Have You Placed Your Orders Yet? Shipping Costs Dropped
- Prices in the ocean shipping segments are collapsing.
The spot rates, which are the one-time fee that shippers have to pay to move a shipment, are one of the key indicators of Industry health. The main reason is that spot rates cover almost 40% of the container shipment cost. At the moment, spot rates are in free fall due to the looming fear of recession and the pandemic-fueled US bubble that deflated.
As per data revealed by a famous freight booking platform named Freightos, the cost of sending a container from Asia to the USA has tumbled more than 80%. This is in comparison to its September peak above $20,000 for a 40-foot container. Major carrier companies like the Moller-Maersk, and Mediterranean Shipping Co (MSC) is also expecting the delivery of hundreds of new container ships.
As per reports, many carriers are bracing for restricted South China cargo bookings because of the feeder/barge service stoppage. Maersk has claimed that it has many reliable alternatives that can ward off the challenges related to regional transshipment flows. In addition, Maersk has not placed any restrictions on bookings for the South China sea.
Peter Sand, the chief analyst at the air and ocean freight benchmarking platform Xeneta said there is a pay-back time in the market. This has been clear after the covid-19 pandemic. Looking at the current circumstances, the carriers have got absolute control. The worst part about this situation is that top-level consumers like Walmart, Home Depot, and Amazon will only be able to dictate the contract terms that will happen during May. This is because these shippers who need to move thousands of containers yearly may look for predictable pricing.
As per a shipping expert named John McCown, big shippers mostly move into the buying season after knowing the cost they have to incur for their freight. They don’t get interested in playing the spot market by shopping at a lesser price.
Maersk and other players in the carrier industry have told their investors that they will prop up the rates by canceling ships to match demand. They are also scrapping the small and old rust buckets so they can cut the overall capacity. Thus, most experts suggest that shoppers will suffer from a high price brunt for a longer duration.
Jason Miller, an associate professor of supply chain management at Michigan State University, said that American consumers should not expect these steps to lead to big price relief, as this will only happen for a while.
Bottomline
Most carrier companies have raised rates and benefited from huge profits during the Covid-19 pandemic. They could do this because of the surge in demand for shipping services. Most carrier companies have prioritized loads with high spot rates, and they used to bump containers from overbooked ships. This leads to an increase in the use of the spot market.
Furthermore, the trend shifted last year due to a decline in the importance of retail products such as appliances, apparel, and furniture. As per Jeremy Nixon, who is the Chief executive officer of a container shipping company named Ocean Network Express, the short-term spot rates were bottoming out.
In addition, the long-term contract rates of 2022 finished at a 20% low cost compared to the pandemic peak rate of $8000 per container. As per a consultancy named Drewry, the contract rates will be halved in 2023. If the forecasts are true, the rate will be put at about $3200, while the pre-pandemic rate was almost $1500.
Several factors support longer-term contract rates. Some of these factors include the Covid-19 outbreak, the Russia and Ukraine war, and a rise in labor costs. As per an interview given by Steve Schult, the vice president of almond farming cooperative Blue Diamond Growers, the contract rates won’t revisit the Pre-covid level. He said that the situation is similar to inflation.
It only goes some of the ways to where it was before. However, Indian exporters see a silver lining. After falling 17% year on year in October, Indian exports rebounded in November, reaching $32 billion, up from $31.8 billion the previous year.
Exports are now returning to positive territory. Moreover, challenges remain due to a slowdown in demand and increased inflation in major economies.
As the industry is reeling back from the effects of the pandemic, many are anticipating a drop in rates. Stay on top of the latest industry trends and be a part of this dynamic industry only with Coniferous.
