Container Freight Rates Return to Pre-Pandemic Levels

In the last two years, container shipping rates have reached record highs, and it now seems that this trend has come to an end. In recent months, shipping costs on all key routes have been falling, and transportation costs have returned to pre-pandemic levels, according to Freightos data.

The Freightos Baltic Index (FBX9), an international freight index, shows how dramatically costs have fallen in a short time. Data indicates that container shipping rates from Asia to the West Coast of the U.S. have dropped by more than 80 percent since the end of April, while rates for the East Coast have fallen by nearly two-thirds.

– Container freight rates continue to decline and have reached pre-pandemic levels on certain routes. According to the FBX – Freightos Baltic Index, which is a widely used and relevant index for maritime freight movements, the rate levels are 80 percent lower compared to the last quarter of 2021 when they were at their peak. Market demand has decreased, primarily due to full inventories in warehouses and inflation. In my opinion, freight rates in container traffic will remain at current levels throughout 2023, says Marin Škufca, director of the maritime agency Liburnia.

A recent IMF study, which included 143 countries over the past 30 years, revealed that shipping costs are a driver of inflation worldwide. Specifically, when freight rates double, inflation increases by 0.7 percentage points. Of course, some nations feel the effects of higher rates more strongly, and countries that are more integrated into the global supply chain are more likely to experience an increase in inflation as transportation costs rise.

The drop in delivery costs is great news for everyone except for shipping companies. While most of us can look forward to improved supply chain efficiency and lower inflationary pressure over time, shipping companies see the end of a two-year period in which they have grown and profited like never before.

For example, major shippers such as COSCO and Hapag-Lloyd recorded a tenfold increase in profit per delivered unit, writes Visualcapitalist.

The End of the Alliance

And while freight rates are falling, the two largest container shipping companies in the world, Maersk and MSC, have decided to end their alliance. MSC Mediterranean Shipping Company and Maersk, the number one and two in the container shipping industry by volume, have agreed to terminate their ‘2M’ alliance in January 2025.

– The termination of the 2M alliance paves the way for both companies to continue pursuing their individual strategies, said the CEOs of the Swiss and Danish companies in a joint statement. MSC surpassed Maersk last year as the largest container carrier in the world, leveraging the then-increasing freight rates to launch a program for ordering new ships and purchasing existing vessels.

Under the leadership of CEO Søren Tofta, a former senior manager at Maersk, the secretive and private MSC has grown so rapidly that analysts have suggested in recent months that it has outgrown the alliance. Together, the two companies controlled, or will control until 2025, as much as one-fifth of the entire maritime cargo.