Shipping costs ‘free fall’ as demand declines

The price of shipping containers from China to Europe and the United States has increased several times since the start of the pandemic. Image: PV technology.

Global shipping rates for freight containers are in ‘freefall’ as supply outstrips demand after 18 months of sky-high prices, which are mainly driven by demand triggered during the COVID-19 pandemic and shortages ship supply.

When Premium PV Technology informed our readers of shipping and logistics costs in February, freight rates from Asia to Europe were around $14,500 ($16,000 for the UK). Asia to the US West Coast was around US$9,500 and to the East Coast was around US$11,000, according to data from S&P Global Commodity Insights.

Two months ago (July 6), shipping a 40ft container from Asia to Europe would have cost you US$9,600, while Asia to US East and West Coasts Unis cost US$9,700 and US$7,100 respectively.

Now, however, those fares have dropped to US$6,800 for Asia to Europe, and US$8,450 and US$4,200 for the US East and West Coast respectively, according to data shared with Premium PV Technology.

George Griffiths, global container freight editor at S&P Global Commodity Insights, told this site that, somewhat surprisingly, rates are not expected to rise for the rest of the year. Indeed, the usual peak period in early September did not cause upward pressure on freight rates, nor did the upcoming so-called “golden week” holidays in China at the end of the month.

The fall in prices was caused, Griffiths said, by weak global demand amid worries about the state of the economy as well as fears about the impact of the current energy crisis. Additionally, the pent-up demand triggered during the COVID-19 pandemic has now diminished as individuals and businesses tighten their belts in anticipation of a harsh winter.

At the start of the pandemic, stocks were low and warehouses empty. That’s not the case now, says Griffiths, with much healthier supply levels than in March 2020.

Due to lower demand, prices are falling week after week, Griffiths said, adding that “we are now in a period of oversupply – no one thinks rates will rise by the end of the year. “.

Another factor to consider is that many couriers entered the market a year ago, attracted by the exorbitant prices charged by shipping companies. These entrants, however, are now just trying to break even and there is currently some price undercutting in the market, Griffiths said.

Going forward, it looks like prices will continue to fall through the end of the year and into 2023, when much more capacity is expected to come online. Currently, the order book for container ships over the next 18 months stands at 27% of current capacity, suggesting further price reduction through 2023 as supply continues to outpace demand. While this figure is 27% in terms of current capacity, it is only 10% in terms of the number of vessels, which means that the industry is building larger vessels to transport goods.

That said, pricing hasn’t been the only issue causing chaos over the past 18 months. The delays – caused by a lack of port workers and COVID-19 outbreaks – have been a thorn in the side of PV importers with tight schedules. And while delays are certainly down from six months ago, a new wave of industrial action threatens to cause further delays at major ports, particularly in Europe with strikes in England and Germany, the threat also threatening the United States.