FREIGHT RATES BEGIN TO DECLINE AMID MARKET ADJUSTMENTS

The freight shipping industry is witnessing a shift as freight rates, after a prolonged period of increases, have started to decline. As of July 12, the Shanghai Container Export Tariff Index (SCFI) dropped significantly by 58.94 points to 3674.86 points, marking a weekly decline of 1.57%. This downturn ends a 13-week streak of rising rates. The current trend indicates that freight rates are gradually being corrected, although industry insiders predict a slow decline rather than an abrupt crash throughout July.

Divergent Trends Across Major Routes

The decline in freight rates has not been uniform across all routes. The most significant decrease was observed on the U.S.-West Route, where freight prices fell by 5.5% due to the temporary introduction of new capacity, making it the most volatile route among the major ones. Initially, there was an attempt to increase the price of each large container by $1,000 to $8,100-$8,500 on July 1. However, the arrival of overtime ships and new routes led industry leader Mediterranean Shipping Company (MSC) to maintain the original price of $7,500, avoiding the planned increase. This decision set the stage for further reductions, with most shipping companies lowering their rates to $7,900 on July 7 and eventually to $7,500.

Market Dynamics and Industry Insights

Insiders attribute the fluctuations on the U.S.-West Route to an increase in supply from overtime ships, combined with a lower-than-expected cargo volume. Despite some return ship delays balancing the supply-demand dynamics, freight rates on this route experienced significant volatility. In contrast, freight rates on the U.S.-East and European routes remained relatively stable. The general market consensus suggests a gradual price correction rather than a sharp decline, with freight rates expected to continue their slow downward trend through July.

Senior executives from freight forwarding and shipping companies highlighted the impact of new routes and overtime ships on the current market rates. From a high of $8,500 per large container on July 1, the rate has dropped to $7,500. Large freight forwarding companies, leveraging low-cost long-term contracts with shipping companies, offer quotes below market rates, sometimes as low as $7,000.

Strategic Price Adjustments by Freight Forwarders

In response to the oversupply of space, large and ultra-large freight forwarding companies are adopting price reduction strategies to stimulate shipments and showcase their willingness to profit. However, achieving significantly lower rates than general market conditions requires establishing long-term cooperative relationships with freight forwarding companies and being a frequent customer with substantial shipments. This strategic move has the potential to impact the spot market and destabilize price stability. Some freight forwarding companies predict further reductions in FAK (uniform rate) prices in the coming weeks.

Stability in Other Routes

While the U.S.-West Route experiences significant changes, the freight rate for the U.S. East Coast route remains stable between $9,800 and $10,400 per large container. Similarly, the European route maintains rates between $8,700 and $9,000 per large container. The market is closely watching the loosening of freight rates, with freight forwarding companies awaiting new quotations from shipping companies. Notably, the planned price increase for mid-July was canceled under MSC’s leadership, reflecting the industry’s cautious approach to current market conditions.

Conclusion

The recent decline in freight rates marks a pivotal shift in the shipping industry. While the U.S.-West Route sees significant volatility, other routes remain stable. The gradual correction of rates, influenced by strategic adjustments and market dynamics, is expected to continue throughout July. Stakeholders in the industry will need to monitor these trends closely to navigate the evolving market landscape effectively.