The spread between short and long-term ocean freight rates has soared, leaving the market in a standoff

March and April are critical months for ocean carriers looking to ink annual freight contracts with shippers, including the world's biggest retailers, but this year contract season is turning into a waiting game.

The $2,500 spread between spot market rates and long-term freight contract rates for Asia to U.S. West Coast containers has reached its highest level since September 2021, when the spread between short-term rates and the long-term rates was $2,900.

This has caused shippers to hit pause before signing on the dotted line, with ocean carriers looking to sign at the higher spot rates fueled by the Red Sea diversions, and shippers holding out for a steeper decline.

Ocean spot freight rates have tumbled for a sixth-consecutive week as the Shanghai Containerized Freight Index dropped by 6%. Ocean carriers were unable to push through a mid-March rate increase, and expectations of an April rate hike are fading amid soft demand.

Peter Sand, chief analyst at Xeneta, tells CNBC that shippers are waiting to see if the spread narrows and to strike a balance of how much they will buy on the spot market versus contract.

Before the Red Sea spike, ocean freight rates and contracts — which drive profits for the ocean carriers such as Hapag-Lloyd and Maersk — had dropped to as low as $1,342 for a 40-foot container in October. The impact of those lower freight rates were reflected in recent Q4 ocean carrier earnings.

The market is currently experiencing a significant mismatch between buyer and seller price expectations, in a demand-deficit environment, according to Christian Roeloffs, co-founder and CEO of container trading and leasing platform Container xChange. "There is a significant imbalance between supply and demand price