Global Shipping Prices: Moderating Trends and Future Pressures
Global shipping costs are easing but pressures remain. Pressures are easing after many pandemic-related factors caused shipping costs to increase significantly over the past year. Shipping costs soared as consumers unleashed pent-up savings to buy new merchandise while the pandemic continued to snarl the world’s supply chains. However, recent data shows that ocean shipping rates in the spot market have plunged by even 75% in 2022, some of them even below contract rates.
Understanding Freight Rates and Market Dynamics
Shipping rates are roughly the same as transportation costs, freight charges, or hauling fees. A freight rate is a price at which a certain cargo is delivered from one point to another. To be more specific, freight is the movement of goods by modes of transportation such as trains, ships, trucks, or aircraft. The shipping price depends on the form of the cargo, chosen mode of transportation, the weight of the cargo (CBM) or TEU, and the distance to the delivery destination.
Container rates have more than quadrupled since the start of the pandemic, with some of the biggest gains concentrated in the first three quarters of last year. Our Chart of the Week shows how global container rates began to pull back from their record in September and have since declined by 16 percent, mostly due to falling rates for trans-Pacific eastbound routes, the main sea link from China to the United States.
Factors Influencing the Decrease in Costs
Strong goods demand is diminishing after the traditional peak shipping season, which is typically from August to October, causing shipping rates to decrease. In addition to seasonal changes, the following factors play a role:
- Market Demand: Seeing a weaker demand for goods and stocked warehouses, cargo customers demand cheaper shipping rates.
- Economic Factors: China’s economic slowdown also plays a role in the shipping costs slump.
- Operational Efficiency: The US recently ordered some ports to expand operating hours and boost efficiency to reduce congestion and ease supply bottlenecks.
- Pandemic Recovery: If the pandemic is controlled in the future, the demand for tradable goods might gradually decline as some service-providing sectors, such as travel and hospitality, recover.
Economic Impact and Future Projections
Although rates have subsided, they may remain elevated through the end of the year. Some underlying supply constraints do not have immediate fixes: backlogs and port delays, labor shortages in related occupations, and shipping industry challenges such as slow capacity growth. The United Nations Conference on Trade and Development (UNCTAD) projects that if freight rates remain elevated through 2023, global import price levels and consumer price levels could rise by 10.6% and 1.5%, respectively.
Higher freight rates result in larger increases in the final price of low-value-added products. Smaller developing economies that export many of these goods could become less competitive and face difficulties with their economic recoveries. Shipping costs slump is expected to remain in 2023 and 2024, with an upswing around Christmas time and New Year celebrations. However, it is highly unlikely that the shipping rates will return to the pre-pandemic levels, especially given the higher fuel costs.
Current Freight Rate Examples (October 2022)
The following table provides a list of current rail, ocean, and air freight rates based on recent data:
| Route | Type of Freight | Details | Rate (USD) |
|---|---|---|---|
| Xiamen – Hamburg | LCL Rail | 2.38 cbm | 650 USD |
| Guangzhou – Duisburg | FCL Rail | 40’HC | 6500-8000 USD |
| Gdansk – New York | LCL Ocean | 1.92 cbm | 800 USD |
| Xiamen – Hamburg | FCL Ocean | 40’HC | 5000-6000 USD |
| Manchester – Warsaw | Air Freight | 1.2 cbm | 700 USD |
Pathways to Stabilization
Returning to pre-pandemic shipping rates will require greater investment in infrastructure, digitalization in the freight industry, and implementation of trade facilitation measures. Organizations like the Global Alliance for Trade Facilitation aim to help governments implement the World Trade Organization’s Trade Facilitation Agreement to identify opportunities to address delays and unnecessary red-tape at borders. For example, in Colombia, introducing a risk management system facilitated trade while cutting the average rate of physical inspections of food and beverages by 30%.
