How quickly the wheel turns in this funny old world of ours, where until recently post-Covid supply and demand in the ocean freight sector pitted profit seekers in the liner trade against freight forwarders vying for spot allocations.
With several lines favouring beneficial cargo owner (BCO) shipments over ad hoc bookings, obviously homing in on the long-term contract work of large retail consignors and the like, smaller agents feared they were being squeezed out of the market.
Needless to say, BCO rates rose on the back of post-pandemic boom time for the carrier industry, maximising revenue through markets reopening from Covid-19 lockdowns.
But the conflict in Ukraine and other consumer pressures weighing on the American economy have caused a slowdown in inventory build-up in the States, with spot allocations suddenly being back in vogue.
It doesn’t mean, though, that spot rates are going up – well, not yet.
On the contrary.
BCO rates are still high, but demand tapering off because of inflationary pressures in America is bringing about a turnaround in demand for contract freight.
Moreover, because spot rates are trending down – by 2.8% from $7 981 per FEU to $7 695 on east-west Pacific trade last week – ad hoc allocations are beginning to claw back lost ground.
To understand the impact that inflation is having on consumers in the States and how this is rippling through to shipping, it’s insightful to consider the findings of a consumer survey conducted by the University of Michigan.
The 14.4% drop in consumer sentiment recorded in May, said the ‘Surveys of Consumers’, represents the lowest recorded level since the university started collecting market data in November 1952, reported CNN.
"Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines," said Joanna Hsu, Surveys of Consumers Director, in a statement. "About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009."
Whereas lines were convinced that BCO work would steadily continue into 2023, spot rates are expected to start rising from where they were by the increase in contract allocations.
For the time being though, spot rates are still trending down across the board, with Drewry’s World Container Index recording a 3% decline week-on-week.
However, expectations are that spot rates could level out and start rising as markets factor in diminished trade because of the global inflationary hardship.
