Global shipping costs fall, giving hope to exporters and farmers after COVID price-hikes

Global shipping costs fall, giving hope to exporters and farmers after COVID price-hikes

Container shipping prices are falling quickly after steep rises at the onset of the pandemic. The cost of sea freight is plummeting as countries raise interest rates amid fears of a global recession, but it may not necessarily result in cheaper imports for Australian consumers, stakeholders say.

Key points:

Global shipping costs are falling fast after spiking during the pandemic

Exporters hope to regain access to markets they lost due to prohibitive costs

Nearly 80 per cent of the world's trade is transported in 12-metre shipping containers but costs soared during the COVID-19 pandemic, peaking in September last year. 

Global shipping costs are now falling drastically, and are doing so in the lead up to Christmas for the first time in decades.  All these companies that were buying big and trying to bring in lots of Christmas stock have basically slammed on the brakes and cut orders, so there's heaps of extra capacity within the Ocean freight world. 

Shipping containers during the height of the pandemic were expensive and difficult to secure.  What that means is shipping lines don't want to send vessels half empty. They prefer them to be full, so the easiest way for them to gain business is to drop rates.  It seems that they tumbled a lot faster than when they went up a few years ago.

The biggest fall had been in trans-Pacific and trans-Atlantic freight  It previously cost up to $US20,000 [$31,894] to send a 12-metre container from China to the United States.  This had fallen to $US3,000 or $US4,000, which Mr Hack said was almost pre-pandemic levels. 

Freight rates falls are expected to continue

Prices have dropped significantly but it's not the rates that we had pre-pandemic.  We will probably see rates continue to fall, which is quite interesting for this time of year because it's pre-shopping season.  Normally rates are on the increase for this time of year and we have never seen them [dropping at this time of year] in decades! 

It would be interesting to see if freight savings were passed on to consumers, but the falling US dollar would negate some savings.

Relief for export businesses 

John Orr from Premium Grain Handlers Australia said it was a relief to see global container prices fall.  Mr Orr's business model involves buying grain from farmers and sending it to international markets in shipping containers. 

When container prices began rising at the end of 2020 and spiked last year, Mr Orr found himself priced out of his traditional markets in the European Union and Middle East. 

"Into India it's costing us $240 a tonne, relative to $50 a tonne [pre-COVID] just for the ocean freight component of our transport," he said. 

"Such a big increase in freight cost has a big impact on our ability to supply these markets." Mr Orr said prior to COVID, he was sending grain to the Middle East and Indian subcontinent regions, but when freight rates increased dramatically, many customers could not absorb price increases. 

Along with the increasing availability of containers, he said falling costs would help his company return to markets it had not been competitive in.

"The drop in freight rates will enable us to pass those international prices to growers, which is something I'm sure growers will look forward to," Mr Orr said. 

 

Bangladesh’s ocean freight charges have registered a 50% fall 

Bangladesh’s ocean freight charges have registered a 50% fall from the pandemic-led massive surges as global trade slows because of shrinking demand for goods paired with rising inflation and inventory excesses in destination countries.

Vessel operations on the Chattogram-Europe route now cost $6,000-7,000 per 20-foot container in contrast to $12,500 in December 2021 when the pandemic was at its peak. Similarly, a US-bound ship now charges $10,000 per 20-foot container, down from $20,000, according to the Shipping Agents’ Association.

The easing in supply chain disruptions, which had been built up over the pandemic, is also driving the significant fall in freight rates, industry people say. But businesses note that they are still paying at least three times more than they did before Covid-19 caused a snarling of global supply chains.

In pre-Covid times, shipment of a 20-foot container would cost $2,500 to Europe and $3,000 to the United States.

Syed Mohammad Arif, president of Shipping Agents’ Association, told that softening demand amid the ongoing global slowdown is a major reason behind a significant decrease in freight rates.

Consumers in Europe and the US have cut back on their spending on clothing and other luxury items under record-high inflationary pressure. That is why booking goods on shipping lines has now dropped by 30-40%, he noted.

G20 merchandise trade growth slowed markedly in value terms in the second quarter of 2022, as measured in current US dollars.

Exports and imports rose slightly by 2.1% and 2.6%, respectively, as compared to 4.8% and 6.2% in the previous quarter, according to G20 international trade statistics released by the OECD on Monday.

Almost 60% of British shoppers say they will cut back on non-food spending in the so-called “golden quarter” – the last three months of the year when most retailers make the majority of their profits, according to research by Retail Economics with the retail technology firm Metapack.

British shoppers are likely to spend £4.4bn less on non-essentials during this period, down 22% on the same quarter in 2021, the report said. This is a significantly larger drop than other European countries, with an expected drop in spending of 14% in Spain, 12.3% in Italy, 11.5% in France and 9.4% in Germany.

After two years of skyrocketing expenses, the reduction in shipping costs is good news for both exporters and importers. They hope this will have a positive impact on local markets.  But exporters cannot capitalise on falling freight charges because global demand for their goods has fallen in their destination countries amid soaring inflation fuelled by the Russia-Ukraine war, Mohammad Hatem, executive president of Bangladesh Knitwear Manufacturers and Exporters Association, told TBS.

Rakibul Alam Chowdhury, vice-president of Bangladesh Garment Manufacturers and Exporters Association, said falling freight charges will take some pressure off apparel buyers who carry shipment costs. 

Meanwhile, export-import activities through Chattogram port fell in September this year. The port handled 1,11,493 twenty-foot equivalent units (TEUs) of imported goods in the month in contrast to 1,20,470 TEUs in the same time in 2021. On the other hand, the handling of exported goods stood at 63,803 TEUs, down from 68,891 TEUs the same month a year ago.

Khairul Alam Sujan, vice-president of Bangladesh Freight Forwarder Association, told that shipping companies had astronomically hiked freight charges, cashing in on the pandemic-led crisis, which eventually fed into prices of all essential products. But now the situation has changed a bit and the shipping charges are returning to a competitive state, he added.