Have We Reached the New Normal in Ocean Freight?

Alexa McPherson, 15 March 2024

The ocean freight market is accustomed to fluctuations and dramatic shifts. Recent developments in Asia-Europe ocean rates mark a significant turning point, indicating a shift towards what is being referred to as the new normal.

Following a spike driven by navigational adjustments necessitated by challenges in the Red Sea, the market is seeing a swift downturn in Asia-Europe ocean rates.

The Peak and Fall of Ocean Rates

Mid-January witnessed the ocean freight market reaching record-high spot rates, with Asia-North Europe and Asia-Mediterranean rates soaring. These rates have since seen a decrease of 45%, demonstrating the market's inherent volatility and the reemergence of weak fundamentals. The spike in rates was primarily a reaction to the required detours around southern Africa due to Red Sea challenges, with the shipping industry introducing surcharges to cover the increased costs of the longer journeys. These additional costs have started to decrease rapidly as the initial peak in rates was unsustainable, leading to a decline as the market progresses.


The Ripple Effect on European Importers

European importers have faced challenges due to the extended transit times caused by the African detour, necessitating earlier orders to ensure on-time delivery. This adjustment in logistics has introduced additional costs, which shippers are currently absorbing. There's an increasing call from the shipping community to share these extra costs with shipping companies, moving away from comprehensive rates that lump these expenses together.

Overcapacity Oceans Send Us Sailing Into Uncertain Futures

Analysts concur that until the Red Sea situation is fully resolved, rates are likely to remain higher than pre-crisis levels. However, the challenge of overcapacity is a pressing concern for the industry. This increase in capacity was crucial to maintain regular sailings despite the detours, preventing rates from reaching the highs seen during the pandemic. However, this growth also signals the potential issue of overcapacity, which could destabilize rates once the current crisis is addressed. The prospect of endemic overcapacity looms large, with potential implications similar to those experienced following the 2009 financial crisis. As the ocean freight market adapts to these challenging times, it's clear that increased volatility will be part of the new normal, underscoring the importance of resilience and adaptability amidst uncertainty.



The Value of Freight Forwarder Networks

In the context of the tumultuous shifts and challenges outlined in this blog, the importance of joining freight forwarder networks like 7ConNetwork cannot be overstated. Such networks offer a lifeline in navigating the complexities of the new normal in ocean freight, providing several key advantages that can help mitigate the impacts of market volatility, extended transit times, and overcapacity.

Enhanced Negotiating Power

Freight forwarder networks bring together a diverse range of freight forwarding companies, which collectively wield greater negotiating strength with carriers. This collective bargaining power can lead to more favorable rate agreements and surcharge conditions, directly addressing the financial pressures highlighted by the rapid retreat of Asia-Europe ocean rates and the fluctuating surcharge landscape due to Red Sea navigational adjustments.

Shared Knowledge and Resources

The challenges of navigating extended transit times and adjusting logistics strategies are less daunting when freight forwarders share insights and solutions. Networks like 7ConNetwork facilitate the exchange of vital information and best practices, enabling members to adapt more swiftly and effectively to changes in shipping routes, such as those caused by the African detour.



Risk Mitigation Through Collaboration

With overcapacity threatening the stability of the ocean freight market, freight forwarders within a network can collaborate to optimize their cargo loads and minimize the financial risks associated with unscheduled voyage cancellations and fluctuating spot rates. This collective approach to capacity management can help members maintain profitability even as the market adjusts to the post-crisis environment.

Strategic Partnerships and Global Reach

Joining a freight forwarder network expands a company's operational footprint, enabling it to leverage the local expertise and infrastructure of partners around the world. This global network of resources is invaluable for adjusting sourcing patterns and logistics strategies in response to the extended transit times and additional costs incurred by the current market disruptions.



In conclusion

The volatile and unpredictable nature of the ocean freight market, as evidenced by the rapid changes in Asia-Europe rates, the implications of detours around southern Africa, and the looming threat of overcapacity, underscores the critical importance of collaboration and strategic partnerships.

Freight forwarder networks like 7ConNetwork offer a platform for companies to navigate these challenges more effectively, ensuring they remain resilient and adaptable in the face of the new normal. By joining forces, freight forwarders can chart a more stable and prosperous course through the uncertain waters of global trade.

Contact Alexa McPherson