Disruption Report #40: Shanghai to L.A. Spot Market Container Rate Now $9,942; Air Freight Competitive with Ocean Freight?; and Searching for a New Normal

Average Shanghai to Los Angeles Container Spot Rate is now $ 9,947

According to The Toy Intelligencer Container Spot Rate Report, the average price for a 40′ container from Shanghai to Los Angeles is now $9,947. That is down 9% since October 28, when it was priced at $10,976. According to The Toy Intelligencer, prices have also fallen for shipments from Shanghai to New York and Shanghai to Rotterdam.

When Will Container Rates Return to Normal – And What is Normal?

Container rates have been falling from their peak in recent weeks. Still, numerous articles are predicting that we are years away from a return to normal. But what is normal?

One answer can be found in a November 16, 2021, Bloomberg article by Brenden Murray, Container Shipping Rates Could Take Two Years to Return to Normal.” Mr. Murray’s article posits that normal is what was in place before the pandemic.

He states it will take 26 months to get there. Here is how he puts the math:

During the past five downturns in the composite China Containerized Freight Index going back to 1998, the average weekly rate of change ranged between minus 0.4% and minus 0.9%…Applying the 0.9% drop seen during the global financial crisis of 2008-09, “it would take 18 months to get back to ‘normal,’” Sea-Intelligence CEO Alan Murphy said in a statement Tuesday. “If, however, the rate of decline matches the average seen over the five rate decline periods, then normalization would take as much as 26 months.”

I don’t see pricing ever getting back to pre-corona levels. Mr. Murray’s article provides a neat mathematical formula, but inflation does not willingly throw itself into reverse.

Here is what I think: There is a frenzy of container ship construction taking place. It takes time to build a ship, and according to what I have read, they should be on the seaways in about four years.

When those new ships arrive, the current supply chain backs ups will probably be long gone. That will result in a glut of vessels. Carriers will have to compete fiercely for available business which will drive prices down. How far down is anyone’s guess.

U.S. Trucking, Air, and Rail Freight Rates Up

Freightwaves writer, Zach Strickland, reports that trucking contract rates are up 12% over last year. According to Freightwaves, the contract rate refects long-term and not spot rate costs.

According to Bloomberg, rail rates are up 7.3% year-over-year.

Airfreight costs are up 2.5 times what they were pr pre-pandemic, according to Freightwaves. The good news and bad news, according to Freightwaves, is that air freight is now compeititive with ocean freight.

One thought

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