There has been a huge amount of discussion lately about inflation – and shipping costs are no exception. But have you heard that the trend is already reversing? We take a closer look at these reducing costs.
According to the Wall Street Journal, the cost to ship a 40ft container from China to the west coast of the United States is now around 60% less than it was in January of 2022. And yahoo!news reports that a container travelling to Europe from Asia will currently cost around 40% less than at the start of the year.
This is a significant reversal of the rising shipping costs of post-pandemic times. So, what are the factors driving this?
Firstly, global inflation and general economic uncertainty has been reducing consumer spending and therefore demand for space. In the Wall Street Journal article, Vespucci Maritime chief executive Lars Jensen states that this is an indication that importers are “seeing a slowdown in consumer spending.”
In particular, global demand for Chinese goods is waning as Western consumers cut back on spending because of inflation and the post-pandemic shift away from goods toward services. That’s causing the container shipping industry to trim capacity by cancelling sailings.
The slow down in Chinese exports has meant that Shanghai’s port processed 8.4% less cargo in August than a year earlier, with the numbers of containers down 3.4%, the port said earlier this month. With no capacity to spare just six months ago, the container lines are now scrambling to reduce an excess of it to match demand. According to a recent Drewry report, 117 out of 744 sailings were cancelled over the next month on major trade lanes, and about 68% of those blanked voyages were scheduled to do transpacific eastbound trips.
In an interview with Investors Chronicle, Freightos chief marketing officer Eytan Buchman cited the lifting of surcharges as a factor in the reduction in shipping costs. These heavy surcharges that shipping lines were previously levying on customers to ensure containers were placed on vessels are no longer being applied as demand declines and congestion around key ports eases.
As is well documented, China implemented a zero-Covid policy in 2021 which resulted in limited exports. This caused backlogs in shipping, slowing production and creating increased demand – with shipping prices increasing as a result. Since leaving lockdown and opening back up, there has been movement of stagnant shipping containers again to destinations where they can be restocked, sent back on route and essentially put back into circulation. This, in turn, will help to lower the demand and cost of shipping containers.
For the rest of the year and into 2023, there is still some uncertainty in the market around the Russian invasion of Ukraine earlier this year, causing a shift in oil and gas supply routes and leading to a fluctuation in pricing. With countries planning on implementing price caps on Russian Oil, how the situation develops and impacts fuel prices in the long term is yet to be seen.
Secondly, the way in which governments and world banks respond to rising inflation will also impact consumer confidence, influencing consumer spending, driving demand for goods and therefore dictating shipping rates.
If you are seeking to make the most of reduced shipping costs, then TEC Container Solutions logistics team are here to ensure that our customers receive the best rates on our Bitutainer™ and tank container ranges. Get in touch today to discuss your requirements.
