Sea Freight Rates Drop 50% Long Term In China And India

With the introduction of the fuel surcharge of around $ 60.00 per 20 foot container earlier this month it may seem that container freight rates are at an all time high.

The reality is somewhat different. If we go all the way back to 1998 and adjust for inflation freight rates are in fact around a half what they were back then. Even as recently as 2013 rates were 50% higher than they are now.

The reason for this inflation adjusted decline is that the shipping industry have been implementing a number of cost saving initiatives, driven by weak world demand and industry over supply. These have included much larger ships (increasing supply but lowering unit costs), slower steaming to save fuel, staff reductions across the board as well as a selection of mergers and alliances.

The result is that the shipping industry has given back to its customers all of the efficiency savings it has made and more. As a consequence poor or lack profitability has been a chronic problem, which one major carrier has not survived.

In conclusion, it seems there are no more savings the shipping industry can make and so as fuel costs increase these are feeding straight through to prices. On the other hand a supply / demand imbalance seems to be preventing any increases in the core freight rate.