What goes up, must come down—unless we’re talking about ocean freight rates, it seems. Over the past year, containerized ocean freight rates on most every major trade lane have doubled or even quadrupled. The dramatic drop in cargo movement in early 2020 and subsequent response by ocean carriers to reduce capacity, followed by a flurry of consumer spending in the second half of 2020 that drove up U.S. imports, topped off with pandemic-related labor shortages issues throughout the global supply chain, all converged to create the perfect, and pricey, storm.
And, hardly any shipper segment is immune from the steep rate hikes. Dry or reefer. Imports or Exports. Electronics or wine.
When will shippers get some relief from the extraordinarily high freight rates?
Hapag-Lloyd and MSC announced recently that they’re hiking rates for dry and reefer on certain trade lanes starting April 1.
However, Fitch Ratings sees some relief on the horizon.
“We consider the current rates unsustainable in the medium term, as the sector is susceptible to rate volatility and risks of weak economic recovery and trade protectionism, requiring constant prudent capacity management.”
In other words, while the U.S. economy is heating up, the economies of its trade partners may not be equally on fire, which could dampen the overall global economic rebound. Likewise, ocean carriers are not likely to add a heap of capacity to the mix right now.
Meanwhile, “Spot rates will remain high in the short term, which will flow through to contracted rates for 2021,” stated Fitch, referring to the annual contract negotiations underway between ocean carriers and shippers.
Fitch expects that once supply chain disruptions ease, the inherent competitiveness in the industry will result in more attractive and affordable rates.
At the same time, there are other reasons to believe ocean freight rates will decrease, noted the credit rating agency.
“The sector remains subject to risks of geopolitical tensions and trade protectionism, uncertainty about economic recovery paths in different regions, as well as ESG-driven initiatives such as IMO2020 and other emission regulations.”
Next question: how much might ocean freight rates come down?
If Vinroutes were reading the tea leaves—or lees, as it were—our bet would be that rates for dry containers will come down further than reefer rates. Why? A reefer container costs three to four times what is costs to manufacture a dry container, and ocean carriers weren’t consistently investing in their reefer container fleets in recent years. Furthermore, the demand for reefer containers is strong, but manufacturers are struggling to turn out new containers to meet that demand.