This year, container shipping companies have managed to recover from a significant decrease in freight rates. However, according to experts, the recent price hikes might not last for an extended period.
Shipping expenses for transporting goods from Asia to the U.S. are experiencing a significant increase. However, American importers seem to be managing the higher costs well, as they had witnessed a substantial drop in freight rates earlier this year after reaching all-time highs.
According to transportation data and procurement company Xeneta, the typical cost for shipping a 40-foot container from China to the U.S. West Coast went up by 61% over the six-week period ending on August 15th, reaching a price of $2,075.
The rise occurred when major shipping companies raised their official prices. This followed a significant drop in rates in the sector's spot market, which fell from almost $10,000 per container in February 2022 to less than $1,300 by late June. This decrease was due to retailers with excess inventory reducing their orders and decreased demand impacting the profits of prominent shipping companies.
Tim Smith, who holds the position of Director of Global Transportation and Logistics at Gabe's Old Time Pottery, explained that the sudden increase in shipping costs has not significantly affected the home goods retailer. At the beginning of this year, the company, which is located in Morgantown, West Virginia, took measures to manage shipping expenses. They secured fixed rates for 50% of their freight, and these rates are currently lower than the current spot prices for shipping.
"We figured rates would go up," Smith explained. "They could go back down again and we may even benefit from being back on the spot market at some point."
Xeneta's chief analyst, Peter Sand, said that a big jump in rates would spook importers before the pandemic. China-to-U.S. West Coast rates are $600 higher than in the same period in 2019. However, they are also 66% lower than last August.
Coming down from last year's highs, "$2,000 a day now shouldn't scare the hell out of them," Sand said.
American importers experienced a turbulent journey throughout the pandemic. The surge in consumer spending on goods led to unprecedented levels of imports, which in turn caused a strain on shipping capacity and resulted in a sharp increase in prices.
Consumers have pivoted to more lavish spending on services this year, leading apparel retailers, electronics venders, and other consumer-goods merchants to cancel overseas orders and seek to clear inventories.
Lower shipping costs have been a bright spot for importers this year compared with the high prices that dented corporate transport budgets in 2021 and 2022.
During an earnings call, Home Depot's CEO Edward Decker stated that the previously observed cost increases in transportation, products, and commodities have completely subsided. Similarly, Target's Chief Operating Officer John Mulligan mentioned in an earnings conference call the following day that the company is experiencing significantly improved conditions throughout its supply chain, particularly in the realm of ocean shipping.
Importers and some shipping industry specialists forecast the recent spot-rate run-up to be short-lived. U.S. container import volumes remain behind year-earlier levels while some ocean carriers are starting to take delivery of new containerships they ordered when demand was at its peak, pouring extra capacity into a lackluster market.
According to Bimco, a shipping trade organization in Denmark, the first seven months of 2023 saw the addition of new containerships that collectively increased the container capacity by a record-breaking equivalent of 1.2 million containers.
Ocean shipping companies like A.P. Moller-Maersk from Denmark have decreased their supply by taking some containerships out of operation and reducing the speed of their ships. This has resulted in a reduction in available space for cargo. Additionally, there is a forecast that more containerships will become operational in the coming year, as stated by Philip Damas, who holds the position of managing director at Drewry Shipping Consultants group.
"There is a tide of overcapacity that will definitely affect global shipping, so we will see spot rates resuming their downwards trend" in the fall, Damas noted.
By adding a peak-season surcharge, some carriers are trying to extract more money from long-term contracts, which tend to be fixed at higher prices than the more volatile spot market. Carriers usually employ the tactic in anticipation of stronger demand in the fall and heading into the end-of-year holidays.
Erin Fleet, who holds the position of logistics director at Travelpro Products, a luggage company located in Boca Raton, Florida, shared that she straightforwardly rejected a supplementary fee that a particular transportation company attempted to enforce. This type of action was considered implausible for the majority of shipping companies during the years 2021 and 2022. "It's all a negotiation," Fleet said. "The volume and the market doesn't warrant it."