After enjoying comfortably high profit margins over the last year, shipping rates have sunk significantly this year.
Though typically at the peak season, shipping rates have fallen as much as 60%.
A 40-foot container shipped from China to the Western U.S. now costs $5,400, a drop in price around 60%. Shipping containers traveling from Asia to Europe are down 42%.
The rates for both of these routes are still higher than before the pandemic, but rates peaked at $20,000 last September.
Now it appears that the market is beginning to weaken as shipping rates drop. China Cosco Shipping Corp. said in a report last Wednesday that the company will be keeping a close eye on inflation as it affects consumer demand and behavior.
Why it’s news
Shipping companies have enjoyed comfortable profit margins over the past two years. Major shipping company A.P. Moeller-Maersk announced quarterly earnings of $8.59 billion, more than the company typically makes in one year, The Wall Street Journal reports.
The falling rates are heavily influenced by overstocked retailers.
Shipping rates rose to extreme highs during the pandemic when supply chain disruptions left retailers fighting over cargo space. Now, many retailers find themselves with excess inventory.
Until they can sell off the overstocked goods, retailers are ordering fewer supplies, lowering demand for shipping.
Even though prices are falling, freight rates aren’t expected to return to the levels before the pandemic. Since then, fuel costs have increased significantly.
Swiftly changing demand is causing a see-saw effect in a variety of industries. The shipping industry will have to adjust to the market as it returns to normal after a major pendulum swing.