Cost of shipping cargo across the seas in freefall due to lower demand

05/02/2023 / By Arsenio Toledo

Shipping rates all over the world are continuing their freefall, with the latest victim being spot rates for the trans-Atlantic shipping routes.

Container rates have sunk since peaking in August last year, with long-term ocean freight rates falling by as much as 24 percent. (Related: Global shipping to split into Western and Eastern blocs soon.)

According to the Freightos Baltic Daily Index, one of the main indexes for gauging the cost of transporting freight containers across the Atlantic, the average rate for shipping cargo from Europe to the American East Coast was hovering a little above $3,000 per forty-foot equivalent unit (FEU) on Thursday, April 27, down 44 percent since Jan. 1.

According to the index’s data, the premium rate before the Wuhan coronavirus (COVID-19) pandemic in 2020 was at over $6,100 per FEU.

Two other indexes measured similar rates for Atlantic shipping. The Platts Shipping Index showed trans-Atlantic westbound spot rates at $3,100 per FEU for the week ending April 21, down 11 percent week-over-week to the lowest level spot rates have been since April 1, 2022.

Xeneta’s XSI-C short-term rate index puts the cost of shipping from northern Europe to the American East Coast at $3,060 per FEU on Wednesday, April 26, down 23 percent month-over-month and 57 percent year-to-date. Xeneta’s index also states that this is the lowest rate for this route since March 2021.

Meanwhile, the Drewry World Container Index lists the cost of sending FEUs from Rotterdam in the Netherlands to New York at $4,806 per FEU, down 35 percent year-to-date. This is also down significantly from its peak at around November 2022, when the rate went as high as $5,400 per FEU.

Lower costs show demand for shipping down

Greg Miller of FreightWaves noted that his sources said rates have fallen due to “decreased demand for European goods, increased energy costs and vessel overcapacity on the trade.”

This trend can also be seen in American trade with Asia. In early March, plummeting cargo volumes made container rates sink to near $1,000 due to crashing demand.

Laura Curtis, writing for Bloomberg, noted that importers on the West Coast are contributing to crashing demand because many of them are waiting for rates to drop even further before signing any deals with carriers. These carriers, meanwhile, are attempting to start negotiations at about $2,000 per FEU for shipping from Asia to the West Coast, which many importers are turning down. Many other shippers are starting negotiations with offers of $1,500 per FEU – and spot rates are going even lower.

Xeneta CEO Patrik Berglund noted that fewer contracts are being signed with each passing month.

“The prospects of carriers being able to maintain their current long-term rates here look slim, to say the least,” he said. “With the current market uncertainty, framed by weak demand and both macroeconomic and geopolitical concerns, carriers will be bracing themselves for rates to head in the opposite direction during this year’s tendering. We can expect to see some major falls, and that will, we expect, drag the [Xeneta index] down more sharply in months to come.”

“It’s very, very difficult to see how carriers can maintain that elevated [rate] level,” he continued. “Unless something drastic happens, I think the long-term contracts in the second half of the year will look very different to those that were valid at the start of 2023.”

Learn more about the world’s transportation networks at SupplyChainWarning.com.

Watch this video from Fox News discussing how the collapse of supply chains is one of the greatest threats to America’s national security.

This video is from the News Clips channel on Brighteon.com.