Why Falling Freight Rates Won’t Mean Cheaper Goods This Christmas

Why Falling Freight Rates Won’t Mean Cheaper Goods This Christmas

Despite the shipping freight rates continuing to plummet around the world, at the risk of being the Christmas Grinch, businesses and consumers shouldn’t yet be expecting more money in their hip pocket.

We’ve seen staggering declines in freight rates in recent months, from a high of around $US11,000 per 40ft in September last year, to less than $US3500 per 40ft in October, as consumer demand for goods continues to drop.

We haven’t seen price drops like this since the Global Financial Crisis. Not only has the freight rate essentially fallen off a cliff, it’s also coming at a time when prices would usually be on the rise, as November is considered peak season for Australia.

However, the decrease doesn’t necessarily mean the overall cost of shipping to Australia is cheaper.

With the Australian dollar currently sitting around 65US cents, it’s negating the potential savings for importers, as freight rates are set in US dollars.

Added to that is the high price of fuel, and high landside costs including wages, and you can start to see why overall costs aren’t really declining.

I am all too aware that both businesses and consumers are under increasing cost pressures, and want to take advantage of any savings where they can, however chasing the lowest freight rate isn’t always the best option.

Instead, I offer this advice;

  • Don’t compare apples and oranges: Don’t be fooled by ‘spot rates’ in comparison to contracted freight rates. Shipping lines looking to fill up slots on vessels will offer last minute ‘spot rates’ which are generally cheaper, however with priority given to contracted clients, you run the risk of your cargo being bumped off the ship if there is no longer enough room onboard.
  • Maintain your relationships: While it can be tempting to shop around and jump ship to other shipping lines or companies offering cheaper rates, you may find yourself competing for slots and missing out, with priority given to contracted clients. While maintaining minimum load amounts in the current market may be slightly more expensive in comparison to spot rates, when demand picks up again, those with contracts have priority to increase slots required. Maintaining networks and professional relationships during troughs can pay dividends during peak periods, as your relationship is well established and allows for smooth sailing.
  • Look for other markets: We’re continuing to advise clients to source suppliers outside of China, to ensure they’re not placing all their eggs in one basket. We’re not saying don’t buy your goods from China, we’re saying having two suppliers is better than one. Finding an alternative market means you have choices, and potentially cost benefits also.

What can we expect for 2023? I think we’ll see freight rates continue to fall, but it will slow down as shipping companies do what they can to adjust to changed demand.

Blank sailings are already on the rise, and we’ll likely see the decommissioning of some older vessels as part of broader efforts to reduce emissions in the industry, which reduces overall capacity. I would also expect to see the completion dates of new vessels pushed back.

I would expect freight rates are unlikely to start increasing significantly until consumer demand picks up again.

Here in Australia, we’re seeing consumers dealing with cost-of-living pressures and rising interest rates, which is likely to dampen spending, while I would also expect demand for goods to drop as more people start travelling again.

We can’t yet say where prices will end up, but watch this space!

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