Ocean freight rate forecast in 2022 | How long will soaring ocean freight rate continue?

Since the beginning of the COVID, ocean freight rate has increased more than 5 fold. The souring ocean freight rate dramatically impacted the bottomline of e-commerce businesses. Experts from North American port officials “expect current market condition to continue until late 2022”. I would like to talk about the current market condition for ocean freight rate forecast and why it is happening.

Current ocean freight market conditions

The ocean freight rates announced by the Shanghai Shipping Exchange for North America are USD 6,000 per 40 foot from Shanghai to Los Angeles, and over USD10 thousand per 40 foot to New York on the East Coast. This is more than four times price before COVID disaster.

And usually the peak season for Christmas sales, for North America starts in September, however this year it has been moved up to August.

Strong demand in 2021 Christmas Season

This year’s Christmas shopping season in North America is different from previous years. Wal-Mart, the world’s largest retailer in the U.S., announced that they will hold Black Friday sales three times in November.

The Black Friday sales are held every year on the fourth Thursday of November, Friday after Thanksgiving Day which are one of the most vibrant sales in the U.S.

The sales will be held in three separate days this year, to avoid congestion due to the Delta variant of COVID.

Since Wal-Mart will have these sales, it is expected that other retailers will also increase, or extend the sales period in some way.

Initially, I thought the growth in demand for North America, was due to the recovery of the U.S. economy, from the Biden administration’s benefits, and demand from stay-home workers.

However, there was a stimulus from the retail side, that gave further momentum to the Christmas shopping season.

Global container shortage

With this strong demand in North America, each retailer needs to secure inventory which increases orders and international transportation than usual. As a result, many containers are now gathered in China and it is very difficult for other countries to get containers and space. Container shortage became a global phenomenon.

The transportation for Christmas shopping season usually settles down before the National Day of China on October 1st. However, even after the National Day of China, there may be some orders that were not able to be sent due to lack of space.

And at the time of this article written, it is said that there are about 40 ships waiting offshore, at Los Angeles Port at the moment. This means that there are 40 container ships loaded with cargo waiting to be loaded or unloaded.

The backlog of containers congested the LA port and made it even less efficient to be handled.

When the containership unload the container at LA port. They cannot wait to load empty containers onto the ship and bring them back to China, because it would take a few more days. They would rather go back to China immediately to load more cargo and make more profit.

As a result, tens of thousand of empty containers are left at US port and clogged up the space.

Labor shortage in the US

Furthermore, even if the container traffic out of China and unload in the US, it will take time at the U.S. side to handle it. Currently, not only the ocean transportation but also the inland railroad one, is at its breaking point. There are simply not enough workers at the port to handle that many containers.

It is such a situation continued stagnation across North America, so it will take several months to resolve.

Chinese New Year in Feb. 2022

In addition, the next peak is the Chinese New Year in February 2022. In general, cargo shipments will be concentrated again before this Chinese New Year.

If the stagnation has not been cleared by then, there will be another disruption in the supply chain for North America.

Expiration of the North American West Coast Port Labor Agreement

The next event is July 2022, the expiration of the North American West Coast Port Labor Agreement and negotiation the revision.

The previous revision of the collective agreement in 2014 took a whopping nine months to reach a conclusion.

During this period of negotiations, the port actually became less functional, so much of the cargo had to be shipped by Air and then via West Coast of Canada and East Coast of North America.

One of the themes of this collective agreement is “port automation”. If the automation of ports is introduced, the work of dockers will be reduced.

In that sense, I think we can expect that this revision negotiation will be rough.

Since ocean freight rates to the East Coast of North America soared last time, it is likely that it will be so in July 2022 as well.

New COVID variant might continue to disrupt port operation

We don’t know what the influence of COVID will be in 2022, but there is a possibility that the west coast ports of North America will not function properly. If another variant COVID like Delta or Omicon affects us, we can expect further disruption.

There may not be an accident like the Suez Canal blockade of this year, but the situation will continue to be tense enough to disrupt the supply chain if any problem occurs.

I personally believe that ocean freight rates will continue to rise throughout 2022 and there are few factors that will cause them to fall.

Negotiation between Shippers, Forwarders and Shipping Companies Started

In China, shippers, forwarders and shipping companies have already started negotiating on ocean freight rates and space for 2022.

Normally, these negotiations are held in November or December. However, it started in September this year, which is an unusually early start.

In these negotiations, it seems that the focus is not so much on freight rates but on the stable supply of space.

We recommend business operators to consider those factors for 2022 and prepare your shipment.

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