Freight Rates Rapidly Fall

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Freight Rates dropping means smoother shipping
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It looks like the historically high Freight Rates may drop. In fact, freight prices have already begun to fall. It’s a long time coming and, realistically, it couldn’t come soon enough. The shipping demand during the pandemic created a unique strain on freight carriers. However, public spending looks to be going back to normal. Because people can now leave their homes to make their own purchases, the demand for shipped freight is falling back to normal. However, the world is still not over the pandemic. Freight rates may be down, but inflation is way up. It sometimes feels like we’re moving one step forward and two steps back. Which begs the question, is there any hope to get ahead of the pandemic anytime soon?

The Freightos Baltic Index reports daily Freight Rates for shipping containers. The index reported that freight is down 38% since the beginning of the year and down 50% from the same time last year. That sounds amazing when you look at the short term, but the pandemic was not a year ago, it was a couple of years. Freight today costs $8,934 to ship from China to the West Coast. This is still four times higher than in June of 2020. Unfortunately, even if freight is considerably lower than in recent months, it’s still nowhere near pre-pandemic prices. Experts agree that we won’t see freight shipping prices drop to pre-pandemic levels at least through 2023, if ever.

Freight dropping is a direct result of the change in demand. During the peak pandemic, Americans had a much different view on shipping. People relied much more heavily on shipping due to the lack of the ability to leave their houses. Now things are opening back up and people are heading back to the store to pick up their goods. The biggest change in demand comes from the consumption of home goods. Big box suppliers like Walmart and Target stocked up on supplies during peak pandemic times. This move was to anticipate the rising prices of freight. However, now they have a huge backlog of inventory, which means they’re not going to order anything until they can get that backlog off their books.

The S&P Global Market Intelligence Report claims that freight rates will drop another 20–30% in the second half of the year. This is good news, but consumers may not feel the relief. Shipping prices may be down, but inflation is way up. Food and necessities are up 30-40% compared to pre-pandemic levels. Experts expect that in the second half of the year, people will start to feel inflation to a much more noticeable extent.

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