Detailed Insights on Freight Rate Trends in 2020

Detailed Insights on Freight Rate Trends in 2020

The year 2020 started with a note of uncertainty. The world witnessed the outbreak of the deadliest pandemic known to be COVID-19 or Coronavirus in the history of human civilization that started in China and in no time wreaked havoc all over the world. With the imposition of travel bans, lockdowns, countries closing down their borders, trade and commerce activities received a major blow. None of the industries were spared and COVID-19 became the major deciding factor in the adjustment of the freight rate throughout the world. This adjustment was also catapulted by the trade uncertainties brimming between the United States of America and China in the quest to pioneer the lead to safeguard their economic interests.  Shipping freight rates also experienced unexpected variations once the lockdowns were imposed across the world in the 1st half of 2020.

Insights on Freight Rate Trends In 2020

Now, that we are acquainted with the fact the freight rates witnessed unusual variation because of the COVID-19 and the commonly responsible geopolitical circumstances, let us understand in detail how and why these rates varied-

  • The world is grappling with the threats of climatic changes, melting icebergs, etc. because of the increase in carbon and greenhouse gas emissions consisting of Sulphur and other hazardous components. 
    The International Maritime Organization (IMO) of the United Nations Group mandated the implementation of the use of fuels with less than 0.5% Sulphur content in the freight carriers via sea route. Even though it was a welcome step for the environmentalists, yet it put the finances at stake for most of the ship liners who had outdated engines, no air scrubbers to contain the Sulphur emissions, and those with very little financial strength. Carriers levied environmental surcharges and also increased the fuel cess to compensate for the remodeling of their engines and shifting to alternate fuels. Thus, shipping freight rates experienced a jump in the year’s start itself.
  • When the pandemic started, the import and export demand plummeted. With the imposition of the lockdown many countries either restricted or banned the sea trade. Hence, many voyages were canceled i.e. many ocean carriers had to announce blank sailing in an attempt to prevent the fall in rates and keep up the demand for freight’s capacity. This was very unusual as freight voyages are rarely canceled. As many containers were restricted on the ports of China and other South-East Asian nations, there was a high uncertainty with regards to the shipping freight rates.
  • Now that the pandemic is in a declining phase with the human population becoming more cautious and vaccination work is in progress, there has been a shift in the nature of demand of the consumers. As most people are on a work from home basis and are avoiding undue outdoor contacts, there has been a sharp increase in the demand for certain goods such as furniture, indoor games, personal vehicle, digital appliances, etc. This has again boosted the import and export market and subsequently the e-commerce industry with a subsequent rise in the shipping freight rates.
  • The shipping industry has been aggressively trying to automate its shipping processes through digitization and eliminate the inefficiencies due to human behavior or limitations. However, because of the pandemic, many of the processes were delayed. There were shortages of manpower at the ports, on the ship liners and many other stringent rules were put in place and restrictions on certain products as well that were already in transit. This pumped the price of the freight considerably.

With the end of the year 2020 and the launch of the Coronavirus vaccine, things are expected to get smooth and better. Cogoport is working diligently to keep track of the latest developments in the freight charges. The shipping industry is likely to become more regulated as the different shipping associates are pondering to come with an inclusive trade policy to boost the business across the continents. 

 

Clare Louise