Freight rates on sea, air, and highway routes are on track to drop from their pandemic highpoints during 2023, according to a trio of forecasts released this week.
Those three forecasts match an industry-wide report released on Tuesday that found a “severe rate of contraction” in transportation prices measured in November, according to the Logistics Managers’ Index (LMI). If that trend continues as forecast, it would follow months of tight capacity and high rates in many transportation modes.
On the water, ocean freight carriers set exceptionally high container rates during 2022. But towards the latter half of the year, those prices started to plummet, and they will likely continue to crash as we transition into the new year, according to a market forecast from Container xChange, a German container logistics platform.
The drop is a reply to a significant oversupply of containers, with a further influx expected in 2023, prompting shipping lines to reduce vessel capacity and suspend services by “blank sailings,” an industry term for canceled trips. “In 2023, there is a high possibility of an all-out price war,” Container xChange Cofounder and CEO Christian Roeloffs said in a release. “It doesn’t seem that the capacity restrictions that we have seen in the past two years are due to return, so we’ll just have ample capacity both on the vessel as well as on the container side. With the competitive dynamics in the container shipping and liner industry, I don't expect especially the big players to hold back, and we do expect prices to come down to almost variable costs.”
A similar scenario is playing out on airport runways, where general airfreight volumes dipped for a ninth consecutive month, dashing hopes of a late peak season boost, according to a weekly market by Clive Data Services, a unit of the ocean and air freight rate analytics provider Xeneta. Following that 2% month-over-month slump in demand in November, freight forwarders are taking a ‘wait and see’ approach before making long-term air cargo capacity commitments, Clive said. By another measure, chargeable weight in November was down 8% versus the same month of 2021.
“What we are seeing is a lot of uncertainty still. After such a big drop of -8% in air cargo demand in October, we saw a little stability return in November, so the market is not worsening, it’s just very hard to read longer-term. This is reflected in the rise in short-term contracts, with forwarders unwilling to commit to long-term deals,” Niall van de Wouw, chief airfreight officer at Xeneta, said in a release. “Shippers should see some benefit from this in terms of their air and ocean budgets, and falling rates may provide one glimmer of hope for cash-strapped consumers that potentially lower shipping costs in 2023 will make some goods more affordable.”
Finally, freight prices are also set to drop in the trucking sector, according to an outlook for national dry van and reefer truckload rates for November 2022 through December 2023 from Arrive Logistics, an Austin, Texas-based multimodal transportation and technology provider.
The company’s model predicts that spot rates will remain relatively stable as contract rates continue to “normalize,” ebbing from their pandemic highs. That change will happen because freight tonnage declines are likely to occur as economic conditions return to pre-pandemic levels, Arrive Logistics said. That volume decrease will likely lead to lower prices because the market still has significant freight capacity available despite a record number of small carriers that have recently shut down, as many of those owner-operators have taken jobs with large company fleets and continued to drive.
Gartner, Inc.