Shipping freight rates back to normal after huge surge due to Covid

After a massive surge as a result of Covid-19 pandemic (and also the Ukraine war), shipping freight rates are getting back of normal, says DW in a report, as the massive disruptions to global supply chains show signs of easing.

Meanwhile, the Pakistan Railways is also trying to follow the trend albeit to attract more customers with the government eyeing reduction in import bill by curtailing use of imported fuel, as road transport is expensive.

That’s why the Pakistan Railways last week reduced the fares of container trains, freight coaches and wagons by Rs10,000 to Rs23,350 which is applied in Karachi, Multan, Peshawar, Rawalpindi and Lahore among other cities.

Container fares from Karachi will be reduced by Rs10,000 to Rs160,000 while the fare of the big freight bogie has also been reduced Rs195,000 to Rs185,000.

The fare of the small freight bogie has been reduced from Rs182,000 to Rs170,000 and that of big high copper wagon from Rs432,420 to Rs409,070, showing a decline of Rs23,350.

In case of the small high copper wagon, the fare now stands at Rs263,825 from the earlier level of Rs284,815.

Coming back to the actual topic, the supply chains issue was triggered by the lockdowns imposed in China which supplies basic items for manufacturing and other goods around the world. Later, the huge demand caused by the reopening of economies, especially the West, meant there was a shortage of everything – from semiconductors to toys.

Meanwhile, there was a problem of ports ability to tackle the massive inflow of ships. It was most visible in the US where the West Coast ports deal with the trading from China, Japan and other countries of the Asia-Pacific region. Hence, the shortage of workers at ports created a huge backlog with many ships waiting in open sea and the containers unloaded there waiting for inland movement.

Things complicated by the fact that the US was also short of truck and truck drivers who could transport the goods to the cities and thus ultimate the consumers after a huge a demand had been created due to the financial support received by the people.

One has to remember that sea-bound shipping is responsible for 90 percent of the transportation across the world.

No backlogs, reduced rates

However, the things are changing, according to the DW, as it cited the example of Germany – the largest economy in Europe.

“In Germany, the shipping chaos has been brought under control also because of a bargaining deal struck between dock workers and port authorities that ended a disruptive strike this fall,” it said.

“The backlogs of ships along European coasts have been overcome,” Martin Kröger, chief executive of the German Shipowners’ Association (VDR), told DW.

He added that shipping capacity wasn’t so tight anymore as at the end of last year. Another piece of good news, he said, was that ocean freight rates had been falling significantly. “Shipping conditions are similar to what they were before the pandemic.”

The German broadcaster says shipping rates have come down to pre-pandemic levels, with a 20-foot container from China to Northern Europe, now costing $1,479 on average, compared with around $8,000 at the beginning of 2022. Shipping a container from Shanghai to the US West Coast “is even cheaper than in 2019.

Supply chain disruptions

A surge in demand and so-called front-loading [the process of allocating costs at the beginning of a project or contract] by importers had led to the previous supply bottlenecks.

During the pandemic, consumers in Europe and North America massively bought consumer electronics devices, furniture and sports apparel, causing importers to hastily fill their inventories to meet the demand, an expert said. However, the boom is now subsiding and demand for such goods is dropping.

With the United States hovering on the brink of a recession, and growth in Europe already falling off the cliff, the prospects for further economic expansion are indeed dramatically reversing.

“Fears of rising inflation and an economic downturn are weighing on the demand for goods,” He said, driving down the “need for shipping space and the level of freight rates” at the same time.

Will consumer prices go down too?

Some say the fall in global shipping rates will trickle down to consumer prices as goods manufacturers previously had to spend “a tenth of each dollar earned” on transportation and logistics.

But Martin Kröger disagrees, saying shipping costs make up only a “very tiny amount” of the shelve prices to be paid by consumers. He even thinks that freight rates are not going to fall any further, as additional expenditures for shippers caused, for example, by higher environmental standards would cost “a lot of money.”

“Stringent new CO2 regulation imposed by the EU and aimed at gradually introducing less polluting fuels in shipping will increase our costs because they are much more expensive than the conventional fossil fuels we currently use,” he said.

He expects the new environmental standards on fuels to hit global shipping rates “as early as next year.” Industry pundits are expecting “an elevated demand for tonnage,” as companies would “lower the speed of their ships to bring down their emissions”, he added.

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