Spot rates in the ocean container shipping sector remain quite volatile now 5 years plus after the pandemic of 2020.

Supply Chain Digest Says... Drewry notes that for a spot-rate shipper exporting or importing on the East-West routes will find that, on average, a container shipment’s cost can vary by about $1,400. What do you say? Click here to send us your comments

That according to a recent blog post by the maritime analysts at Drewry, which noted that “More than five years have passed since the huge shipping disruptions, damaging port congestion, and cost spikes of the Covid period, but one feature has remained: freight rate volatility.”

Drewry says that rate volatility has many causes, including external geo-political disruptions such as the attacks on ships in the Red Sea, changes in the supply and demand balance, and stop-and-go tariff changes (and the accompanying front-loading and pauses in shipping volumes) and higher vessel insurance or fuel costs when security risks rise in areas such as Iran and the Gulf region.

Drewry notes that transpacific rates from Asia to the US West Coast have been especially volatile in the last six months, in the context of tariff announcements and sudden changes in both capacity and demand. Spot rates from Shanghai to Los Angeles were cut in half between January and March, only to double between March and June – as shown in the graphic below:

For container shippers and importers thar are buying ocean transport under short, spot agreements, Drewry says that rate volatility means risk, such as the following:

• Unexpected decreases or increases in landed costs for importers for the products which they shipped

• Negative margins on exports

• Less competitive exports in certain markets

• Top management will hold logistics executive responsible for logistics cost over-runs!

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According to Drewry, these risks are more harmful for companies shipping low-value products, as an extra $2,000 in freight cost per container can kill the margin in such cases.

It adds that even for shippers with annual contracts, which tend to be larger and better protected from cost changes from their vendors, Drewry had seen a trend of more frequent unexpected surcharges, such as Red Sea and ship deviation surcharges since late 2023.

Drewry notes that for a spot-rate shipper exporting or importing on the East-West routes will find that, on average, a container shipment’s cost can vary by about $1,400. The shipper may not be prepared for such a large difference.
In conclusion, Drewry says that in its opinion, shippers can and should prepare for this risk and try to mitigate it, adding that discussions between Drewry consultants and shippers focus on established and emerging techniques such as:

Established techniques

• Moving from spot agreement to more stable annual contracts with carrier or forwarder providers
• Building stronger relationships with ocean carriers, based on mutual commitments
• Reviewing carrier contract language to protect against unilateral carrier surcharges

Emerging techniques

• Using freight futures to hedge volatility risk in spot rates
• Obtaining/preparing freight rate forecasts and scenarios for the shipper’s top lanes (spot forecasts and contract forecasts)
• Reviewing the shipper’s sourcing locations and assessing new sourcing locations with lower logistics risks and/or lower tariff risks.

Good advice from Drewry.

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