9B tons of goods to be carried by ships in 2021 adds pricing pressure

Nearly 90% of international trade is shipped across the oceans. More than 9 billion tons of goods are carried annually by ships worldwide, and freight volume continues to ebb up each year. As such, it is fair to say that shipping is the lifeblood of global commerce.

2020 saw an increase in shipping volumes, but the number of ships decreased due to the pandemic, adding more pricing pressure, causing a spike in shipping rates. When commerce spikes, it cascades into global ocean freight pricing variability. During COVID-19’s early stages at the beginning of 2020, global ocean freight traffic declined dramatically due to Asian countries suspending shipping of goods due to the pandemic. China, the world’s largest manufacturer of goods, shut down production due to both the pandemic and the Chinese New Year holiday. Coupled with other countries in the Far East who also shut down in an attempt to contain the spread of the pandemic caused ocean shipping traffic to temporarily decline.

Demand for ocean freight skyrocketed along with freight rates as China reopened their factories, spurring an increase in demand for international shipping services from Asia. The trend has since continued as Western economies slowly recover from the impacts of COVID-19.

This has caused a strain on throughput as ports lack sufficient container cranes to move the rising volume of containers off inbound ships. This, along with a lack of shipping containers in Asia, especially in China, has further spiked pricing in light of the rising demand. Many shipping containers are sitting idle at ports and on ships in USA, Europe, and South America. This imbalance of equipment is impacting freight costs sharply as ocean carrier companies fight for any available container. While ocean freight carriers are expediting the return of empty containers back to Asia to meet the demand, this imbalance and instability is expected to keep global ocean freight costs high well into 2021.

So how does a business navigate the intricacies of shipping globally and how to calculate and compare freight rates from various shipping companies during uncertain times?

There are many factors that determine freight costs. A shipper should know the difference between Freight Quotation and Ocean Freight Rates. Costs are impacted by if using a Freight Forwarding Service or contracting directly to an ocean carrier. The terminology and options can be mind boggling even to experienced shippers. Employing the services of an independent logistics expert can help with selecting the right Freight Forwarder (FF) that will drive efficiencies and lower overall shipping costs.

A key ocean freight shipping pricing factor is choosing Less than Container Load (LCL) or Full Container Load (FCL). The size of the shipment is just one of many components in determining which is better suited. Assessing correctly helps lowers shipping costs. Working with an experienced Logistics Consultant can help frame all the factors to consider for choosing LCL or FCL.
 

Insights for Selecting an Ocean Freight Service Provider

1. Service Level Needs: It is important to determine the shipping needs. How fast do the goods need to be delivered and what is the volume? Is what’s being shipped considered small goods or oversized goods?
2. Global Network: Select a company, Freight Forwarder, that has a vast global network and a variety of carriers under contract. This will assure the timely delivery of your goods and attaining the lowest price for the shipment. This is especially important during this era of big shortages of shipping containers.
3. Authority and Licenses: Make sure the Freight Forwarder is licensed and has operating authority to handle the goods you are shipping. This assures they will comply with the regulations and restrictions of shipping goods globally.
4. Documentation: International shipping involves varying amounts of accurate paperwork, documentation, insurance, and various taxes. The Freight Forwarder will handle all of these on your behalf.
5. Brexit: Britain’s exit from the EU has created complications and a big mess in Europe. As of January 1, 2021, the UK Global Tariff system went into effect for all United Kingdom jurisdictions, including England, Wales, Scotland, the Isle of Man, and Northern Ireland. New Brexit legislation impacts duties and VAT charges. Shipments have been either delayed or completely turned back at the borders because of improper documentation. If these shippers had used an experienced Freight Forwarder who is current with all the new Brexit Withdrawal Agreement requirements, problems and delays would have been avoided. Reports are growing of shippers who have incurred additional freight costs, and some have had to discard their goods because of spoilage caused by this new border paperwork bureaucracy.
6. Freight Costs: There are many components that make up a shipper’s final freight cost. Some of the charges can be avoided with planning and company selection.
    

Ocean Shipping OUTLOOK

Global ocean traffic volume will remain in high demand, continuing to pressure freight shipping costs upwards. Shippers should not expect shipping costs to drop in 2021. Shipping companies are profiting from the imbalance.

• Maersk reported their best-ever quarterly earnings in the 4^th quarter of 2020 with ocean revenues topping $8.257 billion. This is a 15.5% increase compared to their 2019 4^th quarter revenue of $7.148 billion. The company expects the trend to continue for 1^st quarter of 2021.
• South Korea’s HMM revenue jumped from $4.671 billion in 2019 to $5.435 billion in 2020, a 16% increase. This operational driven revenue increase returned HMM to the black reporting a $105 million profit, as opposed to a loss of $499.8 million in 2019.

It will take a while for global ocean freight shipping traffic to normalize and for shipping containers to be repositioned back into Asian ports where most of the world manufacturing and production originates. The global economy revitalization of production and global commerce as the availability of COVID-19 vaccinations spreads will continue to add to global ocean freight pricing pressure this year.

Call CPC for expert advice and direction during these unprecedented times. We are here to help shippers regain the upper hand in both turbulent and calm market environments. Our process starts with a free assessment of your current freight bills to quantify the savings opportunity CPC can deliver for your company.