Ocean Freight Rates Unlikely to Decline as IMO Mandates Loom
Ocean freight rates have soared in the last two years, driven by increased consumer demand. US consumer spending has grown 47% since 2020, which is roughly equivalent to the growth of the previous decade.
Since the stimulus payments ended, consumers have begun spending more on services than goods, which has caused the growth to decline. While this has kept ocean freight rates from continuing to rise, it’s unlikely that the rates will return to pre-pandemic levels. New environmental regulations, the potential for resurgent demand in 2023, and staffing demands mean that shippers should expect ocean freight rates to only taper off some and to remain at above-average levels in 2023.
To reduce carbon dioxide (CO2) emissions, the International Maritime Organization (IMO) is introducing new regulations that are expected to go into effect on January 1, 2023. The regulations are designed to help IMO achieve its goal of reducing the carbon emissions of all vessels by 40% by the year 2030, as compared to emissions in 2008.
IMO 2023 includes an Energy Efficiency Existing Ship Index, an expanded Ship Energy Efficiency Management Plan, and the Carbon Intensity Indicator (CII) rating system. The CII could have the largest impact on carriers, as all vessels will have to meet CII rankings which will get stricter over time. These regulations are aimed at encouraging vessel efficiency, the adoption of low-carbon alternative fuels, and lower emissions.
To meet these goals, carriers may have to slow-steam or perform retrofits to vessels. The bottom line is that freight rates will remain high to maintain profitability as carriers make adjustments or invest in low-carbon ships.
Resurgent Demand Due to Chip Recovery
The recovery of the chip inventory could also impact freight rates in 2023. The worldwide chip shortage has changed importer behavior, but it’s anticipated that this shortage will be corrected in 2023. When it is, there will likely be increased demand for electronics, as importers work to refill depleted inventories, leading to a surge in demand for carrier capacity. This is another factor to pay attention to, as it will help to keep freight rates high in 2023.
Staffing has been a major issue for freight carriers in the last two years, as there haven’t been enough dock workers, truckers, or seafarers to meet the increased demand. To help address this issue, many carriers are increasing employee pay. For many companies, it’s a necessary step to avoid delays and labor disputes, but it’s one that means increased costs for carriers and another reason to expect freight rates to remain at above “normal” rates in 2023.
Navigating the Current Shipping Environment
While carriers will bear most of the increased expenses due to environmental regulations and staffing demands, some of that expense will be passed on to shippers and cargo owners to ensure that carriers maintain profitability.
If you have concerns about what these changes mean for your business, ClearFreight can help. Our team of logistics experts are closely monitoring the situation and can help you anticipate how any shifts in carrier practices will impact your day-to-day business. Plus, we’ll ensure you’re utilizing the most efficient logistics processes and getting the best rate available.
Contact us today to learn how our specialized supply chain solutions can help make logistics easier for you.