Ocean Freight Rates at Historical Levels

  • Ocean Freight Rates at Historical Levels

    Importers and exporters are facing a rapidly disintegrating container shipping market, as the ocean shipping line’s deployed capacity, fails to keep pace with the returning consumer and business demands which is causing  freight rates, to escalate beyond reach of many importers or exporters.

    The WHY behind the current rate increases  Ocean freight rates escalate

    1. Capacity deployed globally by shipping lines has fallen far short of the market demand.
    2. The average costs of moving a container for shipping lines has barely changed over the past 18 months, whereas global average revenue earned per container has doubled over the same period.
    3. New analysis of the market shares of shipping lines operating in Consortia on the Far East & Europe trades, shows an unhealthy concentration of market power and the market share is far in excess, of the levels at which the concessions of the EU Consortia Block Exemption Regulation apply.

    What’s is NOW at Stake

    Is the solvency of thousands of SMEs banking on the coming peak season to help get them through the Covid Crisis?

    • Governments need to look closer and harder at a shipping market that is NOW out of control.

    The Current Market Commentary

    Mike Garratt, Chairman of MDS Trans modal, said: “Global levels of container traffic grew again in Q2 2021 to reach record levels but have still not yet quite recovered to the level that trends implied 3 years ago, when lines reduced their level of new buildings.

    Capacity shares based on vessel sharing agreements (or consortia) in some key markets now exceed 40%.

    This high level of consolidation has the benefit of enabling lines to adjust capacity allocation in line with changing demand but, combined with the resulting very high levels of utilization, have allowed freight rates to remain at historically unprecedented levels and imply that some potential freight may be being suppressed.

    Performance indicators, including skipped ports, continue to compare poorly with pre-pandemic levels.”

    James Hookham, Director of the Global Shippers Forum said “Importers and exporters are facing a meltdown of the container shipping market, with rates in the stratosphere, slots up for auction and service performance in the trash. The prospects for the coming peak season look grim”.

    This was the quarter that the impacts of the Ever Given’s closure of the Suez Canal was felt on schedules and port calls in Europe, North Africa and North America, but the effects are barely discernible in a globally consistent picture of rising rates, declining service and ships sailing at close to their maximum capacity.

    James Hookham continued: “What none of the industry metrics show are the huge numbers of shipments that are NOT being moved – the boxes left on the quay, stacked in the terminal or stockpiled in export warehouses awaiting a slot. Getting these goods to market will be the difference between economic recovery and empty shelves and consumer price inflation.”

    The outcome

    Carrier profitability in the meantime is soaring and the Review shows the continued growth of the average earnings per container carried (average unit revenue, blue lines) compared to the unit costs of carrying that container (yellow lines), which have barely changed over the course of the past 18 months. Globally, carriers are earning more than twice per container than at the start of the pandemic.

    Examination of impacts on Australian commerce as a result of international shipping practices and a lead on associated reforms must be driven by an independent Federal Government review – clearly action is required to ensure Australia achieves a sustainable economic recovery

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