Are Ocean Freight Rates Falling?

Are Ocean Freight Rates Falling?

2022 Jul 20

"Shipping rates are finally down!" is a headline that importers and exporters long to see. Who wouldn't be excited to see a drop in freight rates? So far, 2022 has experienced significant changes in the shipping rates. The changes have been quite positive.

From the predictions made, worse was expected for this year. Some experts had predicted that the shipping rates would keep rising, but as the nature of the shipping market is, no prediction is very accurate. The shipping market is very volatile as the rates are easily affected by any change in the world.

In 2020 and 2021, the shipping prices soared to sky-high levels. This is due to the pandemic (the Coronavirus) that, in truth, hit the world very hard. This pandemic resulted in lockdowns all over the world, thus disrupting the day to day norms in many sectors. The shipping industry was no exception as it faced challenging times. Shipping processes had to be halted due to the lockdowns causing discrepancies in the supply chain. So, what is expected when the shipping industry is hit with such hardship? The shipping rates definitely skyrocketed.

Apparently, the Covid-19 pandemic is not the only reason for the rise in shipping rates. In March 2021, there was an obstruction at the Suez Canal. This happened due to the grounding of a 20000 container ship (Ever Given). With about 12% of global trade, the Suez Canal is a major trading route, and the blockage caused an impact on the global trade. Many container ships use that route. Therefore, there was a traffic jam as they could not pass to the other side. This resulted in the disruption of the supply chain hence increasing freight rates. 

From what happened over the past two years, it is clear that any occurrence can easily change the shipping rates. These occurrences are, most of the time, unexpected. 

Are Ocean Freight Rates Falling in 2022?

Over the seven months into 2022, the shipping industry has experienced significant changes in freight rates. At the beginning of the year, the ocean freight rates were very high, but from March, a drop was experienced. 

Comparing 2022 to 2020 and 2021, the current shipping rates are way lower than they were for the two years. Comparing 2022 to 2019, the current shipping rates are higher. Well, it is safe to state that the shipping prices have declined. However, the prices are not yet at the pre-pandemic levels. 

Why are Freight Rates Declining?

Two main factors have contributed to the falling container shipping rates. These factors are:

  • The Ukraine-Russia war
  • Lockdowns in China

These factors have reduced the number of shipping containers in use, thus eliminating container shortages. Container shortage is one of the factors that caused high shipping rates. So, the shipping rates have gone down since the containers can be easily accessed. The Ukraine-Russia war and lockdowns have minimized shipping operations. This means that port congestion has been reduced. Well, the congestion is still there, but it has diminished. Port congestion results in delays which further results in higher shipping costs.

Ocean Freight Market Update 2022

On average, the shipping rates from China to the United States dropped by 13% in June.

Shipping prices from China, or Asia in general, to the West Coast of the United States dropped by more than 50%. 

Shipping rates for north Europe have declined 30% since the beginning of the year.

From China to the West Coast of the United States, the freight rates have dropped by 50%.

From Asia to North Europe, the freight rates have dropped by 30%. Since May, the rates have been stable, probably due to the aggravating congestion at the European hubs.

Ocean Freight Rates Forecast 2022

In the first half of 2022, freight rates have gone down. So, what will happen to the shipping rates for the rest of 2022? Will the rates keep falling? Will they rise? Or will they remain stagnant?

According to the IHS Market, ocean freight rates in the second half of 2022 will drop to per average of $6000-$7000 per box (FEU). This is a decline of 20% to 30%.

Some of the changes that are expected in the second half of 2022 include the following:

  • Supply chain: The supply chain is expected to be more sustainable.
  • Shipping spots to increase: Finding space on a shipping container since 2020 has been very hard. For the remaining part of 2022, the shipping spots are expected to be more, and shippers will not struggle much to get space.
  • Availability of shipping containers: FCL shippers have also been facing hard times in finding containers to hire. This is expected to change with an increase of 2-3%.
  • High fuel prices: It is expected that the fuel prices will increase. The Russia-Ukraine war is one of the factors that has led to the rise in fuel prices. 
  • Shortage of staff: Some areas of the supply chain are experiencing many vacancies. The professionals required include truck drivers, warehouse managers, and warehouse operatives.
  • More ships: The global fleet is expected to increase by 4.5%, with many container ships set to debut. 
  • Port congestion: Port congestion is set to continue since shipping demand is increasing. 

What are the Current Ocean Freight Rates?

Common Ocean Freight Charges

In your ocean freight quote, you will have the following charges:

  • Container freight station charges: This is the fee for the service where your freight is taken for consolidation and deconsolidation. These charges are made based on the size of your cargo.
  • Terminal handling charges: This is the fee paid to terminal operators for the services they provide at the port: storage, stacking, positioning, handling, and maintenance of equipment
  • Customs brokerage fee: This is the fee paid to customs brokers for their services: customs clearance, delivery of goods, facilitating issues with international shipping, etc.
  • Pickup and delivery: This is the transportation fee from the warehouse to the loading port and from the delivery port to the final destination.
  • Insurance fee: During transit, your shipment is prone to pilferage, loss, and damage. Getting insurance will ensure you do not experience losses in such cases.
  • Accessorial charges: These are charges made for extra services provided by the carrier. They include the fees for handling hazardous materials, fuel surcharges, and storage.

Ocean Freight Rates

The volume and weight of your shipment are calculated when determining shipping rates. Sometimes your shipment can weigh more and be very small, or it can weigh less and be very large. For this reason, both its weight and volume matter. For ocean freight rates, however, the charges are mainly based on the volume of your shipment since it is all about the space your goods occupy. 

To ship a 40ft container from China to the West Coast, the prices range from $7000 to $8000, a drop from January. In January, the shipping rates were about $17000 to $18000.

To ship a 40ft container from China to the East Coast, the rates range from $9000 to $10000. The shipping rates in January ranged from $9000 to $10000. 

Ocean freight shipping options

A shipper has two options: LCL and FCL when using ocean freight. With LCL, many shippers transport their goods using one container. With FCL, one container is used by one shipper. LCL has a longer delivery time, and the rates are higher. The goods are also prone to damage or loss. This is because the goods are handled more during consolidation and deconsolidation. For FCL, the shipping rates are lower if the goods are bulky and fill up a container. There are many container sizes, and you can choose any that matches the size of your shipment.

Advantages of sea freight

  • Shipping cost for sea freight is lower compared to other shipping methods
  • Sea freight can be used to ship bulky and heavy shipments that weigh more than 500 kilograms
  • Sea freight has fewer shipping restrictions
  • Ships emit less CO2 compared to airplanes

Disadvantages of sea freight

  • Transit time for sea freight is long
  • Sea freight is less reliable due to port congestion, customs delays, and harsh weather condition.
  • With sea freight, goods are more likely to get damaged than air freight.

Predictions for Shipping in 2022

More technological advancements in the shipping industry are expected in 2022. Some of these expectations include:

  • Block chain technology: With the digitization of the shipping process, block chain technology will be beneficial in reducing processing time. Not only will it lessen processing time, but it will also reinforce security and optimize document-sharing. So, how does block chain technology increase security? This happens by protecting user identification through two technologies: crypto-programming and program-based sharing.
  • Inventory control: Inventory management will happen through cloud technology. The popularity of cloud technology has grown tremendously, and the shipping industry has been fast to implement it in managing inventory. Inventory management using cloud technology has the following benefits:
    • Elimination of data silos
    • Easy tracking of inventory location and levels in real-time
    • Increased efficiency in accessing high-value tools
    • Basically, cloud technology helps in minimizing stock-outs and ensuring the efficient transmission of the demand signals through the supply chain. 
  • More connectivity and artificial intelligence: This is expected to optimize crew transfers.
  • Route optimization: One of the problems that have led to port congestion is the unreliability of the schedule. When the schedule used is not reliable, the ports will be congested. Making route optimization compulsory will solve this. Route optimization will ensure the following:
    • Increased safety
    • Ships will adopt slow-steaming hence minimizing carbon footprints.

When will Freight Rates Go Down?

The container shipping rates have dropped but are still very high compared to the pre-pandemic period (before March 2020). Every shipper yearns to see the freight rates dropping even more. Apparently, it is hard to determine if the rates will go down. This is because of the ever-changing market, and any small change can influence the shipping rates. Determining when these changes will happen is also challenging since most changes are unexpected. The shipping rates may rise, drop, or remain stagnant.

Some of the factors that may cause a change in the ocean freight shipping rates are:

  • General Rate Increase (GRI): This is an adjustment made to the shipping rates by shipping lines. This usually happens during the high seasons so that they can recover from the low seasons.
  • Emergency Bunker Surcharges (EBS): This is a fee that shipping lines impose on shippers whenever there is an increase in fuel prices. The shippers are never informed about this fee earlier as it is considered an emergency/last-minute fee.
  • Extra ocean freight costs: Shippers may be subjected to additional fees such as demurrage and detention. Fortunately, these fees can be avoided by keeping time. Being slow will result in such fines.
  • Disruptions: This can happen at any time unexpectedly. The emergence of Covid-19 and the blockage at the Suez Canal are some of the disruptions that have occurred before.
  • Currency: A change in currency influences the freight rates. The rates may rise or drop depending on how the currency value has changed.

Despite the high shipping prices, shippers can consider the following tips to reduce their rates:

  • Keep time: Ensure you deliver the required documents on time. Also, when hiring a container, load and unload the container swiftly. Being fast will save you from fines and extra charges. '
  • Compare quotes: Quotes vary depending on the carrier or the shipping line. Before deciding on which carrier to use, compare the quotes for each of them.
  • Choose the most suitable option: Is LCL or FCL the best option for your shipment?
  • Get insurance: This will save you from incurring losses in case of loss, damage, or pilferage.

Updates on shipping rates are the most anticipated by shippers. Predicting how the rates will change is difficult since no one knows how the shipping market will turn out. However, making suppositions can help shippers prepare for what is coming. As a shipper, you should always be ready for anything.