles).

But while ton-miles are widely used in the shipping industry, one hidden drawback is that they need to account for waiting time. So it would be helpful to look at freight demand using ton-days.

The boom in rates in the spring of 2020 was fueled by floating storage, which significantly lengthened the time between loading and unloading. The increase in rates for larger carriers in 2021 was driven mainly by delays at Chinese ports, which increased ton-days. The surge in container rates from Asia to the West Coast in late 2021 was partly caused by delays in unloading at Los Angeles/Long Beach.

The same dynamics are now playing out in transportation.

There is a massive backlog of vessels in floating storage, especially in Europe and other countries. As of today, we are at an all-time high of approximately 40 boats tied up in floating storage, which is taking a lot of ships out of the general freight market, making the freight market exceptionally tight.


Spot shipping rates depend on commodity prices in at least two ways. First, it applies to ton-days if the forward price of the commodity is high enough compared to the current price (known as contango) to trigger floating storage. Second, arbitrage profits — the difference in price between one region and another — are incredibly high.

Influence of prices on goods on charter markets

The next factor in commodity prices — regional arbitrage gains — seems even more critical to today’s spot rates because of its impact on the long-haul charter market.

Vessels available for short-term operation are virtually nonexistent because they are all chartered long-term. These charterers only sometimes sublet their ships to the spot trade. The rate in any spot shipping market depends on how many containers are available for spot business.

Charterers hold on to cargo and do not sub-charter their vessels. They are more concerned with access to the load, focusing on the long-term than the spot market. So when we read about high spot rates, they don’t matter because there’s little liquidity.

In other words, charterers can make more money by capturing arbitrage profits from carrying their cargo than by short-term subletting their vessels to others. 

In 2021 and the first half of 2022, container ship owners decided to lease tonnage under historically profitable multi-year agreements. The liners agreed to pay exceptionally high rates for the extended duration. Virtually every vessel available for charter has been chartered.

Container ship owners preferred long-term deals to short-term deals, even though short-term rates were much higher. At the same time, liners did not sublease their chartered vessels, as they could earn much more by using the chartered ship to carry container cargo than they could achieve from subleasing.

This limited tonnage of containerships available for short-term, multi-month charters causes short-term charter rates for a few vessels to soar to $200,000 per day.


For shipping and containership leasing, focusing on long-term rather than short-term rates, make all shipping markets think less about ton-miles and more about ton-days, which cover not only the duration of the freight but also delays during loading and unloading.

Experienced specialists in the 3pl can optimize shipping. PartnerTrade offers logistics and warehouse services, favorable freight rates, and order processing by professional managers. 

In addition, we will provide you with the best route, depending on the cargo volume and the products’ dimensions. Outsourcing logistics will save you time and reduce financial costs.

Notify of
Inline Feedbacks
View all comments