Freight rates begin to fall as shipping demand falters

Lower transportation costs are good news for manufacturers and retailers after two years of rapidly rising spending. This also suggests that the freight sector’s contribution to inflation is at least stabilizing. But shippers note they are still paying many times more than they did before the Covid-19 pandemic rumbled through supply chains around the world.

Freight experts say different forces are driving down shipping and trucking rates, but slowing demand is a common factor. The lower rates first appear in the spot markets and help drive down the rates on longer-term contracts.

The situation is a stark turnaround for shippers who, at the start of 2022, were willing to pay record contract rates to secure space on container ships ahead of this year’s peak fall and winter seasons. following significant delays and inventory shortages through much of 2021.

An official from a major US importer said he had recently reduced the rates of shipping contracts signed several months ago by 15% to 20%. The official expects further reductions later this year. “Things are changing in favor of importers,” the official said.

San Francisco-based freight forwarder Flexport is seeing more shippers ditch contract rates in favor of lower spot market rates, said the company’s director of ocean trade lane management Nathan Strang. .

Long-term rates for shipping goods from China to the US West Coast nearly tripled between June 2021 and June 2022 to $7,981 per container, according to Xeneta, a Norwegian data and sourcing company. transportation. Short-term rates started falling in March of this year and fell below long-term rates in June.

Senders don’t do everything as they please. A manager at a major importer facing hundreds of thousands of dollars in penalties for failing to meet contracted volumes said he was facing pushback from some shipping carriers. « It’s random, » the official said.

Peter Sand, Xeneta’s chief analyst, said shippers are willing to pay a contract rate slightly above the spot price in return for a guarantee that their container will be loaded onto a vessel. But Mr Sand said shippers were also trying to make sure they weren’t paying too much.

The rate cuts come at a time when signals from the US economy are mixed.

Imports of consumer goods fell about $1.5 billion in value in May, according to the Commerce Department, as Americans cut big-ticket items like furniture and televisions. At the same time, U.S. container imports in volume remain strong and congestion at East Coast ports is increasing.

The National Retail Federation, in a report on Friday, expects import volumes to decline from the previous year’s robust periods of August through November.

Trucking is also experiencing a slowdown in demand. But Chris Caplice, chief online freight market scientist DAT Solutions LLC, said truck rates were falling largely due to a shift from the volatile spot market to longer-term contract rates, truckers seeing more stability in their routes.

According to DAT, trucking spot rates fell 22% in the first six months of this year, falling below the contract rate in May for the first time in two years. In June, the average contract rate for the most commonly used type of trucking, the dry van, was $2.93 per mile, or 17 cents more than the $2.76 per mile to move a load in the market in cash.

Caplice expects contract rates to fall this year as spot rates fall, but shippers will only benefit if diesel prices also fall. Fuel surcharges currently cost shippers about 80 cents per mile. « Fares are coming down but they are being wiped out by fuel surcharges imposed on carriers, » Mr Caplice said.

Freight specialists note that shipping rates remain well above pre-pandemic levels. The spot rate for shipping a container by sea to the US West Coast from China on July 6 was more than four times that of the same period in July 2019, according to online freight marketplace Freightos.

Congestion is also helping shipping costs stay high on some routes, such as China to Chicago, which has been plagued by severe delays on US freight rail systems.

Carbochem Inc., an importer of activated carbon used in water treatment and food processing, paid $16,000 per container in June to ship boxes from China to Chicago, the company’s president said, Gavin Kahn.

Mr Kahn said the cost was down from a peak of $21,000 last year, but three times higher than the rate he was paying before the pandemic. “We need to look probably under $10,000 to get closer to the levels we were before and be competitive,” he said.

Write to Paul Berger at Paul.Berger@wsj.com