Turning Tide: Freight Rates Continue To Fall In 2023, Set To Remain Low In 2024

Global slowdown and excess container supply to keep shipping rates near pre-pandemic levels in coming years.

<div class="paragraphs"><p>(Source:&nbsp;<a href=";utm_medium=referral&amp;utm_source=unsplash">Andy Li</a> on <a href=";utm_medium=referral&amp;utm_source=unsplash">Unsplash</a>)</p></div>
(Source: Andy Li on Unsplash)

After an extraordinary peak in 2021 and early 2022, freight rates have reverted to near pre-pandemic levels.

A surge in demand, a shortage of containers and ports, along with a nexus between major shipping lines and freight forwarders had driving shipping costs and longer wait time for shipments globally and in India in 2021. Since then, the tide has turned, with freight costs correcting through 2023.

After rising by about three to five times, they are back to pre-pandemic levels, said Arun Garodia, chairman of the Engineering Export Promotion Council.

According to rough estimates by Engineering Export Promotion Council of India:

  • The cost of a 20-foot container along the U.S. trade route is currently closer to $1,400, about 5% over pre-pandemic rates. That compares to a previous estimate of $6,000 given in 2021.

  • Along the trade route to the U.A.E., the cost of a 20-foot container has fallen to $60.

  • Another busy trade route to Germany is seeing costs for 20-foot containers at $500-600 earlier.

In case of China, the economy is currently grappling with its own issues and imports have gone down, along with declining freight costs, Garodia said. Trade routes to the U.S., China and the U.A.E. and the EU are the busiest.

Freight rates are moderating every day still because of the global slowdown and an excess of container supply, according to Arunava Paul, associate director at CareEdge. In some cases, the rates appear to have a negative carry currently, with companies barely recovering fuel costs, he said.

Small, medium and large companies are benefitting from the easing freight costs. Drugmaker Cipla, in its analyst call for Q2 FY24, said that easing input cost, falling freight rates and favorable forex have contributed to improved operating profitability.

Overall, air and sea rates have come down substantially, Ashish Adukia, global chief financial officer at Cipla said. On an annual basis, air rate has fallen close to 8-9% and the sea rate has plunged almost 60-70%, he said. "We are expecting this great advantage to continue."

Freight Costs Unlikely To Spike

Due to long-term factors such as inflation, increased interest rates, and a structural shift of spending patterns from goods to services, consumer caution in 2023 is likely to extend into 2024, according to a report by online container marketplace Container xChange. Households are expected to prioritise essentials over discretionary expenses, impacting demand for imported manufactured products, it said.

"This trend is likely to challenge the container market for an extended period and we don’t expect a rebound in demand within the next 12-18 months," it stated.