What goes up should come down. Regardless of many consultants saying we might by no means see pre-pandemic-level freight charges once more when the price of ocean delivery skyrocketed uncontrolled throughout and after the pandemic, these charges did lastly plummet again to earth. Whereas freight charges are not falling as quick as that they had been over the past yr, they’re nonetheless dropping.
Overcapacity is an enormous issue within the falling freight charges, so the unbelievable quantity of capability being added to the business proper now by means of new ships ought to proceed to place downward strain on freight charges for a while. Add to that financial uncertainty, and you’ve got low demand to go along with excessive capability, serving to freight charges to backside out.
However precisely the place that backside is, nobody is aware of. What we do know is freight charges are nonetheless sinking.
Indices Present Freight Charges Nonetheless Falling
Due to a Freight Waves article by Greg Miller, numerous freight price indices are compiled in a single place to make it simple for American shippers to see what’s taking place with freight charges at this second. For many who like information, you’ll love this from Miller’s article:
Completely different spot indexes publish totally different price assessments, however the directional tendencies are usually the identical.
The Freightos Baltic Every day Index (FBX) assessed spot charges within the China-West Coast lane at $1,040 per forty-foot equal unit on Friday, down 94% yr on yr (y/y) and down 30% versus March 2019, pre-COVID.
FBX put Friday’s China-East Coast price at $2,286 per FEU (minus-87% y/y, minus-17% versus pre-COVID).
In the meantime, the trans-Atlantic market continues to far outperform the trans-Pacific. FBX’s westbound Europe-East Coast evaluation was at $4,418 per FEU on Friday, down solely 36% y/y and up 89% versus March 2019.
The year-to-date (YTD) modifications present the tempo of price declines within the trans-Pacific has decelerated versus final yr, however charges are nonetheless headed decrease.
The FBX China-West Coast index price is down 25% YTD, China-East Coast 21% and Europe-East Coast 20%.
The Drewry World Container Index (WCI) assessed Shanghai-Los Angeles spot charges for the week ending Thursday at $1,948 per FEU.
That’s down 2% YTD, 82% y/y and — in distinction to what the FBX says — up 23% since March 2019, pre-pandemic.
The WCI assessed Shanghai-New York spot charges at $2,772 per FEU, down 29% YTD, 79% y/y and 1% versus March 2019.
The Shanghai Containerized Freight Index, which gauges spot ranges on all mainline routes from that Chinese language port, fell to 931 factors within the week ending Friday. That’s down 12% YTD and 66% y/y however nonetheless up 16% from March 2019.
Xeneta’s short-term index, the XSI-C, was at $1,259 per FEU for the Far East-U.S. West Coast lane as of Wednesday, down 4% week on week and 10% month on month.
The Platts index for North Asia-North America was unchanged within the week ending Friday. Sources advised Platts “volumes are too weak to make a dent in charges” and “margins are horrible.”
For these of you who don’t like information and jumped forward to right here, the indices help the opening of this publish. After large freight price falls in 2022, we’re seeing slower declines now. However we’re nonetheless seeing declines.
There’s one information level I omitted within the above as a result of how sturdy freight charges are on the delivery lane it covers appeared value separating out. Miller stories:
Within the still-strong Rotterdam, Netherlands-to-New York market, the WCI assessed spot charges at $5,573 per FEU, down 20% YTD and 14% y/y, however up 179% versus March 2019.
Like the opposite commerce lanes to the U.S., freight charges are shifting in a downward route for the Rotterdam, Netherlands-to-New York market. Not like the remainder, freight charges are nonetheless very excessive there in comparison with pre-pandemic ranges (I suppose that offers loads of room to maintain falling). Nonetheless, the final story stays the identical. Freight charges proceed to get decrease.
Risks of Freight Charges Falling Too Low
Total, information tales of low freight charges are constructive for shippers, who clearly want affordable charges that assist their companies make earnings. Nonetheless, rock-bottom charges can change into problematic for shippers.
When charges get too low for too lengthy, service reliability usually goes down. Blanked (cancelled) sailings are only the start of points that may make it laborious for shippers to rely on precisely when their cargo will arrive. Not solely does the danger of cargo being rolled to later sailings enhance, however carriers might make the most of transhipment extra to mix cargo from numerous ships and save prices, as was a deliberate technique carriers had for coping with the elevated value of the IMO’s clear gasoline mandate.
Cargo delays are sometimes very expensive for shippers. Blanked sailings are dangerous information on that entrance. Transhipments are normally worse. On prime of delays, cargo can journey by means of additional ports, additional nations, wait on docks for lengthy intervals earlier than being loaded to the subsequent ship… Transhipment provides threat, and infrequently shippers don’t know the place their cargo is.
Then there’s the danger of service competitors shrinking within the business, which I’ve talked about many instances in Common Cargo’s weblog. It makes rooting for rock-bottom freight charges look short-sighted, as the danger of buyouts, mergers, even chapter make freight charges more likely to be pushed increased within the lIdeally, shippers must be searching for stability within the ocean delivery market on the subject of freight charges. Wholesome charges which can be neither too excessive nor too low would enhance service reliability and permit shippers to higher financially put together for the long run. Sadly, stability has by no means been what the worldwide delivery business has been identified for.
Freight charges are likely to swing up and down, typically wildly. Sadly, service suffers and delays enhance when there are extremes on both finish of the spectrum, with extremely excessive freight charges or rock-bottom ones. We’re on the way in which to rock-bottom ones. No less than, shippers can reap the benefits of the decrease prices whereas they’re right here.