Tuesday, June 25, 2024

Why falling freight rates won’t mean cheaper goods this Christmas

As the cost of shipping freight around the world continues to plummet, an industry expert is warning businesses and consumers not to expect more money in their pockets in the lead up to Christmas.

Brian Hack, Managing Director at WA-based freight forwarding company EES Shipping, says freight rates have plunged in recent months, from a high of around $US11,000 per 40ft in September last year, to less than $US3500 per 40ft last week, as consumer demand for goods continues to drop.

The falls are not only unprecedented, but they’re also coming at a time when prices would usually be on the rise, as November is considered peak season for Australia.

“I’ve not seen price drops like this since the Global Financial Crisis. The freight rate has essentially fallen off a cliff, and we don’t yet know where the bottom is,” Mr Hack said.

“During the pandemic we saw freight rates rising significantly, but what we’re seeing now is rates dropping faster than they previously rose, as shipping companies try to undercut each other and secure some of the market share.”

However, the decrease doesn’t necessarily mean the overall cost of shipping to Australia is cheaper.

“With the Australian dollar currently sitting at less than 65US cents, it’s negating the potential savings for importers, as freight rates are set in US dollars,” Mr Hack said.

“Added to that is the high price of fuel, and high landside costs including wages, and you can start to see why overall costs aren’t really declining.”

Both businesses and consumers are looking for ways to reduce their own costs, but chasing the lowest freight rate isn’t always the best option. Mr Hack advises:

  • Don’t compare apples and oranges: “Don’t be fooled by ‘spot rates’ in comparison to contracted freight rates. Shipping lines looking to fill up slots on vessels will offer last minute ‘spot rates’ which are generally cheaper, however with priority given to contracted clients, you run the risk of your cargo being bumped off the ship if there is no longer enough room onboard.”
  • Maintain your relationships: While it can be tempting to shop around and jump ship to other shipping lines or companies offering cheaper rates, Mr Hack warns you may find yourself competing for slots and missing out, with priority given to contracted clients. “While maintaining minimum load amounts in the current market may be slightly more expensive in comparison to spot rates, when demand picks up again, those with contracts have priority to increase slots required. Maintaining networks and professional relationships during troughs can pay dividends during peak periods, as your relationship is well established and allows for smooth sailing.”
  • Look for other markets: Mr Hack says they continue to advise clients to source suppliers outside of China, to ensure they’re not placing all their eggs in one basket. “We’re not saying don’t buy your goods from China, we’re saying having two suppliers is better than one. Finding an alternative market means you have choices, and potentially cost benefits also.”

While the rate of decline is likely to slow into 2023, Mr Hack expects freight rates to continue to fall, at least until consumer demand starts to pick up again.

“There’s a lot of uncertainty in the Australian economy at the moment, with interest rates still rising, and consumers dealing with cost-of-living pressures,” he said.

“I would also expect we’ll see more spending in areas of travel and services as people start to return to pre-pandemic travelling and spending less on goods.”

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