When Will Freight Rates Head Back to Normality
August 16, 2022
The past couple of years have brought a lot of uncertainty, supply chain disruptions, and volatility around the globe. Capacity management issues, along with attempts to hedge against freight rate decreases pushed prices up at a time when consumer demand skyrocketed mid-2020. Two and a half years into the Covid-19 pandemic, freight rates are slowly stabilizing, albeit on some routes the rates are still 400 percent higher than in 2019.
Ocean Freight Rates
Global ocean rates dropped 6 percent, mainly due to freight decreases on European, US West Coast, and ex-Asia routes. Asia – US West coast rates dropped 13 percent, Europe – US East Cost costs fell 50 percent while Asia – North Europe rates remain stable.
Air Freight Costs
Repeated coronavirus outbreaks and the ongoing war in Ukraine are disrupting air freight services and pushing cargo prices up. At the same time, as transatlantic passenger services have resumed operations, Europe – US East Coast prices fell by 28 percent compared to 2021. Due to labor shortages and increased fuel costs, prices are currently 50 percent higher than pre-pandemic levels.
Oil price increases cause diesel prices to hike. Diesel prices in the US are significantly higher than in 2021, mainly due to the sanctions imposed on Russia. If price increases are passed down to international freight forwarders, shipping rates could increase even further. The war in Ukraine is affecting inland shipping throughout Europe, with congestions and trucking logjams in many places.
In the US, railway backlogs and warehousing capacity remain a serious problem, with labor disputes causing further shipping disruptions.
Combined, all these can cause delays and transit time fluctuations for both exports and imports.
Freight Rate Forecasts
Many exporters and importers are wondering when shipping rates are expected to stabilize and go down. According to experts – not in the short term. Between 2020 and 2024, the air freight and passenger travel market, which has been the most affected by the ongoing health crisis, is forecasted to grow at a rate of 5.4 percent. The ocean freight industry is expected to grow at a rate of 5 percent for the same period.
At the same time, despite freight fluctuations and potential delays, freight forwarders can take a number of steps to navigate the current shipping crisis. First, comparing multiple modes and quotes can help ensure the most efficient and cost-effective service possible. Second, it is important to plan ahead and get prepared for transit time and freight budget changes.
Third, consider which mode of transportation is best for you. If you need shorter transit time, air freight is a better option. If you can afford a significant lead time, then ocean freight is a more cost-effective alternative. Finally, it is essential to stay in touch with your carrier so that you can plan for any changes in transit times. Have the manpower and capacity to handle cargo on arrival so that you can minimize possible delays.