How Air And Ocean Shipping Cycles Will Impact Your Business in 2022?

The shipping rates revolve in their highs and lows, or they are cyclical. It becomes tough to identify the length of a cycle and the extreme restrictions it would enforce.

Last year in August 2021, Container shipping rates from China to the United States increased drastically, which was expected to reach around USD 20,000 per 40-foot box. The fact is that the price climbed over 500% in FY21. To make the comparison, the prices remained under USD 11,000 in the quarter of July 2021. As the season of US shopping approaches, the costs have doubled. In addition, the latest China-Europe shipping rate is nearly USD 14,000.

This strains the global supply chain networks as there is a further demand than expected. The strategy behind meeting this increased demand seems insignificant compared to the existing supply opportunities.

In the current scenario, the seller-centric market has created a significant disparity in the available supply and the expected demand. As mentioned by the company, the current increased rates in the global freight industry will keep on rising till the end of the year 2022 Chinese New Year. The apparent instability in this market is expected to stay until 2023.

In a seller-driven economy, it is evident that the shippers would play through the routes which are going to offer more of the advantages or best gains. They would cater to chartered requirements and reduce volumes in routes that they are not going to facilitate much of the benefits. So, it is a matter of consideration why the demand is irrationally higher than the existing supply. And how does this make it possible to predict the shipping rates?

Traditional drivers are affecting the volatile shipping rates

• Over the market, the expectant demand and the available supply of a commodity determine the rates.
• Every action performed within the supply chain network has a resultant impact.
• Lack of container shipments leads to higher neglected demands that increase the cost.
• Reduced global manufacturing decreases the demand and the shipping rates as well.
• Sudden declines in e-commerce shipping lower the shipping rates.
• Unexpected alterations to the route will hike the shipping rates.

The fuel cost is 50-60% of total ship operating costs. Usually, the floating cost of fuel has a linear change in the shipping costs as and when the oil prices rise or fall.

Lastly, the most common things nowadays are short-term rate cards and Mini-Bids compared to long-term agreements. As a result, when quotes from carriers are asked from the shippers, a “bidding-fatigue” sets in. It is observed that response rates have fallen from around 90% to just under 50%.

The Pandemic-led Backlash on shipping rates

The pandemic's impacts on the demand and supply equilibrium can be seen as one of the most evident reasons for these disruptions that occurred in recent times. The situation has created a vicious circle, where the reasons and the effects of one action create recurring spirals that are interdependent.

In terms of numbers, 94% of Fortune has been seen by 1000 companies that have seen supply chain interruptions due to the effects of Covid-19. 75% of these companies believe that the coronavirus outbreak has left a negative impact on their business organizations.

Over the past 18 months, reduced labor and constant restrictions of varying degrees have impacted the global economy. During the pandemic, there was a slight dullness in the shipping industry as companies tried to plan and re-forecast for the future.

However, since then, the shipping rates have been steadily rising. The lack of containers would be a significant reason for the same. An additional time has been consumed by the ports to clear the containers. 75% of the increase has also been observed in rollover cargo in 20 global ports.

Effects of the Chinese slow-down

Many of the world’s freight moves in and out of China. The finished goods and raw materials are exported from China worldwide. The port of Shanghai is known as the largest port in the world in terms of volume handling.