Are you feeling the relief of lower ocean shipping rates over the past year? Don't get too comfortable! While rates are now nearly back to pre-pandemic levels, there are plenty of other factors that can cause them to rise again.
By understanding the potential drivers of rising ocean freight rates and exploring strategies to minimize their impact, you can be better prepared to navigate the challenges of the global shipping market and continue to grow and succeed if costs rise again.
So grab your life vest and let's dive in!
Will ocean freight rates increase in 2023?
After a peak in September 2021, global freight rates are now nearly back to pre-pandemic levels according to the freight rate index FBX.
However, just because rates have dropped doesn’t mean they will stabilize. Some of the factors in 2023 that may reverse the fall include Russia’s invasion of Ukraine, strikes in the West, lockdowns in China, rising interest rates, and new trade policies.
Rising fuel prices due to Russia’s protracted invasion of Ukraine
Russia is one of the world's largest oil producers and exporters. On December 5th, G7 countries introduced a price cap on Russia’s oil exports in a bid to limit the Kremlin’s revenue earned through oil. In response, Moscow has warned that it will stop supplying crude to nations that join the price control plan. If this were to happen, it could lead to a reduction in the global supply of oil, which could drive up prices. This in turn could affect the cost of transporting goods by sea, as fuel costs are a significant component of ocean shipping rates.
There’s also the risk of not being able to bring back into service Nord Stream 1 and Nord Stream 2, the two biggest gas pipelines from Russia to Europe, which were sabotaged in September. On December 14th, Canada said it would revoke a sanctions waiver that allowed turbines for Nord Stream 1 to be repaired in Montreal and returned to Germany. If these transit routes are interrupted long term, this could also drive up energy prices and, again, affect the cost of transporting goods by sea.
Strikes in the West
Strikes lead to delays in the delivery of goods to ports, which cause bottlenecks and higher shipping rates as carriers try to compensate for the increased costs and reduced capacity caused by the strike.
The threatened nationwide rail strike in the US was averted in December when President Biden signed legislation imposing a labor agreement between rail companies and their workers. Similar deals were worked out with dockworkers at the Port of Mobile, which headed to mediation, and workers at the UK's busiest container port, who accepted a pay deal.
Nevertheless, the threatened strikes take place within the context of a widening movement of workers around the world, and the ever-increasing pressure and potential for disruption remains. Just the threat of a port strike on the US West Coast could see container shipping rates increase again.
End of lockdowns in China
China has long been the largest importer of oil in the world, but its demand for energy has been suppressed due to its “zero-COVID” policy of lockdowns. This has freed up energy supplies that would have otherwise been consumed by China, benefiting the rest of the world.
However, on December 8th, Beijing announced major changes to its national pandemic response, moving away from its strict approach. As China relaxes its restrictions and its economy starts running at full capacity again, there will be renewed competition for energy between Europe and Northeast Asia, potentially leading to higher prices.
Rising interest rates
Higher interest rates increase the cost of borrowing money, which can make it more expensive for shipping companies to finance the purchase of new vessels or the expansion of their fleets. This could lead to higher shipping rates as carriers try to compensate for the increased costs of financing.
On the other hand, if interest rates rise too much that may tilt the U.S. economy into a recession, and the stalling economy will affect demand, resulting in a significant loss of trade demand. Will the Fed know where to stop?
New trade policies
Let’s not forget the UK’s exit from the European Union - Brexit - and China's ongoing trade tensions with the United States. Any new tariffs or revised trade agreements could affect the cost of transporting goods by sea.
For example, if a new trade policy were to increase the demand for certain goods or reduce the supply of others, it could affect the balance of supply and demand in the shipping industry. This could lead to changes in shipping rates as carriers respond to the changing market conditions.
Four solutions to circumvent a rise in ocean freight rates
While there are no magic solutions, there are a few things you can do to keep your prices low. You can opt for low-cost slow boat options, look for ways to reduce the weight or volume of your shipments, negotiate rates with your current shipper, or use an online freight marketplace to find new shippers with better rates.
1. Opt for low-cost slow boat options
Reducing the speed at which your boat travels reduces fuel consumption and this savings can be passed on to you. Slow boats also mean less greenhouse gas emissions, which helps reduce your environmental impact.
If you’re willing to wait a few weeks longer for your shipment, see how much you can save with low-cost slow boat options by using our ocean freight cost calculator.
2. Look for ways to reduce your weight or volume
The more you can pack into a container, the more you’ll save on per unit shipping costs. Here are a few ways to reduce your freight weight and volume:
- Optimize packaging: Using the right packaging materials and techniques can help reduce the volume of the goods being shipped. Use lightweight materials, such as cardboard or plastic, instead of heavier materials like wood or metal. Also optimize your packaging design to minimize the amount of space that the goods take up in the container.
- Consolidate shipments: Consolidating multiple shipments into a single container can help reduce the overall shipping cost, as the cost of the container is spread out over a larger volume of goods.
- Use less material: Cutting down the amount of material in the manufacturing process can help reduce the weight and volume of the goods being shipped. This can be achieved through a variety of methods, such as using lighter materials, reducing the size of components, or streamlining the design of the product.
- Partner with other shippers: The easiest way to do this is with less than container load (LCL) shipping, meaning you share the container space and cost with other shippers.
3. Negotiate rates with your current shipper
By being proactive and open to negotiation, you may be able to secure more favorable terms. Some points you can try to negotiate include:
- Request volume discounts: If you ship a large volume of goods on a regular basis, you should be able to negotiate a volume discount, especially if you have a long-term relationship with the shipper.
- Negotiate longer contract terms: If you are willing to commit to a longer contract, you should be able to negotiate lower rates in exchange for the increased business.
- Be flexible on your shipping needs: This can include things like transit times, handling requirements, and any other specific needs that may impact the cost of the shipment.
Note that the success of these negotiation strategies will depend on a variety of factors, including the shipper's shipping volume, the strength of their relationship, and the overall market conditions. It never hurts to try though.
4. Use an online freight marketplace to find new shippers with better rates
It's always a good idea to shop around and see which shipper offers the best rates and terms.
You can get instant ocean freight rates and compare quotes in seconds with Bookairfreight. Saving money on ocean cargo rates is a problem we solve every day.
Proud Co-Founder and CEO of Bookairfreight. Shortly after starting to work in the world of logistics, I was astonished at how difficult and time consuming it was for businesses to get their hands on a simple air freight quote. I saw this as an opportunity to really make a difference in people’s lives, and felt like I had to do something. It was the spark that lit the fire of Bookairfreight’s creation.