After an extremely difficult period for anyone reliant on international shipping, global container trade is finally flowing freely and transport costs normalising.
The extent of the improvement has been dramatic in 2023. The availability of capacity on most routes has improved and the reliability of delivery has risen, with costs falling significantly. These improvements have been driven by several factors. The end of the COVID pandemic removed bottlenecks caused by worker shortages at ports and related trucking channels. Several ports around the world, particularly in China, were closed completely leaving many vessels stranded at anchor, whole new routes to handle transhipment of the vast quantity of container ships, were difficult to come by and the new ports soon became congested too. It took several months to rectify these problems even after the Covid Restrictions were lifted.
Demand for containers has also softened along with the easing of a consumer spending surge triggered by generous government handouts during the pandemic (which was channelled to goods at a time when many service industries were still shutdown). This has more than offset the redirection of some product back from airfreight to shipping as schedules and prices have improved. The price of oil has also fallen significantly from its 2022 peak on concerns over the global economy, reducing the costs of moving containers around the world.
While some threats to the normalisation of container trade have emerged through the June quarter, these also now appear to have been addressed. Specifically, protracted contract negotiations between US West Coast seaport operators and the union serving them appear to have been resolved in mid-June. This brought to an end worker action that had effectively shut down operations at some marine terminals in the preceding weeks. While details of the deal are yet to be released, its tenor is reported to extend for six years, minimising disruption risks on this front for many years to come. We are still finding that many shipping lines are overselling space on their vessels and then short-shipping cargo – hopefully this trend will not continue into the first quarter of 2024.
Container freight costs have fallen back to pre-pandemic levels in many markets, with many shipping market analysts thinking that they have further to fall. Demand is expected to remain soft over the next 12 months, as consumer spending power remains compromised by inflation and high interest rates. At the same time, the supply of containers is expected to increase strongly. Encouraged by the exceptional pricing and profits made in 2021 and 2022, the June quarter of 2023 saw a record increase in container capacity added to the global industry, with more scheduled to arrive over the balance of the year.
The extent to which shippers can incorporate this additional capacity into the market without further price reductions will depend on several factors. These include the rate at which older ships are scrapped, the extent to which they adopt a slow steaming approach to reducing costs and effective capacity and pricing discipline following years of industry consolidation.
But for most analysts, it’s not a question of whether freight rates fall in the next year, but by how far.
Improvements in availability, reliability and the cost of container shipping are a welcome development in the supply chain at a time when many factors are making life tougher for the food industry.
Just make sure you are partnering with a provider who is prepared to go the extra mile for you, to find the best service at the best possible rates. Often the cheapest rate is not the best option when moving precious food service commodities.
