Global ocean shipping rates have hit record lows close to those seen in 2009. The World Container Index plunged to a low of $666 per 40-foot container, down 73% from mid-2012. The China Containerized Freight Index has dropped to its lowest level ever.
Why? For one thing, global demand has dropped. For another, larger mega ships, built in response to a sharp spike in demand following the 2008 recession, have created excess capacity. The results have been painful for carriers. Total losses in 2016 exceeded $6 billion.
This is good news for shippers in the short term, with rumors of the collapse of shipping rates to “zero” in some cases. But the truth is that unsustainable low rates increase the chances of carrier bankruptcies and stranded cargo.
Carriers have begun to fight back by reducing carrying capacity. This means cutting back on routes and idling carriers. Some carriers have merged sailing schedules or cancelled ports of call. This is not an economically viable solution over the long term, as idled ships cost money – lots of it. Some carriers are striving to obtain government bailouts.
In all likelihood, the only real solution is to raise shipping rates. Increased rates are already beginning to take effect for cargo moving into U.S. ports from Asia.
None of this is good news for shippers. Cutting back on capacity by idling ships is likely to result in delays for shippers as containers are rolled over to later sailings. Decreased space will make it more difficult to book last minute space, particularly during the peak seasons of July-November. Containers slots will go to the highest bidder, and shippers will have to pay more to keep their supply chain moving.
So, no, it does not look like ocean shipping rates are going to stay in the toilet, at least on Asia-U.S. routes.
We recommend that shippers try to plan ahead… three weeks prior to departure, you should have passage booked. Stay in touch with vendors and try to avoid canceling bookings, or carriers will begin to penalize you. And rely on Tical Shipping, because we can help you make the best logistics decisions for your business.