Over the past view years, the trade industry has noticed a consistent increase in sea freight prices. It also appears that there is no decline in sight. This volatility set in during the peak freight season in 2016. The Asia-Europe Trade and the Trans-pacific East Trade saw the highest price increases. There are several factors that are feeding this increase.
Sea Freight Prices- Overcapacity
Many believe that overcapacity has been one of the leading factors in the deterioration of pricing. Prior to the volatility, many ocean liners were pushing to build more usable vessels and even some mega vessels. However, with many countries consistently experiencing ups and downs in their economies, the demand for sea freight space is not always at the levels needed to fund these ships. This in turn is forcing many of the sea freight liners to reduce their number of regular shipments and to even suspend some of the more profitable trade routes. This means they are forced to charge higher prices on executed trade routes to stay afloat.
This perfect storm has recently forced many smaller sea freight companies to scrap some of their smaller vessels to be sold for scrap metal to boost cash flow. This oddly enough creates capacity reduction on running sea freight liners.
Sea Freight Prices- Mergers
Unstable economies and high freighter prices have required some of the larger liners to consider mergers. Analysts expect that more of this is to come. Many fear that these companies are hastily making these decisions not considering that reduction in competition will only further raise prices.
The Global Shippers Forum (GSF), which is the world’s leading trade association for shippers (importers and exporters), involves itself in the management of international trade for the benefit of the maritime industry. Their goal is to be the negotiating force between sea freight transport companies to ensure beneficial policies, regulations, and decisions. They have begun to establish task forces to examine the long term impacts of these mergers out of fear that this is not only going to raise profits but damage the long-term economical longevity of the industry.
Sea Freight Prices- Higher Fuel Prices
Shipping via the ocean is one of the most fuel-efficient ways to transport goods around the globe. However, fuel costs are about 50-60% of the total operating costs for any ocean liner. The only way for sea freight companies to recover this cost is directly related to their shipping costs. Crude oil costs have also risen and reached $71.00 per barrel this August. This is approximately 42% percent higher than last year.
Sea Freight Prices- The Future
Maritime transport is the key to any countries global trading success. The future success of these companies and their determined pricing structure are all dependent on global relations and government policy. To stay abreast of the situation, companies of this so they can effectively make the proper changes to keep up.
Many believe, that if done correctly and at an effective rate, mergers and consolidations could eventually result in a slow growth and yield lower prices. If companies can use their knowledge of all of these factors they can begin to stay ahead of volatile fluctuations in sea freight transport.