Ocean Shipping Rates Hit Two Year Low
Costs Continue to Descend from COVID Peaks
Since the pandemic turned the world upside down in March 2020, everyone has been anticipating and hoping for a return to normalcy. Now, there appears to be a light on the horizon. In a boon for shippers, and potentially consumers, long-term ocean shipping rates hit a two-year low in July.
Even better, this light is not a flash in the dark, but a continuing trend that has been steadily emerging for some time. While spot-rates are still subject to numerous evolving factors like gas prices, inflation, international diplomacy, and supply chain demand, long-term contracts are a much more consistent bellwether about the current status of the shipping industry.
Price Hunting Between Long-Term Contracts and Spot-Rates
A notable factor in the decrease in ocean shipping rates is the discrepancy between spot-rates and long-term contracts.
Simply put, when a shipper or freight forwarder wants to book cargo on a container ship, they will approach multiple carriers to see who can offer the best rate. The quote from the carrier will be locked in for a short period of time; long enough for the freight forwarding company to confirm details and logistics, but relatively short in the world of international shipping. This is why there can be more volatility in spot-rates, since they are determined closer to real time than long-term contracts.
Any company, regardless of size, can take advantage of the lower rates of long-term contracts through Sheltered International’s managed transportation service. This will ensure rates are valid for a longer period of time, typically one year, to cover your most important routes with space reserved each month.
Earlier this year, when spring contract negotiations stalled and general demand was weak due to inflation, shippers switched a much higher percentage of their business to spot-rates. However, following the conclusion of negotiations in late spring, industry experts are able to confirm that the decrease in long-term shipping rates is more than a passing trend. Additionally, delivery of new container ships is constantly increasing the volume available for shippers.
Will Consumers Feel a Difference?
Long-term contracts provide stronger value and stability, but they are only viable for companies with large volumes. This is part of the reason you won’t see massive price swings at retailers, even when shipping rates go on a roller coaster ride, as they have for the past several years.
This sentiment is echoed by Jason Miller, an associate professor at Michigan State University, who cautions, “the American consumer should not be expecting that this is going to lead to massive price relief. That’s just not going to happen.”
This feeling is exacerbated by the regular summer slowdown and inflation that has been hitting consumers hard. However, forecasters predict that inflation will actually be below the historical average in July 2023, down nearly 7% from its peak of 9.1% during the height of the pandemic. This is good news for businesses and consumers alike ahead of the holiday season, but similar to the stock market, costs will never go all the way down.
Shippers can be excited about this news regarding lower long-term ocean shipping rates. “There is a sense of payback-time in the market after the COVID years, where carriers have been in absolute control,” says Peter Sand, chief analyst of Xeneta.
Debate Amongst Experts on Outlook
As can be expected, shippers and carriers interpret the data differently.
“With continued macroeconomic uncertainty, evaporating trade volumes, and a wider sense of geopolitical flux, short-term industry forecasts do not suggest a return to profitability anytime soon,” says Patrik Berglund, CEO of Xenata. “Those with significant exposure to long-term contracts will increasingly feel the financial strain.”
The Journal of Commerce observes that the price of ocean rates over the last two years is correlated with increased congestion from COVID. A positive aspect for west coast ports like Los Angeles/Long Beach and Vancouver are able to ease congestion due to decreased volume. The possibility of lower rates are a necessary sacrifice for shippers hoping to find some stability. However, during this summer of unions flexing their muscles, the potential for a strike, such as we saw in Vancouver in July and the rumored UPS strike that did not materialize, linger in the background.
The only true certainty is continued volatility; therein lies the benefit of securing beneficial rates through long-term contracts. And, the current moment is the best opportunity for shippers that we have seen in some time.
SiShips Gives You the Advantage
SiShips combines expertise with state of the art software to bring you high quality domestic and international shipping solutions. We put the shipper in control, offering efficient and cost effective ways to ship your product.
To learn more about managed transportation with SiShips or to view a demo of our software, contact us today.
