Where Are Ocean Shipping Rates Heading?

Credits: Ojas Narappanawar/ Pexels
  • The record-high ocean freight costs seen during the pandemic are unlikely to come back.
  •  There’s a downward trend in the rates due to both an excess of ships and the slow recovery of the global economy.
  • Furthermore, environmental legislations and the need for investments in Brazilian ports are some of the challenges for major global shipowners to balance costs and profitability. 

When people stayed at home back in 2020, 2021 and part of 2022, global trade surged. This ushered in a shock between the supply of available ships and containers and the consumer demand for goods transported by those ships and containers. As a result, consulting firm Solve Shipping managing director Leandro Barreto said, ocean freight became the sole tool to separate those who would and those who wouldn’t ship their orders. 

Crisis And Stability

Since the end of the pandemic, freight prices plunged to levels that now threaten the financial results of shipowners. The reasons, Lorimer said, are various: war in Ukraine and a large number of new ships coming into operation, ordered during the pandemic’s price surge. To balance costs and profits, shipowners have even decommissioned vessels to reduce the supply, thus pushing up freight costs. Lorimer says a small cost increase is expected to take place as the end of the year approaches, since the Christmas orders, which are concentrated from August to October, raise the demand for container ships and ocean freight costs.

Prices are expected to return to lower levels in the following years. “This large number of new ships coming into operation puts pressure on the freight, which is expected to continue. But the global economy has started showing more positive news, and we may see growth in 2024. Therefore, costs are forecasted to be similar to pre-pandemic levels, with a steady growth and freights from USD 1,500 to USD 3,000. But that’s the expectation for the following two or three years, as we can’t imagine much further,” he said.

Challenges And Opportunities

The ships that have started arriving to the shipowners’ fleets are larger than those currently in operation. They transport over 20,000 TEUs (1 TEU equals a 20-feet container), while Brazil currently have docked smaller ships, which will be substituted by the larger, more efficient ones. But the largest vessels around the world have nowhere to dock in Brazil as the depth of Brazilian ports doesn’t support the largest ships in operation yet. This overburdens the shipowner but particularly those paying for the freight. Ignácio points out that goods imported from the East to Brazil leave the Asian ports in large container ships that stop in European ports and then transfer this load to smaller ships.

Mello of PUC-SP also says that “a smaller infrastructure becomes more costly.” “Whether it’s because of a lack of throughput becomes a bottleneck, thus incurring in an overcharge, or because port costs need to be funded. Looking at the current projects and the future of Brazilian infrastructure, Barreto believes there’ll be an alternative to what’s available now what would be ideal, when comparing it to the world’s leading ports. “I believe that the establishment of regional mini hubs from North to South Brazil are the most likely thing to happen, with both the Northeast and South ports being able to dock and handle some 1 to 2 million TEUs, and the rest remaining with Santos,” he said.

Arab Countries

Brazil has direct shipping late to the Arab countries for bulk carriers, particularly from Brazil, and oil tankers from the Middle East states. According to data from Datamar, year to date through February Brazil exported to the Middle East and North Africa 37,7000 TEUs, down 8.1% from a year earlier. The leading products exported via ports were meats (accounting for 57%), followed by timber; cotton; coffee, tea, mate and spices; vegetable products; tobacco; and paper. Top importers were the United Arab Emirates, Saudi Arabia, Turkey (which isn’t Arab), Egypt, Iraq, Israel (which isn’t Arab either), and Jordan.

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Source: HellenicShipping