The Two Sides of Lower Container Rates

file3951258242188The Wall Street Journal reported on some news this week that is good for shippers, and bad for carriers. The busiest ocean freight trade route in the World, Asia to Europe, saw a drop in ocean freight rates last week. The drop, about 21%, resulted in 20-foot containers on the Shanghai Containerized Freight Index to go from $1175 each to $934 each.

Whenever the busiest trade route in the world notices a steep drop, it might be an indicator about the entire shipping industry. There are a few reasons for the decreased prices. Peak shipping season, involving cargo from Asia before the holiday shopping season, has ended. That means that peak season surcharges have also ended. There is a bit of desperation from the carriers as well. There are global economic concerns, in Japan for instance, that are worrisome. And perhaps the biggest problem facing the industry is with overcapacity. That is why the shipping prices are where they are.

While freight forwarders are happy to pass on lower rates to ships, it seems that the carriers are not doing well. Below $1700 for a container will hurt the carriers. Although they tried to raise the rates in 2014, they were unsuccessful. The best solution for the carriers to is to build a partnership or alliance. By having shared routes with each other, the carriers can be efficient and cut down on unnecessary expenses.

As we go into 2015, it would seem that the carriers might need to re-think prices in order to improve their outcome.

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