The cost of maritime transport falls because of the low demand of general goods.
Maritime freight chained four consecutive months of weekly declines. After reaching unprecedented heights, with increases of up to ten times compared to the historical average due to the collapse of supply chains because of COVID, freight rates are gradually returning to normal.
The Baltic Dry Index, a benchmark average index that measures the cost of bulk transport, is already at pre-pandemic levels. The Drewry Composite Index, which measures the cost of 40-foot container ships, has been down for weeks. In recent days it has already fallen by 66.5% compared to the same week last year: it is trading at just over $4,000, when a year ago it was close to $10,000.
In which situation were we had been in the Coronavirus crisis?
With the confinement due to the coronavirus in 2020, trade flows were altered, containers were poorly distributed and the massive demand for goods with the boom in electronic commerce pushed rates through the roof. Little by little, the anomaly has been redirected.
What trend are we heading towards?
Behind good news there is always the other side of the coin: trade is usually a good indicator of the situation. When you slow down, discount or anticipate the arrival of the next recession. In any case, according to the operators, this drop in rates is being ragged. Initially, the Baltic Index refers to bulk cargo, but container ships have added storage costs that are slower to reduce. To give you an idea, the prices of this type of boat are still four times higher than before the covid.
Is this situation global?
There are also geographical differences: the ships that travel the transpacific area have reduced their travel times by 48% so far this year and their prices have dropped markedly. In contrast, on routes between Asia and Europe, loading times still exceed 46 days, when before COVID it was 29 and rates are reduced more slowly. One explanation is that in the United States there has been pressure to investigate possible monopolistic practices of shipping companies, while in Europe the Commission, more lax, will review its regulatory framework by 2024: here, European shipping companies and the different interest groups take the opportunity to defend their businesses, even in a down economic environment. “Symptoms of recession have pushed prices down, but these European companies still operate as a de facto oligopoly.”
How does the future look like?
The future is uncertain. Carriers will continue to use cancellations as a tool to keep freight rates high, so prices are unlikely to drop further and will soon bottom out. Not forgetting geopolitical issues. The tension between Taiwan and China could exacerbate supply chain problems in the Taiwan Strait, in a territory with the largest and busiest port complexes in the world. The domino effect of a conflict would be huge, worse than the Ukraine Crisis.