There are many variables affecting ocean freight rate fluctuations.
Carriers will want freight rates at higher levels to maximize the profits per-vessel, while BCOs will want to ship with the best possible cost out there. Due to this, there have been many different contract structures out there from fix and short-term to spot and commodity rates. Although carriers favor regularly shipping customers to seasonal customers where demand peaks a few months and then suddenly want, size matters, too.
Although the full list of variables is very long, we can list the following as the factors that have the biggest impact on ocean freight rate increases or decreases.
1. Consumer Demand and Vessel Supply
Consumer demand and vessel supply have the biggest impact on freight rates. When demand is high, freight rates increase as importers compete for the limited space.
On the other hand, when there is too much vessel space available in the market, the rates are likely to go down as the carriers scramble to fill their vessels and to increase the likelihood of this, they reduce rates. Vessels must be ordered in advance to come to service, so it is tricky to time the market. When the vessels come to service at the time when consumer is demand is down, it is almost impossible to keep high rate levels.
2. Blank Sailings
In order to manage the capacity overage, carriers practice the blank sailing scheme where they skip some certain port of calls or completely suspend some certain service loops. This would create less vessel supply and in return, it will drive ocean freight rates to higher levels.
3. Major Holidays, like the Chinese New Year
It is very highly likely that ocean freight rates will increase before major holidays overseas, especially pre-Chinese New Year. Chinese New Year is a one-week event, but most factories are closed for a month which means the interruption of new orders. Importers tend to forward ship orders in order to prevent inventory issues, so there are always rate increases before the Chinese New Year holiday.
4. Peak Season
The traditional peak season, from May to October, has not been the same since Covid. However, this is usually when most seasonal items are being shipped, which creates an increased demand for space. In return, carriers will implement peak season surcharges to push ocean freight rates to higher levels.
5. Bunker/Fuel Fluctuations
The biggest cost for ocean carriers is fuel and it has a direct effect on freight rates. Different carriers have different policies when it comes to implementing bunker adjustment fees. However, lately, the trend has moved to a quarterly review of bunker charges and depending on fuel costs at the time, overall freight rates might go up or down. Since bunker prices are adjusted regularly, its impact is not huge on overall freight costs, but there will be a huge spike in freight rates as peak season surcharges are assessed.
6. War or Piracy Risks
Carriers may implement war risk surcharges depending upon the risk at the specific service loop. This is a temporary fee, and it would get removed when the risk is over.
7. Port Congestion
If the ports that vessels are calling are extremely congested, this will be added to the overall cost as congestion fees. We saw a good example of this when the carriers implemented additional fees during Covid at U.S. West Coast ports where there were too many vessels waiting to be served. When the vessel waits too long at the queue to be serviced at the port, its rotation will be ruined, and it will create a chain effect.
When multiple factors coincide, a “perfect storm” effect occurs, impacting ocean freight rates.
Vigilance and strategic planning are essential for navigating this complex landscape, allowing stakeholders to adapt to dynamic market conditions.
