Bad Economic Winds Blow Good for Shipping Prices

The world economy continues to sputter along, but the news is not all bad—the slowdown is making it cheaper to ship goods by sea.

Image source: PIxabay

Image source: PIxabay

As a result, electronic OEMs and other players are paying only a small percentage of what they would have previously paid before the downturn.

According to analyst firm Karatzas Marine Advisors, the average pre-downturn pricing to ship a container from China to Europe, for example, was $1,500 to $2,000 dollars per container, compared to $500 per container today. Shipping prices from China and Asia to North America have fallen by similar magnitudes of scale.

“The world economies have not been growing fast enough to fill capacity. The world electronics market is over supplied and is expected to remain so, with little visibility about when that could change,” Basil Karatzas, CEO of Karatzas Marine Advisors, told EBN. “So expect really, there are limited expected for a market recovery. Vessel capacity remains low and now there is a new wave of deliveries, which would make the market even more supplied.”

Price hike fail

The pricing relief for shipping has also continued throughout the traditionally busy period during late summer and fall, despite higher pricing for some shipping routes. According to spot price checks and reports, some container shipping companies have managed to raise prices in the double digits while taking advantage of higher pricing for most routes. However, average pricing remains significantly below the average $1,000 per price increase per container shipped that was announced a few weeks ago, according to Reuters. Pricing has also hardly risen above historic lows reached in the summer.

“It is the busy season for containerships and the market doesn't seem to be too strong,” Karatzas said. “This has crashed many hopes for a market recovery and perpetuating the pain for these companies and their financiers.” 

Maersk Line: a case study

Future pricing also depends on moves the shipping companies will make. Maersk Line, the world's largest shipping company with an estimated 15% market share of containers shipped worldwide, for example, has shaken up market dynamics by adding seven extra-large shipping vessels to its fleet this year. Its fleet now has 31 extra-large ships, the largest total in the world that have a carrying capacity of 18,000 containers.

Maersk Line can thus further reduce costs since its transportation costs are cheaper now thanks to the extra volumes. This could help it gain share by becoming even more cost competitive versus the competition, especially compared to smaller companies. If other shipping companies follow Maersk Line's lead, pricing could fall even further.

“Maersk Line's move does shake up the competition, especially against the players with smaller and older vessels that thus have higher costs per unit,” Karatzas said. “When and if the market recovers, Maersk will take share.”

Still, Maersk Line's attempt to raise pricing ahead of the peak season was largely unsuccessful, Karatzas said.

“Early in the summer, Maersk Line attempted to force a raise in rates for the trans-Pacific trade and a couple of other liners tried to follow,” Karatzas said. “They do not seem to have been successful, since there is extra containership capacity in the market, at least for now. The push for price increases in a weak market doesn't make economic sense.”

Low visibility

The outlook about when shipping prices might return to their pre-downturn remains murky at best for the shipping industry. Clearly, for the time being, electronics OEMs will continue to enjoy relatively cheaper pricing for the extended future, Karatzas said.

“Shippers are expected to have access to inexpensive freight for the next several years,” Karatzas said. “It will be a while until an equilibrium is found when those who pay to ship containers shippers pay higher prices so shipping companies can be profitable. It is celebration time for those who benefit from the low pricing.”

0 comments on “Bad Economic Winds Blow Good for Shipping Prices

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.