10/11/2022

The pendulum returns: interpreting global markets to inform freight procurement 

11/10/2022 | 6 min

 

By Lena von Fritschen, Director Market Intelligence, Transporeon

 

As market forces start to favor shippers again, now is the time to secure capacity for the new year. 

For the last few years, we have been operating in a seller-controlled global shipping environment. The Covid-19 pandemic had far-reaching implications, from border closures to container imbalances, and the combination of driver shortages and increasing consumer demand meant it was more expensive than ever to ship goods around the world.  

In response, many shippers and freight forwarders postponed running tenders, opting instead for short-term solutions and individual strategies in an effort to keep costs low and avoid unwelcome surprises due to high market volatility.  

Now, however, a stuttering world economy is suppressing demand around the world, turning the tide on transport rates and capacity. As discussed in my recent webinar on how to leverage today’s volatile market situation to successfully run tenders, there is evidence that this trend is more than just a temporary blip.  

In other words: Shippers are regaining some of the leverage they lost, and so now is the time to rethink long-term tendering strategies. 

Reading the freight market: Air & Ocean trends 

Though it is still early, global indicators in air and ocean freight show an overall downward price trend on the contractual level — and road transport is likely to follow.

This is driven by two main trends: a decline in global GDP and in increase in inflation, both of which are acting to suppress demand growth across all modes. Even if inflation has reached its peak (as some economists predict), the consequences are expected to persist far into 2023.  

Trends in Transpacific ocean rates

Within ocean freight, the effect is a swift decrease in spot rates, after the peak season failed to materialize. After huge highs in 2021, spot rates dropped in 2022, finally crossing below contract rates in July. Since then both spot and contract rates have been coming down — though regions may vary significantly, so this may not be experienced in all trades.  

We expect this trend to continue, as we see across many lanes that contracted rates are following the declining spot market. This is all good news for Shippers.  

Ocean freight demand vs. Supply 2019-2023

As we look ahead to 2023, the predicted demand growth will not be more than the increase in TEU capacity, which is set to accelerate rapidly in the new year, absorbing much of that new demand. Altogether, these conditions suggest a return of leverage to freight buyers.    

Reading the freight market: Road trends  

Within road freight, the situation is a bit more complex. While the upward pressure on rates has eased, the drop is not as significant as in ocean freight, largely due the lower margins found in road transport. PMI and GDP forecasts do indicate that demand may weaken in the near future, and therefore we can expect to see prices drop in response.  

On the other hand, however, carriers will also undoubtedly factor in expected inflation, which would ultimately mean that prices remain constant. That said, a tender in the current market could attract new carriers again who are looking for cargo and can offer lower prices.  

This increased competition may be what ultimately yields price decreases for shippers.  

Source:test etst es

European road transport capacity index

When we look at capacity — based here on transport rejections, spot offers, and vehicle registrations — the global index has risen slightly in 2022, but it is still considerably below pre-Covid amounts. This is a strong sign that more capacity is available in the market, and we can expect this to benefit shippers, especially as buyers look to lock in capacity for the next year. 

How Shippers can take advantage of changing market conditions 

Although each mode has different dynamics, it is increasingly apparent that the time for “tough love” has arrived for shippers as they begin their 2023 tenders. Carriers have taken advantage of their position in the market, and now the pendulum has begun to swing back towards shippers.  

While still acknowledging regional and individual market differences, we expect to see selected pricing improvement to help shippers secure capacity at reasonable rates.  

For shippers looking to enact new freight procurement strategies, we recommend a few best practices: 

  • Keep a close eye on market developments
    Be ready if and when carriers show up with rate change claims 

  • Stay the course 
    Don’t switch to the cheapest offer — focus instead on long-term benefits from ongoing relationships with the right carrier(s) 

  • Implement diesel floater mechanisms 
    Establish a fair agreement for both sides and benefit when diesel prices decrease 

  • Engage in the spot market strategically 
    In case of rejections during period of restricted capacity, widen your carrier pool to secure capacity (may require pre-qualification) 

  • Check your transport setup and operations processes 
    Be an attractive shipper with short turnaround times and efficient automated processes 

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