The global shipping industry is experiencing an Uber-style price explosion, just as transportation costs soar during the busiest times of the day when there are far more passengers than vehicles.

    According to an index compiled by shipping platform Freightos, shipping costs more than doubled after the Houthis fired missiles at ships bound for the Suez Canal, from about $1,200 per trip in 2023 to $3,400 in January. The index tracks spot prices for 40-foot containers on 12 major trade routes. Prices fell back in March and April, but since May have rebounded to $4,500, more than three times the pre-crisis level.

    On the face of it, the recent surge in shipping costs looks odd, with the traditional peak season for exporters to fill Christmas orders far off and, unlike in 2021, when rates soared to nearly $12,000 after the pandemic, there should be plenty of ships. In fact, the industry has struggled to absorb a record number of new ship orders in response to disruptions during the pandemic. According to AXSMarine analyst Jan Tiedemann, new container ship deliveries will add a record 2 million twenty-foot equivalent units (TEUs) of capacity in 2023. Another 3 million TEU will be added this year and another 2 million TEU in 2025.

    However, a series of opposing forces are driving up rates. One is a cyclical rebound in the world economy. Global manufacturing output accelerated in May and grew at its fastest year-on-year pace in 22 months, according to the S&P Global Purchasing Managers' Index (PMI). Coupled with major port strikes in Germany and France, the U.S. East Coast and Gulf of Mexico could also be affected, putting upward pressure on interest rates even without two other unusual factors.

    One of these unconventional drivers may be that exporters have been trying to speed up deliveries to avoid fears of increasingly protectionist trade policies. In May, US President Joe Biden announced that tariffs on $18 billion of Chinese goods, including electric vehicles, batteries, semiconductors, steel, solar cells and medical products, would be significantly increased.

    Some of the tariffs are expected to take effect as soon as August, according to analysts at CIB Research, a unit of Industrial Bank of China, a threat that has triggered a race to advance the loading of Chinese exports and stockpile for importers. The United States was the developed market with the largest increase in Chinese goods exports in May, official data showed.

    The trouble for exporters and importers is that geopolitical tensions could worsen. Us Allies such as the European Union are already under pressure to expand the scope of tariffs on Chinese electric vehicles. If Donald Trump is re-elected as the new president of the United States in November, he may do more. After all, he imposed tariffs on $300 billion of Chinese goods during his last term.

    The final piece of the puzzle is the Red Sea sealing itself. If Asian goods were destined for the Mediterranean and Europe, a voyage around Africa via the Cape of Good Hope would add two weeks to the journey, meaning more ships would be needed to maintain trade levels. According to AXSMarine, while 1 million TEUs of new vessels have come into service this year, the proportion of idle fleet is still down to 0.6%. That's the lowest level since February 2022 and well below the normal healthy level of around 3 percent.

    This is all very convenient for shipping companies whose profits are closely tied to freight rates. The more exposure they have to spot prices, the better. The $2 billion Israeli shipping company Star Line (ZIM.US), one of the first companies to divert from the Red Sea, has about 65 percent of its contracts on spot rates and its shares have risen more than 170 percent since mid-December. Denmark's Maersk Group rose by only 15%, and its spot contracts are usually only 35%. But given that fixed contracts are typically renegotiated twice a year, and shippers often impose temporary surcharges, Maersk is unlikely to miss out entirely on the windfall.

    The current demand inflation noise surrounding tariffs, economic recovery and port strikes is likely to die down later this year. But more than six months after the Houthi attack, shipping companies such as Hapag-Lloyd (HPGLY.US) have shown no sign of wanting to return to the Suez Canal. Freightos estimates that rates could rise as high as $9,000 on some routes in the coming months.