According to several media reports, ocean freight rates continue to decline due to the weak market. This may be a good thing for global buyers, but it is a great challenge for global carriers.
Image by Pawel Grzegorz from Pixabay
Drewry Announced WCI Decreased by 2%Drewry reported composite World Container Index (WCI) decreased by 2% to $1,997.22 per 40ft container on February 9th. This has dropped by 79% compared to the same week in 2022. With the continued fall on most trades, Drewry expects further small week-on-week reductions in rates in the next few weeks.
Spot Drewry’s assessment across eight major East-West trades as below (on February 9, 2023):
Note: Prices shown above are based on per 40ft box individually and the percentages are based on weekly change.
Freight Rates Plunged to Pandemic LowsAccording to the latest news report from US Wheat Associates, ocean freight costs have decreased and turned the tides back in the importers’ favor, mainly because of a decrease in Chinese vessel demand, a decline in dry bulk demand (such as iron ore and grain demand), and normalized oil prices have to take pressure off the market.Financial Times has a similar conclusion and adds that with inflation still high and central bank rates rising further, demand for goods is expected to remain weak for the rest of the year. In order to put a floor under freight rates, carrier groups are also cutting sailings, though the drop-off in shipping volumes leaves companies with a looming overcapacity problem.However, looking at things on the other side, the fall in freight costs is highly welcomed by importers. Chief executive of consumer appliances producer Electrolux, Jonas Samuelson considers it as “a fairly significant positive”.
Image by evening_tao on Freepik
Cross-alliance Cooperation on the IncreaseDue to the weakness in the Chinese market, rival ocean alliances are having more discussions on carrier slot swap agreements, pulling capacity from Chinese export routes, and redeploying the ships to more robust and growth potential trade lanes. Besides, it is believed that cross-alliance slot chartering would become increasingly common, perhaps until the peak season, as demand from China is likely to stay weak.
Image by rawpixel.com on FreepikOne carrier contact told The Loadstar, that topping up the ship with a slot charter makes sense, even if it’s from another alliance because it means more revenue in the voyage result, which outranks any commercial concerns. The consultant added that the latest slot charter agreement took the cross-alliance cooperation between CMA CGM and ONE, the two carriers, on the transpacific to six loops.
Coexist of Challenges and OpportunitiesFalling freight rates may be beneficial for global buyers, but the market remains resilient as demand increases and countries or carriers adopt effective initiatives. It is believed that freight rates will gradually stabilize. Investors can regain confidence. Global buyers should pay attention to freight rates in a timely manner, and coordinate delivery time with product suppliers to get better prices. Product suppliers can also arrange the production and shipping time according to the latest freight rates to save costs for buyers in order to gain trust and more business opportunities from buyers.
Source: 1. Drewry 2. U.S. Wheat Associates 3. Financial Times 4. Container News 5. The Road Star
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