Freight Rates Decline After 17 Months of Surge

• After over 17 months of a continuous surge, freight rates on select global routes have started moderating since early October.
• It is due to an ease in traffic congestion and eventually container availability on those bilateral or multi-lateral operational routes.
• Port infrastructure has improved in the last few weeks on account of a sustained fall in the number of new Covid cases.

A recent published news article in the Polymer Update by Dilip Kumar Jha states that Global freight rates decline on select routes as traffic congestions ease.

The benchmark Baltic Dry Index

The benchmark Baltic Dry Index which measures movement of industrial commodities in bulk has reported 21 per cent decline in the last three weeks.

After hitting the highest level in 13 years at 5561 points on September 27, the benchmark Baltic Dry Index steadily plunged to 4410 points on October 22.

The Baltic Dry Index had set its lifetime record of 11482 in March 2008.

The Index fell by 5.2 per cent on Friday alone to hit its lowest level since September 21 and the steepest decline since January this year amid weakness in the capesize vessel segment.

Overall, the Baltic Dry Index witnessed a decline of 9.1 over the last week.

Source: Drewry Supply Chain Advisors

The decline in global freight rates

The decline in global freight rates will certainly prove to be a major relief to global consumers and also the policy makers as they were struggling to deal with the momentous growth in inflation worldwide since the coronavirus (Covid – 19) pandemic spread across the world in early 2020 and disrupted global logistics services on account of lockdowns caused by the pandemic. Since the freight rates contribute a large portion to commodity prices, the increase in logistics costs elevated commodities prices and hence the global inflation proportionately in the last 17 months.

“The dry bulk rates have eased a bit but continue to remain relatively high. These rates had gone up exorbitantly since the beginning of the Covid pandemic and have now started to correct. The dry bulk market will continue to remain strong in near future at least,” said Rahul Bhargava, Chief Operating Officer, Essar Shipping Ports & Logistics Ltd, to Polymerupdate.

Iron ore and coal cargos

While the capsize Index which tracks iron ore and coal cargos of 150,000 tonnes, plunged 10.3 per cent to 6205 points, the supramax Index fell by 40 points to 3584 points last week. The decline was seen after a sharp jump in global freight rates since early 2020. In the last one year, for example, the logistics costs between major bilateral or multi-lateral routes jumped between 150 and 600 per cent.

Meanwhile, port operations have not resumed to function normally despite a sustained fall in the number of new Covid cases. In the last three weeks, traffic congestions at major ports may have eased a bit, but logistics disruptions continue at major ports in China, Europe and the United States. In fact, port operators are cautiously opening new berths amid fear of a possible third Covid wave, signs of which have been noticed in parts of Europe.

Marginal decline in Drewry

The London-based data analytics firm Drewry meanwhile showed a marginal decline in its benchmark index. For the week ending October 21, 2021, the Composite World Container Index declined by 0.4 per cent to $9865.14 for a 40 feet container. The World Container Index compiled by Drewry’s posted a decline of 1 per cent in select routes in the first three weeks of October.

According to Drewry, spot freight rates declined by 1 per cent in October 2021 to quote at $1582 between Rotterdam and Shanghai route. The spot freight rate declined by 1 per cent each on the Shanghai – New York route and the Rotterdam – New York route to quote at $13,939 and $6157 respectively. On other routes, however, spot freight rates either remained steady or increased marginally depending upon the demand and supply of containers.

“Freight rates have not gone down on all routes. The decline in select routes was mostly seen on the outbound shipment from China as most of seasonal exports (for the
Christmas and the New Year) are already done. With this, China’s exports have slowed. So, the demand of container and logistics services has declined for outbound shipment and has hence fallen in the last three weeks. For outbound shipment from India, the freight rates remain steady, the same from Bangladesh though has gone up,” said Chintan Singhvi, Managing Partner, Pheonix Global Polymers LLP.

He further added, “Outbound and inbound shipment to India remained steady and shortage of empty containers continues.”

Shipment between India and China

Unfortunately, the shipment between India and China remained strained with the Chinese port authorities continuing to find excuses to delay Indian cargoes. The Chinese port authorities normally cite fear of Covid spread as a major reason for a compulsory 14-day of quarantine for the Indian shipping crews. Over and above this quarantine period, Indian ships are not entertained for an additional week to 10 days. This means, Indian ships seeking berth at Chinese ports take at least 22-25 days now as against 4-7 days in pre-Covid times.

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Source: Polymer Update

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