Rate expectations: What’s next after a year of volatility?

Alex Hersham
Alex Hersham

After 18 months of soaring freight prices, rock-bottom reliability and endless disruption, recent weeks seem to offer some hope for shippers as rates stabilise or even drop. 

While this is certainly good news for shippers in the short term, it’s far from certain that we’ve seen the end of price volatility. Most of the major factors driving high prices are still very relevant. 

However, after months where many teams have been stuck firefighting, the current brief lull provides a chance to look ahead and update your strategies. We’re hosting our future-focused virtual event Navigate Beyond, with leaders in retail, transport, technology and consumer demand to explain how you can position your business to succeed, including rate strategy. 

Here we look at what’s happened this year and how you can be ready for what comes next.

The calm after the storm?

October saw the sharpest drop in spot rates on trans-Atlantic routes since March 2020 and dips in Asia-Europe volumes. Meanwhile, shipping lines seem to be focusing more on the long-term view of customer relationships, freezing shipping rates.

There are positive signs that this could be the start of a stabilisation period as Chinese port congestion declines, factory output falls, and we see signs of a drop in U.S demand. However, many of the broader factors that have kept rates high are still present – chiefly a systemic lack of capacity.

  • While Chinese congestion has improved, destination ports in the US, UK and Europe remain backed up with thousands of containers. 
  • Golden Week and power issues have temporarily reduced factory output, but there is still a huge amount of inventory restocking on the horizon. 
  • The air freight market is still volatile with rates rocketing regularly. 

Scenario planning for 2022

The events of the last 12 months have put ocean freight supply and demand completely out of sync while also causing structural issues that severely limit the ability of the market to adapt to changes.

The short term: 3 months

As the market continues to deal with serious structural issues, the short term is more likely to be a question of stabilisation rather than significant improvement. 

  • Much depends on the ability of carriers and ports to deal with their equipment and congestion issues though these have mostly gotten worse over the last 6 months. 
  • The return of some level of passenger air travel (for example, the upcoming relaxation of US travel rules in November) would improve capacity in the air freight market, lessen pressure on ocean freight and help realign schedules and demand
  • Ongoing tight competition for space
  • Majority of goods moving FAK accompanied by equipment premiums
  • Congestion at major North European Ports and Haulsage issues taking up capacity

Medium term: 3-6 months

As the market works through the disruption of this year, we may see slight improvements in rates and reliability, but these will be incremental rather than transformational.

  • Restocking activity, port congestion, supply constraints and peak season to keep rates at high levels into the Chinese New Year 
  • Some carriers being open to negotiated rates and contracts 
  • Slow opening up of space on passenger air will play a part in reducing rates
  • Rail rates in line with Ocean rates with 4 weeks required

Long term: 6-12 months

While it is impossible to predict over the long term, likely, rates will still be elevated but stabilise progressively. 

  • Expect to see rates remaining elevated but stabilising progressively.
  • Carriers moving to balance short term profits with long term relationships
  • Increased Capacity due in the market end of 2022 / 2023 with new vessels
  • Carriers investing in more container equipment and long term security

Shipping in the world of peak rates

In the current market and for the likely future, the only choice for shippers is to maximise the value and utility of existing services.

Achieving this will require the input of multiple levels of the business, not just logistics and supply chain. Teams will need to align forecasts, orders, shipping windows, manufacturing to book space, optimise efficiency and minimise extra costs.

1. Closer collaboration & alignment with external suppliers

In the current market, planning ahead is one of the only tools available to shippers. 

  • Extend booking windows, with four weeks being a current minimum, and six being preferable. This will require extending demand forecasts to create visibility over upcoming needs.
  • Drill down into manufacturing timelines and work closely with manufacturers to set predictable, reliable cargo ready dates.

2. Agile demand planning and freight planning 

The choice of whether to delay or expedite cargo will need to be taken on an SKU by SKU basis. This will require coordination between sales, merchandising, supply chain and finance teams to balance margins and inventories across catalogues.

  • This may require trimming your available products in the short term to focus on profitable SKUs. 
  • Prioritising POs according to SKU value and demand can help move urgent products while saving on less important cargo, utilising other modes where possible.
  • Urgent cargo will still be able to find space on LCL or air, but it will involve paying a premium to guarantee.

3. Laser focus on all cost areas

With container availability at a premium, it’s essential to maximise utilisation and minimise extra costs. 

  • Track and benchmark container fill, using CFS services if possible.
  • Combined with SKU cost metrics, consolidation can also help you combine SKUs of different values based on an average container value that creates acceptable margins for your products.
  • Use live supply chain data to coordinate with your suppliers to minimise node waiting times and keep additional charges like detention and demurrage to a minimum.

What you can do today

Shippers, carriers and forwarders will need to work together to navigate the next 12 months. It’s in everyone’s interest to keep trade moving and boxes and ships filled. 

  1. Embrace data: The foundation for effective decision making remains reliable, up to date supply chain data. We’re already using our supply chain platform to give customers more visibility, coordination and connectivity to keep stock moving.
  2. Stay informed: Engage with your community, advisors and peers to stay on top of strategies. Our virtual event Navigate Beyond is a must attend for anyone shipping anything right now.
  3. Ask for help: Whether you’re a customer of Zencargo or not, we can provide you with free advice on rates data, contingency planning and agile execution. Our team works with the world’s fastest growing businesses to implement resilient strategies and are ready to help.

Author Bio:

Headshot of Alex Hersham

Alex Hersham is Co-founder and CEO of Zencargo, the digital freight forwarder enabling organisations, from FTSE 100 businesses to fast-growing startups, to make smarter decisions through a real-time overview of their supply chain. Based in London, Zencargo is relied upon by companies like Vivienne Westwood, Swoon Furniture, Farfetch, and Soho Home.

After graduating in 2008 from the London School of Economics with a degree in Economics, Alex spent four years as an Associate at Goldman Sachs and three years as Vice President of Cerberus Capital Management, the global leader in alternative investing.

In May 2021, Zencargo raised £30M in Series B financing, enabling the company to significantly grow its team and further expand internationally. Zencargo has to date, raised a total of £42M and is targeting revenues of £100m for 2021 and over £200m for 2022.

This blogpost is sponsored by Zencargo

Header Image by Teng Yuhong on Unsplash

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