Shipping and Freight Costs Fall in March 2023, Reaching Pre-Pandemic Level

The latest observations show that the prolonged burden of high freight cost has significantly eased down globally, as freight and shipping costs fell significantly in March 2023. Oversupply, decreased demand, and moderate economic activity have all been cited as reasons for the drop in shipping and freight costs.

Oversupply of ships and containers was one of the main causes of this decline, as it had resulted from the rapid expansion of the shipping sector in recent months. Shipping costs have decreased as a result of increased competition among shipping companies owing to this oversupply.

In order to even out the supply, shipping lines continued to cancel sailings. On the backhaul legs of major east-west services, they were also beginning to slow down and take longer routes via the Cape of Good Hope. Commodities that depended on transit were affected by this.

Low demand was another factor that added to the decrease in transportation and cargo costs. A number of Indian manufacturers booked a small number of export containers due to a significant drop in demand (export orders) for their finished goods especially Indian pharma and furniture companies. Shipping volumes have diminished because of this, bringing about lower cargo rates.

In the U.S., as a result of lower demand, supply chain strains that were present for the majority of the previous year have been eased, and rates for transporting chemicals on various modes of transportation have continued to fall. Spot trucking rates dipped slightly while ocean freight rates for shipping containers and liquid tankers in March softened by about 5% and 13% for 20ft and 40ft containers respectively from the previous month.

Depressed cargo volumes had resulted in decreased demand for shipping services as a result of the prolonged global economic slowdown, high inventories, and the production shift from China to other Asian countries and Africa. China's moderate manufacturing activities have reduced port pressure, and hence, port congestions weren't observed. Though the utilization of Asia-European trade decreased, it was insufficient to sustain rates. The imminent entry of brand-new ultra-large container ships (ULCS) into the Asia-Europe trade concerned carriers. Hence, freight charges from China to Europe got lowered by about 13% for 20ft containers and 8.5% for 40% containers from February 2023.

Due to forecasts of economic difficulties and inflation, freight costs in Europe dropped dramatically. Container rates for intracontinental trade dropped by around 1 to 1.3%, while for intercontinental trades, rates got lowered up to 15%. Inventories in this region were high, and so merchants didn't import more from Asian nations. Shipping lines had implemented service charges to enhance their coverage, distinguish services, and top off ships with the right ports of call.

The drop in shipping and freight charges may have both positive and negative effects on the global economy. Some industries may benefit from lower shipping costs, leading to lower production costs, which could result in lower prices for consumers. However, other industries may face challenges related to decreased demand and supply chain disruptions. For example, the automotive industry relies heavily on global supply chains, and disruptions in shipping could impact their ability to produce vehicles.

The global drop in shipping and freight charges may also have a long-term impact on the shipping industry. Many companies in the shipping industry are already struggling to stay afloat, and the decline in shipping rates could lead to further consolidation. This consolidation could lead to a decrease in competition, which could result in higher shipping rates in the future.