Transportation & Logistics Analysis

A pause in the fall in ocean freight rates

May 10 2023

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BAROMETER. The fall in ocean freight marked time in April and supply chain reliability started to recover.

In April 2023, the container shipping market held its breath. The deterioration in Asia-Europe and Asia-United States came to a halt. The worst looks to have been avoided, at least for the time being, as annual Asia/North Europe contracts were signed for $1,600-2,000 per 40' container. These rates should enable the shipping companies to keep their heads above water in terms of profitability but will not give them much room for manoeuvre to deal with unexpected developments.

Transit times get priority

The other thing we will remember from the month of April, as calm returned to the market, was a certain return to fundamentals. For supply chain managers at Western importing and exporting companies, reliable transit times are clearly the basis for a successful, logistics system. After the ups and downs of the last three years, it is now time to reconfigure logistics systems through the introduction of lead times which take account of nearshoring options, even if these remain marginal for the time being. This will allow stock levels to be reduced and confidence in global supply times to be increased, sometimes at a lower cost. This is what we are seeing, for example, in the textile industry.

After creating a shock which lasted two years, the pandemic has brought feedback, which has resulted in its turn in practical solutions for dealing with the unexpected. This reconfiguration is also proving to be an opportunity to "green" logistics chains, as regulatory constraints become increasingly tight.

Recovery more modest than expected

Little by little, cautiously, stock levels are returning to normal, which suggests that demand will be stronger in the second half. At the same time, however, the recovery will probably be less strong and less rapid than the shipping companies had expected in their initial 2023 business plans. 

As the price of energy and basic foodstuffs move back towards their pre-pandemic levels, the distribution networks are proving to be slow to pass on these reductions.

A world subject to long-term instability

Another paradox seen again in April was the arrival of a certain form of normalisation on the markets despite palpable growth in global geopolitical tensions.

Away from the state of the market and day-to-day freight rate variations, these questions are hanging over shipping sector operators like a sword of Damocles. The geopolitical tensions could be a game-changer, and could have a more devastating effect on world trade than the pandemic. If it happened, the need to diversify supply sources and resort at least partially to nearshoring would be more pertinent than ever. 

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).
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