The big trade slow varying freight rates in the international market

The big trade

slow: varying freight rates in the international market

Jessica Slater, Solicitor, Lester Aldridge

The global supply chain relies on a complicated network of multi-modal transport and interchanging components that need to function together, in harmony, for the chain to work. Any one variable, such as bad weather conditions delaying a ship, port and airspace congestion or, indeed, the global pandemic, can send a cascade of disruption down the supply chain.

Over time, these events, along with other factors (inflation, lack of resources and raw materials, supply and demand), can lead to an increase in the operational costs of aircraft, ships and road hauliers affecting the price at which our cargo is shipped from one country to another.

Over the past few years, freight rates have been on a steep and steady incline with 2021 seeing peaks well above predictions, meaning the cost of shipping cargo has been elevated for quite some time now. This year, however, some sectors are experiencing the opposite – with a precipitous fall in container shipping and airfreight rates defying market predictions. Container shipping In container shipping, the sudden drop in freight rates is thought to be attributable to the easing of supply chains following the pandemic but has, perhaps, been enhanced by the current status of the global economy.

To put this ‘drop’ into perspective, some container liners have reported a 50% decrease in the costs of a vessel’s operational charges attributable to a twenty-foot container (TEU) as compared to the rates in December 2021.

Whilst decreasing container spot freight rates is welcome news for businesses and importers, generally speaking, the current rates do remain at a notable elevation compared with pre-pandemic levels. It remains to be seen whether or not they will drop below the pre-pandemic rates in 2023 but, as matters stand, there is no clear stabilising in sight and carriers and freight forwarders are struggling to effectively manage their resources by going so far as suspending entire services across some routes.

In terms of what we can expect to see next, HSBC predicts that container freight rates will experience a further decline in 2023 to 2024, and have therefore cut profit estimates for some container lines between 2022 to 2024 by up to 51%. Air cargo In the airfreight industry, a similar rate of decline is being experienced but, perhaps most apparent, is the sudden lack of demand from end consumers, indicative of global inflation, high-interest rates and the ‘cost of living crisis’. The European market is thought to be the most affected by this downturn, possibly amplified by airspace bans from the war in Ukraine and additional fuel costs.

Despite this, air carriers appear to continue investing in air freight capabilities, with Maersk being a recent entrant into the market and Boeing selling off their wider aircraft, following great demand for refurbished passenger planes for air freight purposes. This growth is thought to be a natural consequence of the growth of international e-commerce and the demand for shorter delivery times, which became more competitive as maritime transport slowed during the pandemic. Road haulage In the UK, road haulage also presents some uncertainty where we have experienced a distinct lack of HGV drivers, driving road carriage rates on an upward trend and causing excessive delays in delivery times. The TEG Road Transport Price Index has recorded a three-year high in road courier prices with haulage prices also picking up due to increases in fuel costs and a shortage in labour. Bulk cargo shipping In the bulk cargo sector, we are experiencing the opposite to container spot rates, with some commodities starting to boom as part of usual supply and demand price determination economics. The recent global shift in diversifying fuel sources and optimising renewables has led to a significant increase in demand for liquefied natural gas (one of the UK’s biggest current imports). LNG carrier spot rates are now reporting rate increases of more than 100% across the US-Gulf route to Europe. Sum up All in all, international trade is steady, but commodity and industry-specific. We anticipate that container carriers, freight forwarders and container receivers will continue to experience financial uncertainty as container freight rates continue to decline.

The volatility of the market in both shipping and aviation freight is clearly posing a challenge for businesses throughout the international supply chain. This cascades down, causing an increase in the exercise of contractual and possessory ‘liens’ over cargo as companies battle out the finances to make ends meet. Those engaged with the international carriage of goods are encouraged to undertake an enhanced due diligence process of the entities involved prior to contracting.

If you would like any tailored advice relating to your business, please get in touch with LA Marine, Lester Aldridge’s specialist Shipping & Logistics team, by emailing online.enquiries@ la-law.com or calling 01202 786260.

The volatility of the market in both shipping and aviation freight is clearly posing a challenge for businesses throughout the international supply chain.