International ocean freight rates, which remained high during the pandemic, began to decline, falling by 20% due to lower shipping demand and slowing U.S. economic growth.
Long-term freight rates for shipments from China to the U.S. West Coast nearly tripled to $7,981 per container from June 2021 to June 2022, according to Xeneta, a shipping data and sourcing firm. However, the situation appears to be changing.
People in the industry said that the super cycle of shipping has ended, and the freight rate will accelerate to decline in the second half of the year. Some companies are renegotiating shipping deals struck when demand surged during the pandemic, or are entering the spot market for lower rates. A senior executive at a major U.S. importer said it had recently lowered ocean freight rates signed a few months ago by 15% to 20%.
After about 2 years of high freight costs, the drop in shipping costs is good news for manufacturers and retailers, and it also suggests that the freight sector’s contribution to inflation is at least starting to level off. Still, those in the shipping industry point out that they are still paying several times what they were before the pandemic hit global supply chains.
Experts say different factors are driving down ocean and trucking rates, but weak demand is a common factor. Usually, American cargo owners stock up in July and August. Due to the previous increase in freight rates and uncertain factors such as the epidemic, many cargo owners advance the stocking time to May, which has also led to a recent decline in freight demand.
Industry insiders believe that the super cycle of ocean shipping has ended, and the freight rate will decline rapidly in the second half of the year. The growth of global container transportation demand will drop to 4% and 3% this year and next, respectively, which is not as good as last year’s 7%.