Freight prices are directly impacted by seasonality. Some peak purchase seasons like the summer breaks have a longer repercussion on the demand and prices.
Over the last one year, the prices for ocean-based freight movement has been on the rise.
The reasons are varied: inaccessibility in certain lesser popular trade routes, scarcity of containers and ships, major congestions at the ports, volatility in market conditions, shortage in staff and an overall increase in shipping demand. Some one-off instances like the Suez Canal blockage also added to the pile-up. Such delays and shortages would ultimately increase the price rapidly.
Each of these reasons are the cause and effect of the vicious circle. A single line summation of the situation can be quoted from the Wall Street Journal. The high prices, the result of a rush in demand that far outweighs shipping capacity, has jolted supply chains, triggering equipment shortages as shipping lines have raced to get vessels and containers in place to handle the loads.
In fact, in terms of numeric data, the container freight rate from North Asia to North Europe in 2021 soared to approx. EUR 10,000/FEU. This is an increase of EUR 1,250/FEU from the previous week. This rate is almost tenfold from the estimated EUR 1,100/FEU for this route one year ago.
This blog explains how the European Summer Break has impacted current freight rates. Future trends and data-driven methods to overcome these hikes have also been analyzed.
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Impact of European Summer Break
Currently, due to the increased volume of purchases (especially in the e-commerce world), retailers are hustling to restock inventory and keep up with the consumer preferences. Importers have already started placing peak season orders early to avoid being caught without the required seasonal inventories. This continued demand and supply chain challenges are here to stay.
Summer Break related shopping, followed by some back-to-school purchase seasons and immediate onslaught of Black Friday and Cyber Monday demand would see freight prices on the rise. 78% of the European holiday shoppers used three or more channels to complete their holiday shopping.
Though this is just the start of the high purchasing season, freight rates are climbing on most lanes. Some fleet owners are introducing early peak surcharges. This rise in rates is expected to continue well into quarter three and would probably last the rest of the year.
Container shortages are rampant mainly because of the dearth of workers at ports and clearing houses across the globe. Ships and containers are waiting to get unloaded and this causes a significant delay in turning the containers around. Currently, it takes containers 4 weeks to return to the port after clearance; while at the beginning of 2020, this took only about 7 to 10 days.
With the onset of the European summer break, when staff go on scheduled leaves, these delays are most likely to become intensified.
Also Read - What Drives The Volatile Shipping Rates?
Future Impact on Freight Prices
According to Google, searches for “available near me” have grown globally by more than 100% since last year. There is a rise in search interest for simulated alternatives to what consumers previously did in-person, such as ‘virtual try-on’. This is the latest consumer preference, and it brings global economies together. However, the supply chain strain during this process is often not brought to light, and it goes unnoticed.
The supply chain imbalance is here to stay considering the shortages that the fleet owners are grappling with and the large volumes that are coming in. The latest available China-Europe data in March 2021 show that 659,996 TEU was shipped, a 15.4 % increase compared with the same period in 2019.
In a recent survey identifying shopping trends, 36% of shoppers preferred convenience while shopping. The underlying impact is larger e-commerce transactions and hence more shipping world-wide. Adding to this situation, 33% of shoppers prefer speed and 44% of shoppers prefer availability of the product. As a result, prices of freight world-wide are rising further.
With unpredictable market conditions coupled with supply chain drags, large European ports like Rotterdam have already started reporting cargo rollovers of 54%. Even carriers like CMA CGM, Ocean Network Express and Hapag-Lloyd have rolled over more than 50% of their cargo
Drewry predicts freight rates to rise 23% in 2021 before dropping 9% in 2022, then the flood of new tonnage arrives in 2023.
The Rise of Data Driven Solutions
Freight costs can be controlled to an extent through operational changes and competitive rate-cards with suppliers. However, to be able to identify the starting point for such changes, data is most important. Data, once evaluated, will help determine the current position and where businesses will be over the course of time.
Analyzing and investigating the data will provide the required insights on freight, fuel and accessorial spend. Trends on what to ship when, and how often to ship it using which methods can be created for more effective decision-making. Impactful data visualization and evaluation tools will help discover cost-saving opportunities. Artificial Intelligence and simulations will unearth the variables for every known situation, thereby prepping businesses for uncertainty.
Freightify offers solutions to manage the rising supply chain prices through data driven product suite. Through Freightify's rate procurement module, business can have a full overview of live carrier rates for both LCL and FCL carriers globally. The rate management tool uses algorithms to read data from various carriers and helps customize freight rates on a single platform. Freightify's Analytics solutions help track activity and performance metrics like quotes, bookings and even win rates periodically. It also performs a trend analysis of products per geography and aids with smart decision-making.