International shipping price fluctuations are influenced by a variety of factors.
In this article, Weefreight provides a detailed analysis, which we hope will be helpful.
Supply and demand: Changes in global trade volume have a significant impact on shipping prices. During peak export seasons in China or peak consumer seasons in Europe and the United States, demand for cargo transportation surges. If shipping companies’ capacity cannot keep up, shipping prices will rise. Conversely, during a global economic recession, trade demand shrinks, and freight rates fall accordingly. Furthermore, capacity adjustments by shipping companies are crucial. Excessive new vessel additions, leading to overcapacity, or accelerated ship demolitions, leading to capacity shortages, can both affect freight rates.
Cost factors: Fuel costs are a significant component of shipping companies’ operating expenses, typically accounting for 20%-30%. Rising fuel prices directly increase shipping costs, prompting shipping companies to increase their basic freight surcharges (BAFs). Additionally, shipbuilding costs, ship charter fees, port charges, and policy compliance costs, such as the increased cost of low-sulfur fuel due to environmental regulations and carbon emissions taxes, can indirectly impact ocean freight rates.
Seasonal factors: During certain holidays or peak sales seasons, such as the period before Christmas, demand for commodity transportation increases significantly. However, during these periods, shipping capacity is relatively stable, and this imbalance in supply and demand leads to higher ocean freight rates. Conversely, during the off-season, shipping demand decreases, and freight rates also decrease accordingly.
Geopolitical factors: Geopolitical events such as war and trade frictions can have a significant impact on ocean freight rates. For example, the Russia-Ukraine conflict impacted Black Sea shipping routes, and the Red Sea crisis caused shipping companies to detour around the Cape of Good Hope, reducing shipping capacity and significantly increasing ocean freight rates. Tariff barriers in trade conflicts can lead to reduced cargo volumes, which in turn affects freight rates.
Port congestion: When major ports experience congestion, vessel waiting times increase, shipping efficiency decreases, and shipping companies’ operating costs increase. To offset these costs, shipping companies raise ocean freight rates.
Policies and Regulations: Adjustments to tariff policies and the signing of cross-border trade agreements can alter the direction and scale of trade, thereby impacting international shipping prices. For example, changes in environmental policies, such as the IMO 2020 sulfur cap requiring the use of low-sulfur fuel, increase shipping companies’ costs, driving up freight rates.
To predict and lock in freight rates, consider the following:
Follow Market Dynamics: Maintain a constant eye on international trade trends, fuel price trends, and shipping market supply and demand. For example, by using industry news and professional reports to understand global economic growth trends, the progress of trade frictions, and port congestion, you can predict shipping price trends. If the global economy is expected to recover and trade volume to increase, shipping prices may rise, allowing companies to prepare in advance.
Analyze Historical Data: Study past fluctuations in shipping prices and, based on current market conditions, predict price trends. For example, prices on certain routes tend to rise or fall during specific times of the year. Analyzing this historical data can provide a reference for predicting future freight rates.
Using financial instruments, such as the Shanghai Futures Exchange’s Freight Index (European Line) futures contracts, companies can lock in freight rates through hedging. If a company anticipates a future decline in ocean freight rates, they can open a short position in the futures market. If they anticipate an increase, they can open a long position, using futures profits to offset spot losses, thereby locking in freight rates.
Establishing long-term partnerships with shipping companies: Signing long-term shipping contracts with reliable shipping companies and negotiating relatively stable freight rates can mitigate the risk of market price fluctuations. Furthermore, long-term partnerships may also allow companies to secure priority shipping space during periods of capacity shortages.
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