Summary: The global freight market is in turmoil as shipping rates experience significant declines, particularly in Central China, where rates have dropped to as low as USD 4,600 to USD 4,800 due to an oversupply of ships. Meanwhile, South China benefits from e-commerce, maintaining higher rates around USD 6,000. European routes have also seen a downturn, with rates hovering between USD 6,500 and USD 7,500. This article delves into the factors contributing to the chaotic market, the impact of the Canadian Railway strike, and the strategies shipping companies are adopting to mitigate risks.
Declining Freight Rates Across Major Routes
Senior executives of large freight forwarding companies have highlighted a dramatic drop in freight rates, particularly in Central China, where an oversupply of ships has caused rates to plummet to USD 4,600 to USD 4,800 this week. In contrast, South China, buoyed by e-commerce demand, has managed to maintain rates around USD 6,000. European routes have not been spared, with rates dropping to between USD 6,500 and USD 7,500. The overall trend across the freight market is one of chaos and continuous decline.
The New Reality of Freight Pricing
Industry experts note that the freight market has become highly flexible and responsive to immediate conditions. The traditional 1:4 ratio model between long-term contract prices and spot prices has been abandoned, replaced by a 1:1 pricing method. This shift has led to a significant decline in actual charges, as shipping companies adjust rates quickly in response to poor demand.
The continuous delivery of newly built ships has exacerbated the situation, pushing market tariffs even lower. Some carriers have introduced special offers to attract cargo volume, yet the flight loading rate remains between 80% and 90%. Although the loading rate is comparable to pre-pandemic levels, current freight rates are still much higher than the cost price, nearly double in some cases. Shipping companies are maintaining these elevated rates through strategies like space regulation and continuous price increases.
Impact of the Canadian Railway Strike
The freight market faces additional uncertainty due to the Canadian Railway trade union strike, which began on August 22. The railway company’s preemptive shutdown to avoid conflicts has not yet significantly impacted freight rates, but industry insiders warn that an extended strike could have severe consequences. If the strike lasts more than four days, it is expected to significantly affect freight rates.
The Canadian railway system is vital to container transportation, especially at the Port of Vancouver, where two-thirds of the port’s freight volume relies on rail. The port has already indicated that any strike action will have a “significant” impact on its operations, underscoring the critical role of the railway system in Canada’s logistics chain.
Strategic Responses by Shipping Giants
In response to these challenges, major shipping companies have implemented a series of emergency measures to minimize the potential impact on their customers. Hapag-Lloyd, for instance, was quick to announce special arrangements for goods imported into North America. The company will charge an additional transshipment fee of USD 3,350 per bill of lading for containers destined for Canadian ports but needing inland delivery in the U.S. Hapag-Lloyd has also advised customers to explore alternative trucking options within Canada to mitigate logistics risks and suggested using U.S. ports as loading points to avoid delays.
Similarly, Delta Air Lines’ shipping division, CMA CGM, has issued a detailed response plan. This includes the possibility of diverting ships originally bound for Canadian ports to U.S. ports to reduce delays. The company has also imposed an embargo on intermodal cargo within its global network, particularly for dangerous goods and temperature-controlled containers, to ensure transportation safety and efficiency.
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