Freight rate reduction could take 18-30 months
Global freight rate reduction could take anywhere between 18-30 months, according to Sea‑Intelligence, a research & analysis provider with strong focus on container shipping.
November 17, 2021: Global freight rate reduction could take anywhere between 18-30 months, according to Sea‑Intelligence, a research & analysis provider with strong focus on container shipping.
“We analysed the composite China Containerized Freight Index (CCFI) to see how quickly freight rates could normalise using history as a guide,” said Alan Murphy, CEO, Sea-Intelligence.
"We narrowed down the CCFI to the pre-pandemic data, and identified five periods of sustained rate decreases (marked in red) as well as five periods of sustained rate increases (marked in green). Based on this, we defined the time periods of increases and decreases, and analysed each separately.”
Sea-Intelligence measured the rate of decline in terms of the average percentage point drop per week over the full period of each of the five periods. “This ranged between -0.4 and -0.9 percent per week. If these time periods are to reflect the inherent pricing mechanisms in the industry, we can use them to calculate a reversal back to normality," Murphy said.
This, however, presents the next question: what is a normal rate level?
Based on historical CCFI data, this is represented by rate levels around index level 1,000, which would represent a decline of 69 percent from the current rate level, Murphy added.
"During the global financial crisis of 2008-2009, rates declined at the fastest rate of 0.9 percent. If we apply this speed of decline to the current rate levels, it would take 18 months to get back to normal.
"If, however, the rate of decline matches the average seen over the five rate decline periods, normalisation would take as much as 26 months. It can be argued that the current increase is much stronger than before, and that should be accounted for. To do this, we calculated the average weekly rate increases for the five periods with rate increases. On average, over the five periods of decline, the rates dropped 0.6 percentage points per week. Over the five periods of increase, we saw rates go up by 1.1 percentage points. This implies a factor of 1.8 between increases and decreases, meaning that rate increases tend to be 80 percent stronger, on a weekly basis than decreases.
"As the current rate level comes after a 17-month period of sustained rate increases, the result becomes 30 months before a reversal back to index 1,000."
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