Where Are Freight Costs Going?

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For some electronics manufacturing companies, lower freight costs are likely to be their most significant cost savings this year. Decreased demand and improving supply chain dynamics are pulling freight costs down, a trend that should continue throughout this year. Downward cyclical pressures will curtail volume, which should keep prices in check.

Sea Freight
Global container flows experienced a rapid normalization in the back half of 2022. In the U.S., for example, imports of 20-foot equivalent container units (TEUs) through leading U.S. ports were up 5.6% through the first half of 2022, but declined 7.6% in the second half. In fact, December’s import total dropped below 2019’s average monthly total, the first such decline since June 2020, in the early shadow of the pandemic.

This drop in container throughput has brought containerized freight costs down significantly. The Shanghai Containerized Freight Index, which measures shipping freight costs from Shanghai, peaked at just under 5100 index points in January 2022, up more than 500% from pre-pandemic levels. The index has since declined to levels last seen in the early months of 2020. Similarly, the Freightos Baltic Index, which measures the price movements of FEUs (a 40-foot equivalent unit) across 12 major maritime lanes, peaked in November 2021 at $10,525. The index is expressed as an average price per FEU. The index fell below $2,000 in February 2023, a decline of over 81% from its peak. The index is back to levels last seen in August 2020.

A.P. Moller - Maersk A/S, one of the world’s largest ocean freight companies, said its earnings could fall nearly 80% this year as a result of weakening demand and declining shipping rates. Spot rates for containerized freight were the first to fall, but longer-term contract rates are also starting to decline. Xeneta data shows that the premium between long-term contracts and the spot market fell from over $5,000 per FEU to under $1,300 through the first two months of this year.

To read this entire article, which appeared in the spring issue of Community Magazine, click here.

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