Container Shipping 101: TEUs, Rates, and Routes

The Standard Box That Changed Everything

Before the 1950s, loading a cargo ship was slow, expensive, and dangerous. Longshoremen carried goods aboard by hand or crane, piece by piece. A ship might spend more time in port being loaded and unloaded than it spent at sea. Theft was routine. Breakage was expected. The cost of moving goods by ocean was high enough that it functioned as a natural trade barrier, protecting domestic manufacturers from foreign competition as effectively as any tariff.

Then a trucking executive from North Carolina named Malcom McLean had an idea: put the cargo in a standard-sized steel box, lift the box onto the ship, and never touch the goods inside. The first purpose-built container ship, the Ideal X, sailed from Newark to Houston in April 1956. The cost of loading cargo dropped from $5.86 per ton to $0.16 per ton. That single innovation did more to reshape the global economy than any trade agreement in history.

The box that McLean standardized is the basis of the unit that now measures all container shipping: the TEU, or Twenty-foot Equivalent Unit. A TEU is simply a container twenty feet long, eight feet wide, and eight and a half feet tall. It holds roughly 33 cubic meters of cargo, or about 21,600 kilograms at maximum load. In practice, most containers in service today are forty feet long -- counted as two TEUs, or one FEU (Forty-foot Equivalent Unit). When the shipping industry reports that a vessel carries 24,000 TEU, or that a port handled 40 million TEU last year, it is expressing volume in units of these standard boxes.

The TEU matters because it makes the entire global supply chain interoperable. A container loaded at a factory in Shenzhen fits on a truck chassis in China, a containership crossing the Pacific, a rail car in Los Angeles, and another truck chassis delivering to a warehouse in Ohio. No repacking. No intermediate handling. The goods inside might be furniture, auto parts, electronics, clothing, or canned food. The logistics system does not need to know. It moves boxes.

How Container Shipping Rates Work

Ocean freight rates are the price charged to move a container from one port to another. They are quoted per FEU (40-foot container) or per TEU, and they vary enormously depending on the trade lane, the carrier, the time of year, and market conditions. Understanding the rate structure requires knowing three distinct pricing mechanisms.

Spot Rates

The spot rate is the price for shipping a container on the next available sailing. It is the market-clearing price at a given moment, set by the balance of available vessel capacity against the volume of cargo seeking transport. Spot rates are volatile. During the COVID-era supply chain crisis of 2021, spot rates on the Shanghai-to-Los Angeles route exceeded $12,000 per FEU -- roughly eight times the pre-pandemic norm. By early 2023, they had collapsed back below $1,500.

The most widely followed spot rate benchmark is the Freightos Baltic Index (FBX), which aggregates rate data across twelve major trade lanes. The Drewry World Container Index provides a similar benchmark, updated weekly. Risk and Route tracks both indices as inputs to our freight cost models.

Contract Rates

Large shippers -- retailers like Walmart, manufacturers like Samsung -- do not pay spot rates. They negotiate annual or multi-year contracts with carriers, locking in a fixed price per container for guaranteed volume. Contract rates are typically lower than spot rates during periods of tight capacity (because the shipper committed volume in advance) but higher than spot rates during periods of overcapacity (because the carrier locked in revenue before the market softened).

Contract rates tend to lag spot rates by three to six months. When spot rates spike due to a crisis, contract rates do not move immediately. But when contracts come up for renewal, the new rates reflect whatever the spot market was doing in the months prior. This lag is one reason shipping disruptions take time to reach consumer prices: most goods move under contracts that were set before the disruption began.

FAK Rates

FAK stands for Freight All Kinds. It is a single rate charged regardless of what the container holds. FAK rates are common on high-volume trade lanes where carriers want to simplify pricing and fill ships quickly. The alternative is commodity-specific rates, where hazardous materials, refrigerated cargo, or oversized items carry surcharges. FAK pricing is one reason that a container of flat-screen televisions and a container of plastic toys might move at the same cost per box, even though their value differs by an order of magnitude.

Major Container Trade Lanes

Global container traffic concentrates on a handful of routes that connect manufacturing centers to consumer markets. Three trade lanes dominate.

Asia to Europe

The busiest long-haul container route in the world runs from Chinese and Southeast Asian ports -- Shanghai, Ningbo-Zhoushan, Shenzhen, Singapore -- to Northern European ports like Rotterdam, Hamburg, Antwerp, and Felixstowe. This route passes through the Strait of Malacca, across the Indian Ocean, and through the Suez Canal into the Mediterranean. The full transit takes roughly 30 to 35 days. Since the Houthi disruptions in the Red Sea began in late 2023, many carriers have rerouted around the Cape of Good Hope, adding 10 to 14 days and roughly $1 million in fuel costs per voyage to the transit.

Transpacific (Asia to US West Coast)

The second major lane connects East Asian manufacturing to the United States via the Pacific Ocean, with primary destinations at the ports of Los Angeles, Long Beach, Oakland, and Tacoma. Transit time is 12 to 18 days, making it the fastest Asia-to-US corridor. This route carries the bulk of US consumer electronics, apparel, furniture, and household goods imports. It does not pass through any chokepoint -- it crosses open ocean -- but it is sensitive to port congestion, labor disputes, and Pacific weather patterns. The 2021 port congestion crisis, when dozens of container ships anchored off Los Angeles waiting weeks for berth space, was a transpacific problem.

Asia to US East Coast

Container traffic to US East Coast ports -- Savannah, New York/New Jersey, Charleston, Norfolk -- takes two possible routes. The shorter path runs through the Suez Canal and across the Atlantic, a voyage of roughly 30 to 35 days. The alternative transits the Panama Canal from the Pacific side, taking 20 to 25 days. Both routes pass through a major chokepoint, which means this trade lane is doubly exposed to disruption risk. The 2023-24 Panama Canal drought restrictions and the simultaneous Red Sea crisis forced East Coast importers to compete for shrinking capacity on both corridors simultaneously.

The Carriers: Who Moves the Boxes

Container shipping is an oligopoly. A small number of carriers control the vast majority of global capacity, and they coordinate through three major vessel-sharing alliances. Understanding who these companies are, and how they cooperate, is necessary for understanding how rates behave.

MSC (Mediterranean Shipping Company) is the world's largest container carrier by capacity, operating roughly 800 vessels with a combined capacity exceeding 5.5 million TEU. MSC is privately held and based in Geneva, Switzerland. It has grown aggressively through secondhand vessel acquisitions and massive newbuild orders.

Maersk, the Danish conglomerate, was the world's largest carrier for decades until MSC overtook it in 2022. Maersk operates about 700 vessels and has pivoted toward integrated logistics, acquiring companies across warehousing, freight forwarding, and customs brokerage to become an end-to-end supply chain provider rather than a pure shipping line.

CMA CGM, based in Marseille, is the third-largest carrier and the largest in France. It operates roughly 600 vessels and has diversified into air freight, logistics, and media. Like Maersk, CMA CGM has invested heavily in LNG-powered vessels as part of a decarbonization strategy.

COSCO Shipping, the Chinese state-owned carrier, is the fourth-largest. COSCO's strategic importance extends beyond commercial shipping: it is the logistical backbone of China's export economy and a key participant in the Belt and Road Initiative's maritime component. COSCO operates major terminal investments in ports from Piraeus (Greece) to Abu Dhabi to Peru.

Hapag-Lloyd, the German carrier, rounds out the top five. Smaller than the four above but significant on the transatlantic and Latin American routes, Hapag-Lloyd is known for maintaining premium service levels and relatively consistent pricing.

These five carriers, together with a handful of others (Evergreen, ONE, HMM, Yang Ming, ZIM), operate within alliance structures -- 2M (Maersk + MSC, dissolving in 2025), Ocean Alliance (CMA CGM, COSCO, Evergreen), and THE Alliance (Hapag-Lloyd, ONE, HMM, Yang Ming). Alliances allow carriers to share vessel capacity on major routes, reducing costs and maintaining service frequency. Critics argue they also reduce competition and give carriers collective pricing power. The World Shipping Council, the industry's primary trade association, defends alliances as necessary for maintaining reliable global service networks.

From Ocean Freight to Checkout Counter

A common objection to worrying about container shipping rates is that ocean freight is a tiny fraction of a product's retail price. This is correct in isolation and misleading as an economic argument.

Consider a 40-foot container of consumer electronics shipped from Shenzhen to Los Angeles. At a spot rate of $2,500 per FEU, the container might hold $500,000 worth of goods at retail value. The ocean freight component is 0.5% of the goods' value. Even if rates tripled to $7,500, the transport cost would still be only 1.5% of retail value. For high-value goods, the rate barely matters.

But now consider a container of canned goods, bottled water, or cheap furniture. That same 40-foot container might hold $30,000 worth of goods at retail. At $2,500, freight is 8.3% of value. At $7,500, it is 25%. For low-value, high-volume goods -- exactly the goods that fill most grocery stores and big-box retailers -- container rates are a material input cost.

The transmission mechanism runs through several channels. First, the direct cost: importers pay more per container and pass a portion to retailers, who pass a portion to consumers. Second, the capacity effect: when rates spike, it usually means capacity is tight, which means delivery times lengthen, which means retailers hold more inventory, which means working capital costs rise. Third, the expectations channel: when shippers see rates rising, they frontload orders to lock in current prices, which tightens capacity further and accelerates the rate increase. These feedback loops are why container rate spikes tend to overshoot and then collapse -- the market moves on fear and hoarding, not just on physical constraints.

The Rate Environment: Crises and Cycles

Container shipping rates follow a boom-bust pattern driven by the mismatch between vessel supply (which adjusts slowly, because ships take two to three years to build) and cargo demand (which can shift within weeks based on economic conditions, trade policy, or disruptions). This structural mismatch produces pronounced cycles.

The pre-pandemic baseline on the Shanghai-to-Los Angeles route was roughly $1,500 per FEU. COVID drove rates above $12,000 by September 2021 as surging consumer demand collided with port closures, labor shortages, and container equipment imbalances. Rates collapsed through 2022 and into early 2023, briefly touching $1,200 as demand weakened and new vessel deliveries began to absorb excess demand.

Then came the Red Sea crisis. Houthi attacks on commercial shipping beginning in November 2023 forced carriers to reroute around Africa, removing effective capacity from the market (the same number of ships, but each voyage takes longer, so fewer round trips per year). Spot rates on Asia-Europe doubled. Rates on Asia-US East Coast, which depends on the Suez Canal or the simultaneously constrained Panama Canal, surged as well. By mid-2024, the FBX global average had climbed back above $4,000.

As of early 2026, rates have partially normalized but remain above pre-2020 levels on most routes. The Red Sea rerouting has become semi-permanent. A massive wave of newbuild vessel deliveries -- ordered during the COVID boom -- is adding capacity, putting downward pressure on rates. But tariff escalation between the US and China has reshaped booking patterns, with front-loading ahead of tariff deadlines creating artificial demand spikes followed by sharp pullbacks.

For consumers, the practical implication is that the era of negligibly cheap ocean freight may be over. Between geopolitical disruption, decarbonization costs (low-sulfur fuel regulations, LNG conversions), and the structural unwinding of alliance efficiencies, the floor on container rates is likely higher than it was in the 2010s. That does not mean hyperinflation in shipping costs. It means a modest, persistent upward shift in the baseline cost of moving goods by sea -- a shift that compounds across the millions of containers that carry the consumer economy.