Freight Rates Still Down, But Is There Change In The Air?

By John Edmonds, Research & Marketing, Freightos

It’s the peak of peak season. But over the past eight weeks, China export rates have decreased nearly every week.

Beyond that, China-US East Coast rates have now declined for seven consecutive weeks, while four of the seven Freightos International Freight Indexes are tracking at least 15% lower than this time last year.

What’s up with peak season freight rates in 2017?

Well not much. Even the “better” rates don’t look too flash. Take, for instance, the two week-on-week increase exceptions that bucked the trend of ongoing, eight-week long declines. They were increases of under 4%.

You might think that after the Chinese Golden Week holiday closedown, with their factories and ports about to come back into action, increased demand for container slots would buoy up rates.

But on the most affected lanes – China-US West Coast and China-US East Coast – rates are just clinging on. The downward trend has been going on all year. That it would kill peak season has been obvious for some time now.

Take a look at the Freightos Index data (based on effective pricing as at the second full week of each month, to obviate temporary GRI impacts).

Freight Rates down month by month

International freight rates 2017 by month (via Freightos Index)

And the downward trend shows most spectacularly on the China-US East Coast trade lane.

Peak Season Surcharge US West Coast index

So Where’s The Change In The Air?

But none of this should come as a surprise. In a competitive market, prices drop when supply outstrips demand. The market is in chronic oversupply. Last year’s peak season was only saved from total disaster by the Hanjin collapse. Since then, the purchase of super-sized ships by large carriers has continued unabated. So for the time being, with the size of fleets and the size of new ships new ships still going up, don’t expect the rates to follow. The larger ocean carriers seem hell-bent on changing the rules for their industry.

Not everybody is unhappy about low freight rates, of course. Shippers are clearly benefitting. And Freightos research has shown the growing importance of spot shipping compared to contracted rates for years.

So where is the change? There’s plenty afoot within the broader industry. Ecommerce purchasing (and ecommerce shipping for that matter) is rapidly rising shipper expectations of transparency and service. Freight forwarders now keenly realize that digitalization, if embraced, is the opportunity instead of the threat.

But freight rates? Well, if this is peak season, it doesn’t bode well for CNY peak or the next offseason either.

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