RaboResearch says freight rates in Australia may drop soon, but we’re still far away from pre-pandemic levels
RaboResearch has come out with studies that show international container freight costs should soften soon for Australia’s agricultural sector, but there will be no return to pre-pandemic lows anytime soon.
Australia’s agricultural sector can expect to contend with elevated ocean container shipping costs and ongoing supply disruptions for at least another year before a ‘normalisation’ of the global ocean freight system, according to new research from Rabobank.
In its Global Ocean Freight Outlook report, the specialist agribusiness bank says while global container freight prices are set to continue to gradually decline over the coming 12 months – from the highs reached late last year – they are not expected to return to pre-pandemic lows, with the global container shipping industry now impacted by broader structural factors, including a weaker global economy, higher operational costs, geopolitical uncertainty and imbalanced trade flows.
The report says even though the record-breaking high ocean freight rates seen in the past two years, driven by pandemic-related disruptions, have already begun to soften, they remain three to five times above pre-2020 levels.
The reliability of ocean container freight schedules had dropped from almost 80 per cent pre-pandemic to approximately 30 per cent as disruptions and uncertainties cascaded across the globe and have not yet recovered.
RaboResearch global supply chain analyst Viet Nguyen says while shipping container prices were never expected to return to the low pre-pandemic rates of approximately USD 3000 a container, they would decline from the current USD 7000-8000 per container mark in the year ahead.
While heightened inflation and all-time low global consumer confidence levels were exerting downward pressure on ocean rates, Nguyen says rates were being supported at higher levels by imbalanced global trade flows which hinder a cost-effective repositioning of empty containers.
“Added to this, geographical uncertainties are adding risks and there are also growing operational costs for the sector from higher energy costs and sustainability regulations,” he says.
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Port congestion is a major contributor to the continuing supply disruptions, Rabobank says. While various processes have been implemented to improve efficiency, structural factors – including a lack of coordination between ocean and land transport, labour shortages with uncertain union negotiations, disrupted trade flow and a general lack of automation – continue to expose vulnerability at ports, the bank says.
For Australia – where the agricultural sector is heavily reliant on ocean container shipping for both imported inputs (such as plant protection and machinery) and exporting goods (including meat, fruit and vegetables) to international markets – the overall picture is a rather positive one, according to RaboResearch general manager for Australia and New Zealand Stefan Vogel.
“While we are not expecting ocean freight to return to normal for the sector here before 2024, we think it is going to get better for us in Australia, and many other parts of the world, but it is not going to happen tomorrow,” he says.
“It will be one or two years of ocean container freight rates tending to move slowly lower, while simultaneously reliability will improve – step-by-step – up to something closer to normal.”
Vogel says the bad news is that it is unlikely ocean container freight rates will return to the levels experienced before the pandemic.
“The overall picture is a rather positive one, where we do not expect to see those rates explode suddenly again or that there will be another massive disruption in the chain.”