The beginning of the fall brought uncharted waters for 3PL shipping, distribution, and logistics; e-commerce market players have had to contend with inflated prices for shipping containers to move their goods. The reality of these inflationary circumstances creates higher costs for consumers at checkout, a more competitive shopping environment, and unfortunately, suppressed demand. Recently, the largest tonnage container to take the Arctic route ship left China, headed through the Bering Strait, bound for St. Petersburg. The NewNew Star traversed the Arctic bearing almost 36,000 tons of containers. Lacking the protections designed into ice ships, the NewNew Star is the largest box ship of its kind to make the journey.
Such precarious circumstances are analogous to the situation the container market writ large finds itself in: navigating iceberg-laden waters, without insulatory measures, burdened with crucial shipments. Despite boat-rocking waves tossing the ship of economy this summer, namely, the price peak in July of nearly $6,000 (US$) per container, prices have slightly cooled off, trending down from the mid-$5,000’s. Industry predictions suspect prices cooling at the end of the year, but prices cooling largely have to do with diminishing demand, something that won’t happen until the holidays are over. What remains to be seen is whether there will be movement in the new year back to the low of October 2023, when a container was only $1,200.
Sea Changes
We are on the brink of the holiday season, and at the threshold of market conditions shifting from external factors. Trade tariffs and deficits may have an impact on the market depending on the election results on November 5th. Rumblings of an International Longshoremen's Association port strike loomed over the fall, threatening the major nautical transport hubs of the US. The Red Sea has remained an issue, with ships opting for the Vasco de Gama route around the Horn of Africa to avoid the piracy that has plagued the Suez canal sea channel.
Despite disruptions and multiple year standing challenges to the supply chains, the container companies themselves have done well. The combination of record volumes with surging prices. AP Moller Maersk and Cosco Shipping holdings each almost doubling their net income in Q2 of 2024, exceeding 10 billion in profit. It remains to be seen whether such gains will be reinvested into the supply chain, e.g. more ships, and port expansion. If anything, it will be years before they are commissioned into the supply chain.
Preparations for the New Year
Organizations should prepare for a “new normal” for container prices in 2025 as a way of insulating against stabilizing at a price higher than Oct 2023. Long-term, businesses may want to consider a “disaster ready” contingencies or simply opt for delivery and distribution models that have ingrained diversification and multi-tier redundancy systems, some tactics that we have written about previously when prices spiked in July.
Get Squirrely: A recommended tactic would be to pre-store local caches ahead of certain peak season moments. Just as squirrels create several stores of food before winter, famously building more caches than they can reliably recall when the spring rolls around, this tactic works if there is abundant warehouse capacity to store ahead of the peak holiday season. It can also be advantageous for the oncoming peak season, as transporting from local stockpiles means delivery times to the customer will surpass competitors that have to wait for the containers to arrive, because a majority of the distance has already been covered before the orders were placed.
Multiple Carriers on Speed-dial: Diversifying the options both for price comparison on routes and in the case of supply chain jam ups. Redundancy of essential supply routes is the goal here; but it is also a hedging strategy as prices may vary from carrier to carrier.
More Movement, Less Load: If the numbers work, LCL shipping may be a choice considering. This mitigation tactic depends on the ability to split large orders into multiple smaller orders; timeframe matters here as the first order has to be sent earlier with multiple shipments. The idea is that if LCL prices are favorable, multiple shipments at a lower price would be less than the container as a whole.
Coastal Considerations: It does matter which coast in terms of price. The East Coast is generally pricier and has gotten pricier due to the dangers of the Suez canal path. Pacific shipments take longer but the price is better. Where HQs and hubs are will factor into this decision, but it’s worthwhile to watch the coastal rates and get shipments at better prices if the situation fits. Here is a snapshot of prices from the Drewry index as they stood at the first week of September:
Shanghai to Rotterdam: Decreased by 14% to $6,219.
Shanghai to Genoa: Dropped 12% to $5,842.
Shanghai to Los Angeles: Fell by 3% to $6,030.
Shanghai to New York: Decreased 2% to $8,451.
Rotterdam to Shanghai: Dropped 2% to $612.
New York to Rotterdam: Decreased by 1% to $732.
Rotterdam to New York: Increased by 16% to $2,212.
Los Angeles to Shanghai: Inched up by 1% to $714.
While getting a container as far West as Europe has seen a slight dip, you can see from this rate snapshot that getting that same container from Rotterdam to New York is much pricier. Even a container leaving NY instead of arriving has seen a price decrease. While a container’s price direct from Shanghai to NY has even seen a 2% decrease, it is still the highest price listed. Getting that same container to Rotterdam is still 3/4ths of the price to NY from Shanghai.
Takeaways
While the industry’s recent memory may pine for the optimal container price of $1,200 from last Fall, sober minds will have a deeper memory: the pre-pandemic average for a container was actually $200 dollars higher than that figure. According to the Drewry World Container Index, the average index price of $4,100 is higher than the 10-year average of $2,800, a difference of about $1,300 bucks. That difference can pile up with multiple ordering, but perhaps given the 10 year average number, the lows of October 2024 were never in the spectrum of a stable price, and more an outlying figure the market benefited from due to the particular conditions of the time.
The aftershocks of the pandemic are still being felt in the price. But as with all things business and life, it’s best to plan for the worst and hope for the best. Last October’s price is in the rearview mirror. Smart organizations will budget for higher rates, with any price below the budgeting coming as a bonus if prices stabilize below budgetary appropriations. This would be the most prudent planning given September’s shipping container scenario. Just as the NewNewStar treks into iceberg-laden seas, taking the risk on a vessel with no ice protection, organizations and market leaders will have to weather high prices until the end of the year, where calmer waters await in 2025.
Brendan Heegan is Founder and CEO, Boxzooka. The company has grown steadily with Brendan's leadership while taking care of employees and serving customers. Brendan's vision for Boxzooka has never wavered in working to be the best, not the biggest, 3PL. Brendan has that entrepreneurial enthusiasm for addressing daily challenges while keeping an eye on the road ahead.
