One of the most important changes we have experienced in the past few years and that is expected to continue is the increasing volatility in the containerized ocean shipping market. There have been four business cycles in the containerized ocean shipping business since 1997. The durations from trough to trough prior to 1997 were five years, four years, three years and two years.
2011 was the trough of the last cycle. Not only are the business cycles getting shorter but the peaks and troughs are getting higher and lower. The benchmark trans-Pacific eastbound rate to the West Coast starting in 2008 went from (all approximate numbers) $2,000 to $1,000 to $2,600 to $1,500. It’s enough to give you whiplash.
This volatility is disruptive to service providers and customers. It makes planning almost impossible. It creates uncertainty, and uncertainty means more risk, and dealing with more risk increases costs.
If the ocean freight rate is going to be $1,000 higher or lower in six months, what does this mean for sourcing? If you don’t know the direction of the rate move, what does that mean? Do nothing? Move some of your sourcing to another location? Change your selling price? The industry has been moving more toward rate facilities that may help mitigate the impact of this greater volatility and uncertainty. Indexed rates, longer-term rates that facilitate hedging and even futures provide useful tools that allow better planning and more certainty for shippers and transportation providers.
With the world economy in slow growth mode and $57 billion of new container ships on order, the volatility is likely to continue, and the usefulness of the new rating tools will increase.