What the Freight Rate? A Look at Freight Rates Right Now

It’s been a little while since we’ve checked in on what’s happening with freight rates. So let’s check out current freight rate changes and trends for U.S. businesses that import goods.

We’ll use a freight rate index or two. It should always be pointed out that indexes vary from each other in the freight rates they report as they also vary in how they gather their data, often changing with what kinds of fees they include with the base rates charged by carriers. However, general trends between freight rate indexes are usually fairly similar.

That said, let’s get started…

Transpacific Freight Rates to the U.S. West Coast

Earlier today – October 15, 2024 – the Freightos Baltic Index (FBX) reported that Asia-US West Coast prices fell by 3% week on week to $5,565 per FEU (Forty-Foot Equivalent Unit). This decline is part of a broader trend where rates have been not merely fluctuating but falling due to increased competition among carriers. We may be seeing a return of the kind of rate wars that pushed freight rates to low prices for shippers but was unsustainable for carriers, who suffered losses in the billions of dollars within a few years of the pandemic hitting. Right now, newer transpacific carriers have been undercutting established operators, leading to a new rate war situation that’s driving prices down for shippers and probably making carriers very nervous.

Two weeks ago, Alexander Whiteman reported in an article for the Loadstar:

A rates war on the Asia-US West Coast tradelane is under way, as newcomer transpacific carriers offer lower rates to gain market share.

This has forced the established mainline operators to drop their rates to hold onto customers.

According to Linerlytica’s report this week, while the Shanghai-US West Coast rate on 23 August stood at $5,955 per 40ft, down 10% from the previous week, actual rates are more than $1,000 lower.

For shippers, this is a welcome development as so many disruptive events – including the governmental reactions to the pandemic, war, drought at the Panama Canal, attacks in the Red Sea, ILWU labor action, the ILA strike, and hurricanes – have pushed shipping costs, and freight rates in particular, up – too often to astronomical heights – over the last four years.

Transpacific Freight Rates to the U.S. East Coast

According to the Freightos Index, Asia-US East Coast prices saw a slight increase of 1% to $6,787 per FEU this week. Some are pointing to capacity constraints, with congestion clearing and catch-up from the ILA strike and hurricanes, and the ongoing Red Sea diversions, which have absorbed significant capacity across the market, as the cause. The change is significantly different than the change that was seen from Asia-U.S. East Coast rates the week before, according to Freightos. October 8th’s Freightos Index showed transpacific freight rates to the U.S. East Coast had fallen 22% to $6,744/FEU from the previous week.

Some are calling this 1% change versus a 22% change as a sign that freight rates have stabilized for Asia-USEC routes. However, I’d like to see how these freight rates behave over the next few weeks before calling them stabilized.

Those newcomer transpacific carriers – TS Lines, SeaLead Shipping, Hede International Shipping – on which Whiteman reported were focused on new Asia to USWC services. That means the new rate war is more of an impact for West Coast rates. The drop in USEC rates last week probably had more to do with decreased demand from shippers either diverting away from the East Coast because of the ILA strike and early shipping by importers who looked to get ahead of the strike altogether. However, I would not be surprised to see freight rate wars carry over to Asia to USEC shipping.

Transatlantic Freight Rates to the U.S.

Today’s Freightos Index numbers on the transatlantic side reveal North Europe to USEC freight rates decreased by 4.6% from last week and North Europe to USWC decreased by 4.5% over the same period. Ocean freight shipping on the Atlantic side has been a little volatile in the last few weeks because of the ILA strike, with additional increased costs and delays for shippers due to the hurricanes causing significant damage to port infrastructure while disrupting shipping routes.

There is still recovery happening at the ports in the aftermath of the strike. Most estimates put the recovery from the strike at around 2-3 weeks. But getting to the freight rates themselves, they spiked for a moment heading into the strike. Noah Bovenizer reported in a Ship Technology article about carriers raising freight rates when the strike hit:

Transatlantic shipment prices were 44% higher during the recent US port strikes as carriers anticipated an increase in port backlogs and longer travel times according to new analysis by freight marketplace company Freightos. 

Averages prices for transatlantic container shipments reached $2,331/kg during the week of the strikes according to Judah Levine, Freightos’ head of research, despite the strikes on the US East and Gulf Coasts’ only lasting three days, ending late on Thursday. 

Due to the short nature of the industrial action further rate hikes are unlikely to now come into play, though some carriers will seek to manage capacity to ensure prices remain higher, Levine warned. 

In managing capacity, carriers do appear to be lowering the amount of transatlantic capacity heading for the U.S. as demand also appears to be falling. That’s not surprising as many shippers imported early because of the strike and we’re coming to the end of the peak season. Some have called the peak season already over, declaring it ended early.

Right now, we are certainly seeing downward pressure on transatlantic freight rates, and demand seems to be a large driving factor in that. There was supposed to be a rate surge hitting about now with ILA strike surcharges announced by carriers. However, because the strike ended pretty quickly, ILA strike surcharges have been cancelled. Carriers have had success using their alliances to reduce capacity when demand falls or has been projected to fall over the last 4 or 5 years. We’ll see if they can keep freight rates from sinking too much in the transatlantic shipping routes. Shippers surely won’t mind if carriers have trouble doing so. However, when freight rates sink too low for too long, there can be negative effects in the market for shippers later.

Conclusion

Overall, despite disruptive forces in the global supply chain, we appear to be headed into a time with downward pressure on freight rates. I doubt rate wars will drive freight rates down to the kinds of lows that had carriers looking at billion-dollar losses. However, it is good to see an increase of competition in the global shipping market. Carriers, with their alliances, will try to fight demand lulls with reduced capacity. Increased costs, like that of the tentative ILA wage increase should it go into place, will likely add some upper pressure on freight rates eventually.

For the moment, shippers should have some optimism in seeing better freight rates most of the ones they’ve had to deal with over the last four years. Of course, that’s in a period of reduced demand.