Why are ocean container rates falling?

The cost of a shipping container from China to northern Europe fell by over 60% during the past 12 months.

 

A sharp reversal in ocean freight rates

Back in 2021, freight rates increased 10-fold as supply chain disruptions, port backlogs and a surge in cargo left retailers and importers scrambling for container space on container ships. As it stands today, the market demands are very different, a looming global recession, surging energy prices fanned by war in Ukraine and rampant inflation, are all combining to drive down the market. The forecast is that shipping rates are set to continue to ease into 2023 - and according to analysts, only rise marginally in 2024.

 

Excess inventories and improvement in transit times

So what’s caused this change in pricing' The confused and often unpredictable market conditions of the past two years have influenced purchasing decision timings. This in turn has added to the unpredictability of seasonal purchases, with retailers trying to anticipate transit times to compensate. What’s been surprising is the speed in which both the availability and significantly improved transit times have all contributed to the price drops.

The Loadstar quoted a UK carrier as saying:

“Other than at the start of the pandemic, I can’t recall another time when the market has turned so quickly, and it looks like it will get a whole lot worse before it gets better,”

 

The main reason for the drop is “demand” which is related to the buying decisions born out of the desire to combat the experience of previous years. However, there are 3 things which have impacted on the sea container shipping prices more significantly:

  1. China is in a mess with these rolling Covid closures interrupting manufacturing and as a result they are experiencing the lowest growth in memory.
  2. There is a global downturn in demand due to inflation, it is surprising what happens to the market if 5%+ demand is missing.
  3. Alternative sourcing, moving away from dependency on China, quite small but every 1% has an impact.

 

 

However tactical cancellations could put your shipment at risk

 

Given history often repeats itself, it’s thought that in an attempt to prop up prices, carriers are possibly sailing with empty vessels. Alternatively, carriers are doing what’s called tactical canceled sailings so they can match the vessel space with orders, which they hope will stop the decline in prices.

Whatever your view on the current market rates, it's always worth working with a reputable freight forwarder like Spatial Global - as our relationships can help us navigate the risks and pitfalls - and minimise your potential exposure.



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