28 Apr 5 Questions About 2021 Freight Rates
Due to the uncertainty that COVID-19 brought onto the logistic industry, freight rates have increased significantly during the third and fourth quarters of 2020. Factors such as container shortages contributed to the raise in freight rates. As we are already in the midst of the second quarter of 2021, we can officially close the books of 2020. We answer five questions about 2021 freight rates and what freight forwarders can expect for the rest of the year here:
1. Are freight rates still high?
Freight rates increased by 80% by the end of 2020, due to a drastic increase in demand. During the pandemic, people stopped going to theaters and restaurants. Instead, online shopping thrived, increasing the need for freights and shipping which led to container shortages. Companies then started to pay premium spot rates, increasing freight rates furthermore. Therefore, 2021 started off with both high volume and freight rates. According to the Freightos Baltic Daily Index, freight rates from China to the U.S. west coast are up 173% from the same time last year. However, it is optimistic that operation bottlenecks and high freight rates will ease off after we return to normality.
2. Is cargo volume decreasing?
Cargo volume still remains high. The January shipment file count for 2021 was only a little less than 10% smaller than the numbers during peak-shipping season in August and September. While cargo volume is decreasing, it is by no means a substantial amount. January usually gets a slight increase in volume at the end of the month when importers try to get their cargo before Chinese New Year begins. Then, importers get a bit of a reprieve as manufacturers in China close down for a few weeks. However, the shutdown of Chinese factories did not happen this year. As a result, the volume of cargo has only been decreasing incrementally.
3. Is there going to be a decrease in international freight imports?
It seems unlikely that there will be a decrease in international freight imports anytime soon. COVID-19 has fundamentally changed the way people spend their money. While the pandemic triggered the loss of a multitude of businesses and jobs, the impending recession is being masked by trillions of dollars that the government has spent on stimulus money. And as consumers cannot spend money on leisure activities, such as entertainment or travel and service expenses, they spend money on material goods instead. And whether they be perishable or non-perishable goods, the shopping is being done from their own homes instead of brick-and-mortar businesses. As a result, there has been nonstop demand for products and ocean freight from Asia to the US.
4. What are some factors that are increasing the intermodal freight quotes cost?
In general, the transportation environment is still rather unpredictable in the global pandemic. Even with vaccines being distributed, most regions of the world are still being plagued by COVID-19 cases. And a large portion of international freight will be allocated to vaccine movements and more urgent cargo, resulting in the continuation of unknown rates in 2021. Many freight operators are all experiencing similar warehousing and distribution issues. Some include labour shortages, and social distancing requirements slowing down the supply chain process and logistic activities. Retailers are still struggling to sustain high inventory levels, so shippers may be looking to get a leg up on peak season, which starts in July. There may be no immediate relief from high costs, long delays, and equipment shortage.
An example of unpredictability is the Evergreen vessel being trapped in the Suez Canal and blocking traffic from both sides for a week. Freight conditions had just started to improve from Asia to the Mediterranean and Europe when the construction happened on one of the busiest trade routes.
5. When will truck and rail freight rates go down?
In this current situation, many freight companies are wondering when freight rates will be expected to go down. However, there may be many potential delays before the high freight shipping costs start decreasing.
Freight markets have remained quite strong throughout the pandemic, and it has created a supply and demand structure that favours carriers and forces shippers to pay higher rates. Trucking volumes and rates have been climbing since summer of 2020. With the high demand from consumers, importers are constantly rushing to stock up in their inventory, which causes the capacity in trucking to tighten and the rates to rise. With truck and rail freight consistently being in high demand, the rates will not be going down anytime soon. Market tightness may ease up if more tractors are brought to the road, or if more truck drivers return to work. But even if the cargo is ready to be transported, quarantine rules for returning drivers can still cause significant delays.
If there is one thing to take away from this post, it is that freight forwarders need to be flexible in 2021, and be prepared to adjust to changes. And communicate regularly with your freight forwarding and supply chain managers. Experienced logistics suppliers like SFI can help companies navigate through any interruptions, predict potential problems, and respond to issues in production, supply, and delivery with solutions. We can help alleviate your stress of having to manage every minute aspect, and allow you to focus on running your business successfully.