International container freight costs to soften for Australia’s agriculture sector, but no return to pre-pandemic lows in sight

Australia’s agriculture sector can expect to face high shipping container shipping costs and continued supply disruptions for at least a year before a ‘normalization’ of the global shipping system, according to new research from Rabobank. sea ​​freight.

In its Global Ocean Freight Outlook report, the agribusiness bank says that while global container freight prices are set to continue to fall gradually over the next 12 months – from the “irrational” highs reached at the end from last year – they are not expected to revert to -pandemic lows, with the global container shipping industry now being affected by broader structural factors including a weaker global economy, higher operating costs, geopolitical uncertainty and unbalanced trade flows.

The report says that while the record sea freight rates seen over the past two years, driven by pandemic-related disruptions, have already begun to ease – with “spot rates having retreated from low levels irrationally high in Q4 2021” – they remain three to five times above pre-2020 levels. Long-term contract rates have also risen significantly and remain high.

Reliability of shipping container freight schedules had fallen from nearly 80% before the pandemic to around 30% as disruptions and uncertainties “spread across the world” and – with lingering problems of port congestion and only slow additions of new transport capacity – have not yet recovered.

Speaking on a recently released podcast, When will container shipping get cheaper and smoother again?, RaboResearch Global Supply Chain Analyst Viet Nguyen said that shipping container prices should “never” return to pre-pandemic low rates of around $3000 per container, they would rise from the current low of $7000 to $8000 per container over the coming year.

He said several global “macro factors” were influencing shipping dynamics and driving the persistently high costs.

As increased inflation and historically low levels of consumer confidence around the world put downward pressure on shipping rates, Nguyen said, rates were supported at higher levels by global trade flows. imbalances that hinder profitable repositioning of empty containers.

“On top of that, geographic uncertainties add risk and there are also rising operational costs for the sector due to higher energy costs and sustainability regulations,” he said.

Rabobank expects container schedule reliability to recover as well, albeit slowly. Congestion is expected to persist at major ports until the first half of next year.

Port congestion is a major contributor to continued supply disruptions, Rabobank said. While various processes have been implemented to improve efficiency, structural factors – including a lack of coordination between sea and land transport, labor shortages with uncertain labor negotiations, disrupted trade flows and a general lack of automation – continue to expose port vulnerability, the bank said.

Australia

For Australia – where the agricultural sector is heavily dependent on container shipping for imported inputs (such as plant protection and machinery) and export of goods (including meat, fruit and vegetables) to international markets – the “overall picture is quite positive”, according to Stefan Vogel, RaboResearch’s managing director for Australia and New Zealand.

“While we don’t expect sea freight to return to normal for the industry here until 2024, we believe it will improve for us in Australia and many other parts of the world, but it doesn’t. won’t happen tomorrow,” he told the podcast.

“It will be a year or two where shipping container freight rates tend to slowly decline, while simultaneously reliability improves – step by step – to something closer to normal,” he said. -he declares.

Mr Vogel said the “bad news” is that container sea freight rates are unlikely to return to pre-pandemic levels, when “they were extremely cheap”. However, further extreme price increases to – or above – Q4 2021 highs are also not expected.

“The overall picture is quite positive, where we don’t expect to see these rates suddenly explode again or that there will be another massive on-chain disruption,” he said.

Strategic partnerships

Nguyen said strategic partnerships and long-term contracts with logistics service providers were important considerations for players in agricultural industries that depend on international shipping.

“This can be critical to ensuring service reliability and minimizing disruption to their supply chains,” he said.

Rabobank Australia & New Zealand Group is part of the international Rabobank Group, the world’s largest specialist in food and agribusiness banking. Rabobank has over 120 years of experience in providing tailored banking and financial solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 38 countries, serving the needs of approximately 8.4 million customers worldwide through a network of over 1,000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a leading provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 90 branches in Australia and New Zealand.

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