As Shipping Demand Declines, So Do The Freight Rates

66

  • The official expects further reductions later this year. 
  • Long-term rates to ship goods from China to the U.S. West Coast almost tripled between June 2021 and June 2022 to $7,981 per container, according to Xeneta, a Norway-based transportation data and procurement firm.
  • “Rates are going down but they are wiped out by fuel surcharges to carriers,” Mr Caplice said.

Although shippers are attempting to renegotiate contracts in an effort to reduce costs, prices are still significantly higher than they were prior to the Covid-19 outbreak as reported by The Wall Street Journal.

Wavering economy 

High-price freight contracts that were written when carrier capacity was tight and a rush to restock inventories was in full force are losing their shine as slowing demand and a wavering U.S. economy send shipping rates sliding.

Some companies now are renegotiating shipping agreements they struck at the height of the pandemic-driven surge in freight demand or are dipping into the spot market to take advantage of lower rates.

The reduction in transportation costs is good news for manufacturers and retailers after two years of rapidly rising expenses.

It also suggests the contribution of the freight sector to inflation is at least levelling off.

Freight specialists say different forces are driving down rates across ocean shipping and trucking, but softening demand is a common factor.

The lower rates are appearing first in spot markets and are helping to bring down longer-term contract rates.

Short-term rates

One official at a large U.S. importer said it recently reduced by 15% to 20% ocean contract rates signed several months ago.

The official expects further reductions later this year. 

Long-term rates to ship goods from China to the U.S. West Coast almost tripled between June 2021 and June 2022 to $7,981 per container, according to Xeneta, a Norway-based transportation data and procurement firm.

Short-term rates began to fall in March of this year and in June dropped below long-term rates.

Shippers aren’t having it entirely their way.

At the same time, container imports into the U.S. by volume remain strong and congestion at East Coast ports is increasing.

Import volumes decline 

The National Retail Federation in a report released Friday expects import volumes to decline compared with robust year-ago periods from August through November.

Trucking is also seeing a softening of demand.

But Chris Caplice, chief scientist at online freight marketplace DAT Solutions LLC, said truck rates are declining largely because of a shift away from the volatile spot market toward longer-term contract rates as truckers see more stability in their routes.

Fuel surcharges are currently costing shippers about 80 cents per mile. 

“We need to be looking at probably less than $10,000 to get anywhere close to the levels we were before and be competitive,” he said.

 

Did you subscribe to our daily Newsletter?

It’s Free! Click here to Subscribe

Source: The Wall Street Journal

LEAVE A REPLY

This site uses Akismet to reduce spam. Learn how your comment data is processed.