Home > 2022 > Rate “Pendulum” Swinging Back Sooner and Faster Than Expected

Rate “Pendulum” Swinging Back Sooner and Faster Than Expected

Rate “Pendulum” Swinging Back Sooner and Faster Than Expected

Many industry experts have been expecting ocean freight rates to swing back more in tandem to what they were pre COVID however few have envisaged that it would do so this quickly.

Utilisation rates are sliding despite an increase in blank sailings and spot rates, as recorded by the Shanghai Containerized Freight Index (SCFI), are on a trending downwards significantly.

The overall SCFI spot rate index for rates out of China on a variety of trade lanes declined another 9.7 per cent last week and over the past four weeks the index has dropped 33 per cent making it the second largest four-week drop since the beginning of the SCFI index in 2009.

On average the implied freight rate for voyages originating from Shanghai to worldwide destinations has fallen to US$2,500 per TEU, half of the peak seen in January. The current figure remains comfortably above the long-run pre-2020 average of $1,000 per TEU.

According to Sea-Intelligence there is no underlying structural support for the high rates on the transpacific and Asia-Europe tradelanes and that support is on the brink of disappearing on the Atlantic as well.

“The renormalisation the rate levels are currently undergoing will also see a hard landing, in the sense that we should expect freight rates to drop lower than the longer-term normal, followed by a distinct rebound,” Sea-Intelligence forecasts.

This softening of rates will have knock-on effects in the charter market and on the order books of shipyards for newbuilds, as the ramifications of these plummeting rates have an effect on this ecosystem.

Additionally, with congestion easing in many key ports around the world, shippers are also looking at moving back to shipping by ocean freight versus air freight as an option and it is one of the contributing factors to further softening of air freight rates into 2023.

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