As freight rates continue to fall, a curious situation has arisen where it’s currently cheaper to ship a container from China to Western Australia, than it is to move that same container 35 kilometres by road.
Yes, you read that correctly.
We know global sea-freight rates have been declining for some time now, falling from the lofty highs of almost $US11,000 per 40ft in September 2022, to less than $US1,400 per 40ft at the start of June.
For context, freight rates are now essentially at pre-pandemic levels, and in some cases, lower.
On the other hand, road transportation has been hit by a number of cost increases over that same period, largely as a result of inflation and the Reserve Bank’s decision to increase interest rates 11 times over the past 12 months.
The cost of fuel, parts, and wages have all risen, while there have also been increases to various landside fees and charges, such as booking and terminal pick-up fees, and bio-security related charges.
These costs are, unfortunately, passed onto the consumer, which creates the current situation we’re seeing now – where it costs far less to move a container thousands of kilometres by sea, in comparison to a much shorter distance by road.
It’s not a criticism, but merely an observation of what’s happening in our industry currently.
It’s also a reminder to consumers that they need to look at the supply-chain as a whole when considering the cost of shipping, as reduced freight rates don’t necessarily mean reduced costs overall.
It’s also important to keep in mind that some of the stock we’re currently seeing on shelves was purchased many months ago when freight prices were higher, as many retailers moved to the ‘just in case’ model of purchasing in a bit to avoid being caught out by previous supply-chain delays and congestion.
It remains to be seen whether road transportation costs will reduce – however given the current economic climate in Australia, it would be fair to assume costs won’t be going down any time soon.
It’s also not yet clear whether we’ve hit the bottom in terms of sea-freight prices.
Shipping lines are taking steps to control capacity, however I would expect we won’t start to see any significant increases until consumer demand picks up again.
Another emerging issue that is expected to have an impact on shipping costs in the near future is the increasing push for the industry to reduce emissions.
Low-sulphur fuel, slow steaming and the scrapping of older vessels are some of the measures currently being taken by shipping lines, however further initiatives will be needed to meet various global standards.
Many of these will come at a cost, which, as we know, will then likely be passed onto importers, and ultimately the consumer.