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Import market remains stagnant and impacts international freight

In Freight Uncategorized Posted September 28, 2015 at 4:49 am
By Edi Lenkic

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The current state of freight volumes, in particular international sea freight, remain in a lull and the outlook even for the Peak Season, does not look particularly prosperous for ocean carriers participating in the Asia to Australia trade.

Since the GFC in 2008, ocean carriers have battled to sustain rates at desirable levels and have been forced to rationalise throughout the year to improve revenue streams.  This has meant that ocean carriers have frequently reduced tonnage on vessels and suspended services due to lack of performance with trade.  Some vessels have not been reaching capacity, forcing carriers to draw the line and cut back on tonnage.

Industry wisdom has interpreted the sustained low volumes a number of ways.  One theory holds that market saturation is driving the ocean freight rates down, with the main culprits being the emerging, smaller carriers.  There is some truth to this as a number of carriers have recently withdrawn from the market.  Of course, this is not the only reason; other influencing factors include:

  • The impact of the weakening Australian Dollar (against USD) – It wasn’t so long ago that the Australian Dollar was at parity with USD, but current exchange rates mean many businesses are able to buy domestically and often in smaller volumes.
  •  Consumer confidence remains low. We are seeing importers adopt more prudent buying behaviour.  While this is a safer option and reduces cash tied up in inventory, on the flip side it can lead to missed opportunities as the market kicks.
  • Additional volume capacity has come on line in the market with two lines introduced bigger ships resulting in supply outstripping demand.
  • Fuel, the biggest running cost of shipping lines is at record lows. (As an aside, OOCL made record profits this year, even though rates were depressed, all down to fuel.)

All this adds up to a scenario of heavy discounting by shipping lines as they compete to maintain tonnage and react to price shopping by importers.  But, how influential are international freight rates…?

I suggest the following to importers:

  • Understand the market dynamics and that sea freight rates fluctuate significantly throughout the year – always have.
  • Ensure your freight forwarder is demonstrating the integrity and transparency that you deserve by keeping you informed of projected changes to freight rates and applying reductions when the market drops.
  • Price isn’t everything. By all means consider offers you receive from forwarders but you should also take into account whether your service expectations are being met by your provider and whether they fit with your plans for the future.

 

If you would like a confidential discussion about your importing and freight forwarding needs please call Edi Lenkic on 1300 651 888or if you’re in New Zealand call Paul Knight (09) 974 4818.   Alternatively visit www.magellanlogistics.com.au for more information or email info@maglog.com.au

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