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The maritime market in 2024 has been quite unpredictable. Even though there is less demand for goods exported from China, ocean freight prices are high, and there is no space on the ships. This doesn’t make sense. However, the actions of the shipping lines are the main reason for this. Let’s look at why this is happening.
1. Human Factors Over Market Fundamentals:
The reason freight costs are high and there is no space is not due to demand and supply, but because of the shipping lines’ actions. During the pandemic, freight rates skyrocketed to levels never seen before, with a 40ft high cube container to the United States costing as much as $15,000 in August 2021. This was way beyond the actual cost to the shipping lines, which was still around $3,000.
2. Pandemic Profiteering and Market Adjustment:
During this time, the shipping lines and freight forwarders made huge profits. Contracts were adjusted, and the cost per TEU (Twenty-foot Equivalent Unit) increased by about $3,000-$4,000. This created a new revenue benchmark for the shipping industry.
However, now that global trade volumes are normalizing, if the demand goes back to the pre-pandemic level, the shipping companies will lose money. To prevent this from happening, the major players in the industry got together and decided to manipulate supply by consolidating space on ships and reducing the number of vessels in operation. This artificial limitation of supply is why freight rates are still high even though the demand has dropped.
3. Space Consolidation and Reduced Fleet Size:
By reducing the available shipping capacity, the shipping lines have managed to maintain a tighter control over the market. This is why, even though less stuff is being exported, it is still hard to get space on a vessel. The strategy of reducing the fleet and consolidating cargo space helps keep the rates high and makes sure the shipping lines can continue to make money.
4. Planning Ahead is Crucial:
With the current market dynamics, it’s important to plan your shipments well in advance. As long as the volume of exported goods doesn’t increase significantly, the shipping lines will keep supply constrained, which will keep freight rates high. By locking in space ahead of time, you can avoid the last-minute scramble and potential rate spikes.
5. Future Market Adjustments:
If this trend continues without a significant increase in cargo volume, the shipping lines may have to adjust their pricing strategies. For now, however, the focus for shippers should be on being proactive and having flexible logistics solutions to navigate this volatile market.
In conclusion, the current volatility in the maritime market is primarily driven by the actions of the shipping lines to maintain profitability post-pandemic. Understanding these underlying factors is crucial for businesses looking to navigate the complexities of international shipping in 2024.
