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The Dark Side of Low Rates and The Industry Challenges That Follow

Updated: Jun 27, 2023

After more than two years of high costs, high shipping demand, and high levels of congestion, global ocean freight rates have slumped to lower than pre-pandemic levels. However, shippers are realizing that while rates may be extremely low there are still significant challenges they need to contend with – making this a highly complex shipping environment.

Lower rates, decreased consumer demand, and the addition of many new vessels into the market are three major reasons why this current market is so complex. These issues have created a situation where carriers, in an effort to stabilize their rates and margins, will now need to cancel many individual sailings, cancel entire services, and even temporarily park certain vessels to reduce capacity. Over a long period of time this will cause severe service degradation as carriers are forced to use this as a last resort to reduce cost and capacity to match the slack demand.

“A market that at the start of the year seemed to be more shipper friendly has become an environment of low rates, unpredictable service, and no short term solution,” said Peter Hsieh, OEC Group’s Vice President of Sales and Marketing. “Shippers need to remember the one key lesson from the pandemic which is that time and reliability – not money – is the most important element to consider in any supply chain strategy.”

Cancelling sailings along trans-Pacific west coast trade lanes and committing more vessels, during the past year, along routes to East and Gulf Coast ports has been a consistent strategy by carriers. As a result, the situation remains dangerously unpredictable, meaning shippers must face another challenge of what happens to their supply chain strategy if this situation persists and their gateways constantly change to match available services.

Even the domestic trucking market is contributing to shippers’ agita as many new providers that popped up to take advantage of market peaks have been forced to shut down, keeping costs high and provider options low. Finally, as we all learned during the pandemic, any order that is delayed has an adverse effect on intermodal transportation, planned warehousing, and labor, resulting in each and every step needing to be reorganized to accommodate new timelines.

“Like it or not, the shipping industry has evolved, and shippers need to realize that customer service and flexibility, not rates, are the key factors they need to consider when planning their supply chain strategy,” said Nick Klein, Vice President of Sales and Marketing and leader of OEC Group’s Chicago office. “The best option moving forward is to simply pay market rates – whatever they are. This will force carriers to prioritize things that really matter, like reliability, flexibility, and customer service.”

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