Supply chain cost crunch eases with zero freight rates

In good news for agriculture, a drop in consumer spending has forced shipping freight rates to free fall after years of record highs.

After three years of being squeezed by record-high shipping costs, portside price pain has released so quickly for importers that some companies have stopped charging freight rates.

The depressed global shipping costs are being attributed to rising interest rates and increased cost-of-living pressures leading to a reduction in consumer spending.

It is a sharp reversal of the market volatility and astronomical containerised freight rates during the Covid pandemic, with spot rates having now fallen from about $11,000 a container in September 2021 and $10,000 last March to currently little more than $1000.

Freight and Trade Alliance director Paul Zalai said the reductions had put the wind in the sails of importers after several years of shipping lines reaping multibillion-dollar profits.

Container being loaded at Australia’s largest container and general cargo port, the Port of Melbourne. Picture: Mark Stewart

“Anyone importing at the moment is going to be enjoying the benefits of lower freight rates,” he said. “They are very low, not always zero, but I have seen zero as well.”

From fertiliser, seed and chemicals, to unassembled machinery and spare parts, the soaring price of on-farm imports, due mainly to Covid-related supply chain disruptions and the Ukrainian war, was revealed earlier this year, with producers predicted to lose $5.3 billion in net value of farm production nationally this financial year.

Freight forwarder EES Shipping managing director Brian Hack said import rates from most Asian countries into the east coast of Australia were approaching, or already sitting at, zero dollars, plus bunker fuel charges.

“Shipping lines are now trying to capture as much freight as possible. Last year we were paying $10,000 for a container and now it is a couple of thousand, and all or most of it is in fuel. Some people now have another $9000 to play with, that is just crazy,” he said.

“Whilst rates went up 10-fold during the pandemic it has now basically plummeted 10-fold, I have never seen anything like it.

“Companies are still bringing in cargo, but whereas six months ago they were bringing in 20 boxes of cargo a month now they are bringing in five or 10.”

Port of Melbourne total container throughput for January this year was down 6.7 per cent from January 2022.

A Svitzer tug boat follows a container ship under the West Gate Bridge at the Port of Melbourne. Picture: Mark Stewart

The west coast of Australia is also enjoying reduced import rates but not as low as the east coast due to most cargo being shipments from Singapore and Malaysia.

The artificially low freight rates are also softening local landside price hikes.

However, Mr Zalai said the “welcome relief” of low freight rates may be temporary as shipping lines will look to again take control of the situation.

Any increase would be compounded by increases of at least 30 per cent in some stevedores’ terminal landside fees – or fees transport companies and importers are charged by stevedores – in the first months of 2023.

That hike is on top of more than $670 million Mr Zalai said road and rail transport operators paid last year, with $442 million slugged for incontestable terminal access charges and a total of $232 million paid to return empty containers to shipping yards.

He said adding container detention and vehicle booking fees bumped the figure over a $1 billion paid in supply chain fees to stevedores each year for the past three years, all these costs cascade down supply chains and fuel inflationary pressures.

A recent Productivity Commission report also found inefficiencies, including industrial issues and infrastructure constraints, at Australia’s ports were costing the economy a further $600 million a year.

Meanwhile, the lower freight rates are currently being enhanced by reasonably stable US and Australian dollars, decreasing pressure on trucking supply chains and a steadier supply of empty general purpose and refrigerated containers.

The glut of containers is also opening up slots for more agricultural exports with shipping companies sending out full vessels, in a flip of recent practices where partially filled ships were sent out to keep supply chains moving.

Shipping Australia spokesperson Jim Wilson said while pandemic-related restrictions drove up consumer purchasing and the high demand for shipping services increased freight rates, cooling demand meant “carriers will not make as much profit and revenue and many ag producers and exporters will be able to retain more of their capital”.