Ocean freight costs are starting to drop! Cross-border sellers, don’t be too happy yet...

Shenzhen was finally unsealed a few days ago, and freight forwarders and logistics companies are accepting and shipping goods as normal. They have even launched large-scale promotions, and shipping prices have begun to loosen significantly!

This is not just the case at Shenzhen Port. The latest Ningbo Container Freight Index (NCFI) closed at 3613.9 points, down 1.7% from last week. Among the 21 routes, the freight index of 5 routes increased, while the freight index of the other 16 routes fell slightly.

In the past month, the freight rate from Shanghai Port to Europe has dropped from US$7,677/TEU to US$7,019/TEU, a drop of more than 8%. The freight rate from Shanghai Port to the Mediterranean has also dropped by nearly 5%. The Drewry Index, a comprehensive index of world container freight rates, has also recently fallen to US$8,832.23/FEU. This is the first time that the Drewry Index has fallen below US$9,000/FEU since July 29, 2021.

This situation is actually quite abnormal. If Shenzhen had just been unsealed, and freight forwarders and dealers were promoting sales to make up for their performance, it would be understandable that freight rates had dropped a bit in the short term. But it is not normal that global freight rates are going down. After all, energy prices are sky-high now, and the fact that freight rates are falling instead of rising can only mean that something is wrong. There is more than just the factor of inflated freight rates. According to professional organizations such as Drewry, the reason for the current drop in freight rates is still unclear, and it is hard to say whether this is a good thing or a bad thing.

I think the sellers were confused after hearing this. Could lowering the price be a bad thing?

From the perspective of becoming cheaper, it is indeed beneficial to sellers. Who doesn't want to ship cheaper and keep more profit? However, the perspective of this professional organization is more comprehensive. If the freight rate drops because of problems in the supply chain or demand, such as fewer buyers and the port cannot load the goods, the freight rate will drop. If the freight rate drops but no one buys the goods, it is indeed not optimistic.

Moreover, the situation of ports is indeed not optimistic. The industry's port congestion index hit a new high of 36.3% in the third week of February, far higher than 32.8% in 2021. Last Wednesday, the weekly average congestion index rose from 33.7% to 35.2%. This is also reflected in the downstream freight forwarding. When asking several freight forwarders about the recent price reduction of freight rates, some industry insiders bluntly said, "I don't know how much the price drop is, anyway, there has been no ship for half a month." Many people believe that even if the price drop is only temporary, it may even rise again soon.