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High Ocean Rates are Here to Stay

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As the United States economy shudders and unevenly starts from one coast to the other, one consistent hurdle for ocean freight shippers has been the steadily upward trend of rates that shows no signs of stopping.

The current climate of rate increases, reduced space and Peak Season Surcharges (PSS) is leading shippers to question why rates seem to just keep going up.

The Typical Year

The simple economics of supply and demand—a pendulum that already swings wildly throughout the calendar year—will dictate the rates that shippers will pay. This depends largely on the season.

Is it the slack season of December and January when, in a traditional shipping year, holiday and back to school will have shipped? Is it the frenetic week or two leading up to the Lunar New Year when China closes down for a prolonged period of time and when planned blanked sailings and reduced capacity means a rush to get out before Chinese Customs closes as well?

In a “normal” year—and each year for the past several seems to be rewriting that definition—carriers align with forecasting by adding capacity and extra loaders or downsizing vessels and reducing frequencies.

Current Industry Status

Right now, states and regions where stores are re-opening clash with other parts of the country. In those areas, early openings are leading to second time closings, spiking numbers of infections, and overwhelmed medical systems facing PPE shortages.

Carriers called for a record number of blanked sailings in the third quarter, which reduced capacity significantly. The vessels that are sailing now are not doing so at full capacity, which further artificially constrains the available space.

Companies who own and control assets, many of which are parked with lease or charter payments still coming due, are focused on taking whatever steps they deem necessary. They must remain financially healthy, viable and, as they are increasingly discovering, profitable.

Why Rates are High

Ask anybody who has been doing this for a decade or more and they’ll tell you that over their time purchasing freight, they’ve seen rates swing by thousands of dollars. They don’t mean steady increases and decreases, but precipitous swings from high to low when, presumably, the operating costs remain constant.

Shippers for the balance of 2020 and into 2021 will likely find themselves continuing to grapple with these same challenges if the U.S. and global economies do not experience what some forecast as a “V-shaped recovery.” This is when the trough we entered of economic inactivity and employment comes roaring back to where it was pre-COVID.

Instead, the projected recovery will be impacted by the return of workforces, reduction of unemployment, consumer buying power, and demand for PPE until the U.S. population is widely vaccinated. It’ll also be impacted by the evolution of e-Commerce buying and home shipping. These services change the point of sale from inside a store to arriving at someone’s home or work from a fulfillment warehouse here or abroad.

TOC knows these challenges. Throughout the pandemic, we’ve remained in close communication with our carrier partners to understand their needs while making them aware of the needs of our shipper customers. We are focused on delivering on our committed volumes. To do this, we expect our carrier partners to meet their obligations to transport those volumes and, if we request, help us secure additional space, with the understanding that we might need to offer more in a high-demand marketplace.

 

If you have any questions about the state of the current rates or how to ship efficiently, reach out to our team today.

 

 

 

16 Jul, 20

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