Ocean Freight Rates Normalize: End of the $20K Era?

The worsening state of the global economy is starting to negatively impact the record high ocean spot rates that have overwhelmed shippers the last two years. Everyone involved in international shipping, including the ocean carriers, knew that the record high spot rates were not sustainable over a long period of time.

The softening demand by consumers has some carriers reaching out to shippers in hopes of securing additional container volume. This is a complete turnaround from what shippers have faced since July 2020. The containership industry has changed drastically over the 10 years. The one thing that has not changed is how quickly rates can change based upon supply and demand. Spot rates from Asia to the U.S. West Coast are down over 25% from the same period last year. Carriers were remarkably successful in raising 2022-23 contract rates so the softening spot rate will have less of an impact on their bottom lines.

While the spot rate reductions provide some relief for shippers, it is not time to celebrate. The rates are still a far cry from the extremely low pre-pandemic levels. You will not find any analysts predicting rates could return to these pre-pandemic levels. The carriers are too powerful to allow that to happen. They have numerous tools such as blank sailings or reduction in capacity at their disposal to prevent rates from dropping back to unprofitable levels.

Will shippers ever see $20,000 spot rate levels creep back into the shipping industry? Analysts have gone on record saying the $20,000 spot rate is a thing of the past. The fact that contract rates have increased 300-400% during the pandemic should keep future $20,000 spot rates at bay. As long as contract rates remain stable, we agree with the analysts. There is no conventional path for spot rates to hit $20,000 again. Nonetheless, importing containers from Asia to the United States is anything but conventional these days.