Ocean freight rates drop as supply chain woes begin to ease
Yahoo Finance's Dani Romero joins the Live show to discuss the decline of ocean freight rates amid the easing of supply chain pressures.
AKIKO FUJITA: Well, one of the economic indicators we're watching closely for potential slowdown is the cost of shipping. Despite soaring during the pandemic, we've seen a recent downtrend with S&P Global Market Intelligence saying the second quarter was likely the peak for 2022.
That's ahead of what's meant to be one of the busiest seasons. Let's bring in "Yahoo Finance's" Dani Romero here with me at the desk. They have come down significantly in terms of the rates. What's the big driver?
DANI ROMERO: So industry analysts have told me that peak season was actually during the summertime-- springtime, excuse me. And that's all a result because we saw retailers like Walmart really pull forward their inventory as a way to cushion themselves against the supply chain snarls that they dealt with during the pandemic. And as a result, ocean shipping rates have fallen.
According to Freightos Baltic Index, the cost to ship a 40-foot container from China to the US West Coast is about $4,000. That is a drop about 72% from mid-January. But it's still elevated compared to pre-pandemic levels and volume is still triple than what it was before the pandemic. But again, analysts and many shipping companies are expecting that these ocean shipping rates are going to continue to drop for the rest of the year and into 2023.
AKIKO FUJITA: Really quickly. When you think about why rates got so high, a lot of this just stemmed from the early days of the pandemic, port shutdowns that were happening in China. A lot of products not getting out. We're starting to hear about additional shutdowns over in China, not on the level that we saw at the height of the pandemic, but what's the knock on effect we're likely to see from that?
DANI ROMERO: And you do bring up a really good point. And just to put it in perspective, China controls about 54% of container ship capacity currently on order. So yes, the disruption in China, due to their zero COVID policy, does hinder economic-- global economic activity, as well as the global supply chain efficiencies. But again, supply chain pressures have eased.
And not only that, but a lot of these global shipping companies, they had a profitable year. And so they're going to be adding a new fleet into the water. So we have that as well. So yes, it is something that analysts are keeping a close eye on. But given the environment and how retailers have accommodated this year for their inventory, I mean, we are going to be getting our Christmas gifts, Akiko.
AKIKO FUJITA: That's a relief to a lot of retailers. Thanks so much for that, Dani.
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