High container rate volatility to enter 5th consecutive year; measures to mitigate the uncertainty

For shippers and BCOs, over recent years container shipping has felt like a relentless cycle of disruptions, delays and freight rate volatility. In this article we explore what measures logistics teams can take to mitigate these challenging dynamics.

Drewry data shows that there have now been 4 or 5 years of huge volatility, depending on which market segment you look at. We have also warned our shipper, forwarder and carrier customers to expect little change next year, with 2025 likely to mark the 5th consecutive year of high volatility in ocean freight rates.

Drewry tracks both ocean contract rates and spot rates and found that average freight rates (including both contract and spot rates) on the major East-West routes decreased by about 60% in 2023 and are expected to have risen by about 20% in 2024 year-on-year.

Our forecast model for the main scenario of expected US port strikes in Q1 2025 shows that ocean contract rates on routes to the US will rise in 2025, despite the addition of substantial new ship capacity. We also anticipate that spot rates on East-West routes will decline in the second half of 2025.

Even for contract rates, which used to be much more stable than spot rates, we have seen wild price swings since the beginning of 2021, with standard deviations in average contract rates increasing more then 10-fold.

So, this is already 4 years of crazy price volatility in ocean contract rates (2021 to 2024). But for spot rates, which tend to be used by small shippers or for ad hoc or excess volumes by large carriers, many shippers were already starting to feel the effects of extreme volatility in 2020.

This year, rates in the spot market appeared to have peaked in July and saw 3 months of rapid decline, but started rising again in late October.

In the contract market, according to shipper/members of Drewry Benchmarking Club, exporters and importers have had to battle with carriers about requests to accept Red Sea and Peak Season Surcharges.

Due to capacity shortages, carriers have been able to enforce surcharges on the Asian routes, as happens during strong years.

What should shippers do about these long-lasting problems?

Shippers need to be aware that the shipping industry will continue to be disrupted and that there are risks and a need for contingency plans and active vendor management.

Resilience will require a different way of vetting, selecting and working with ocean carriers or third-party logistics providers and greater attention to assessing and responding to geopolitical risks. Indeed, some shippers we are working with have appointed staff dedicated to monitoring geopolitical risk in supply chains.

Thanks to our extensive cost benchmarking capabilities, the valuable insights from our Benchmarking Club closed user group and in-house team of procurement-experienced industry consultants, we are well-placed to support shippers’ procurement strategies in 4 closely-related and specialist areas:

Forecasting contract and spot rates;

Identifying market signals that things are changing;

Quantifying the level at which surcharges can be renegotiated (using both calculations of underlying ocean carrier costs and peer benchmarking);

Modelling scenarios of supply and demand and associated market risks.

Custom bid support for shippers/BCOs

We work with logistics operations and procurement teams in some of the world’s top manufacturers and retailers, helping them benchmark their ocean freight costs and improve their ocean freight tender processes by combining robust market intelligence with powerful procurement technologies and proven best practices.
Source: Drewry