Shipping Rates Take a Dip But Real Price Relief Still Distant

39
Credit: Ian Taylor/ unsplash

Prices in the most volatile segment of ocean shipping are collapsing, but top retailers like Walmart and Home Depot should not expect relief until the spring contract renegotiation season, industry experts said. 

Spot Rates Falling

Spot rates, which cover anywhere from 10% to 40% of ocean container shipments and are considered a key indicator of the industry’s health, are in free fall as recession looms and the pandemic-fueled U.S. import bubble deflates. The cost to send a container from Asia to the United States on the demand-sensitive spot market has tumbled more than 80% from its September peak above $20,000 for a 40-foot container, according to freight booking platform Freightos.

Major carriers like Mediterranean Shipping Co (MSC) and A.P. Moller-Maersk also is expecting delivery of hundreds of new container ships, which amplifies risk as carriers already have more ships than they need to handle shrinking demand. Nonetheless, top customers like Walmart, Home Depot and Amazon.com will not necessarily dictate terms during contract talks that typically happen around May, experts said. This is partly because shippers that move thousands of containers every year want predictable pricing.

Bottoming Out

Carriers raised rates and reaped record profits during the pandemic shipping surge due to a spike in demand for shipping services. Many carriers prioritized loads with higher spot rates and bumped containers from overbooked ships, leading to an increase in the use of the spot market. However, this trend began to shift toward the end of last year due to a drop in the import of retail goods such as furniture, appliances, and apparel.

The chief executive of container shipping company Ocean Network Express, Jeremy Nixon, said in December that short-term spot rates were “bottoming out.” Meanwhile, long-term contract rates finished 2022 about 20% lower than the pandemic peak of more than $8,000 per container, according to maritime consultancy Drewry, which expects contract rates to halve in 2023. That forecast would put rates at about $3,200, versus the pre-pandemic rate of around $1,500.

Did you subscribe to our daily newsletter?

It’s Free! Click here to Subscribe!

Source: Foxbusiness

 

LEAVE A REPLY

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