Today you are paying very low prices for the cargo which you ship. However what is happening to cause these low prices may be coming to an end.
So what is the cause of the low prices?
The basic point is that you are paying very low prices to ship your products because there are too many ships for too little cargo.
So why has the shipping industry caused this to happen?
Well there are several reasons:
1. They incorrectly predicted that the financial crash in 2008 would only cause a minor impact on their industry. They did not forecast the major reduction in volumes of cargo shipped.
2. The traditional industry response when it is not making profits is to cut costs through buying bigger and more fuel-efficient ships. This dramatically increased the spare capacity in shipping space.
3. The Panama Canal upgrade – Prior to the upgrade only ships which could hold 5000 TEU’s (20ft containers) could use the Panama Canal. Post the upgrade, ships which hold 13,000 TEU’s can pass through. This has resulted in bigger ships replacing the smaller ones.
4. Technology affecting consumer demands – A simple example is music, in the past to list to music you would had to purchase a CD which required shipping to the stores where you purchased the CD , today you can go on-line and download the music. This cuts out the requirement for shipping.
Why may these low prices be ending?
Since the financial crisis, the global commercial shipping fleet is 50% larger than it was prior to the crisis. However WTO figures suggest that global trade from 2007 to 2015 grew by only 15%.
This has put shipping companies under severe financial strain; for example in August 2016 the South Korean shipping group Hanjin collapsed.
So overtime this excess spare capacity, like what happened to Hanjin, will be eliminated. In fact some commentators are predicting that global freight rates could increase by 12% in 2017.
Conclusion
The best advice is to keep in constant contact with your freight forwarding representatives in relation to prices plus start to plan for rises in the cost of Shipping in 2017.