Liner freight rates and reliability normalising as pandemic supply and demand pressures recede.
The pandemic revealed the vulnerabilities in our global network of trade, from sea to land to the front door. Inland congestion had vessels waiting outside ports for days and weeks, reducing available ocean capacity and crippling schedule reliability. Together with surging consumer demand, this drove rates to previously unseen highs.
But the supply chain is resilient. As these problems unwind, freight rates are falling sharply to pre-pandemic levels and reliability is going back to normal - as you would expect in a well functioning market.
Ocean rates and reliability returning to pre-pandemic levels.
The rate levels experienced during the pandemic were the result of a surge in goods transport demand particularly from the US, labour shortages and port and hinterland congestion which removed effective capacity from the market.
These problems are now unwinding, causing reliability to increase and market conditions including freight rates to normalise rapidly. The latest market data, as seen in the graph to the left, demonstrate the healthy state of competition in the shipping sector that has seen rates fall as conditions return rapidly to pre-pandemic norms.
Container shipping rates are resuming their deflationary role.
International liner shipping is a sophisticated network of regularly scheduled services that transport goods from anywhere in the world to anywhere in the world with greater energy efficiency than any other form of international transportation. Liner ships have the capacity to carry several warehouses worth of goods, which makes each journey very efficient.
Over the past 24 years, as carriers have worked hard to increase operational efficiency and reduce costs, freight rates have fallen considerably compared to the consumer price index. Whilst consumer prices globally more than doubled from 1998 to 2019 due to inflation, freight rates have actually decreased, acting as a deflationary factor to push consumer prices down.
The graph shows that from 1998 to 2019 before the pandemic, freight rates were de-facto discounted by 60 percent compared to consumer prices over two decades.
As surging demand pushed freight rates to historical highs during 2022, the situation changed. However, the data shows that while freight rates were an element of inflationary pressure in 2022, this effect has already disappeared as we enter 2023.