Shanghai Containerized Freight Index (SCFI)
The Shanghai Containerized Freight Index (SCFI) is an important indicator of container freight prices from Shanghai to the rest of the world. Recent developments in SCFI show significant fluctuations, reflecting the current challenges in the market.
Continued Decline in Rates
The Shanghai Containerized Freight Index (SCFI) continues to plummet, marking yet another significant drop last Friday. As of September 20, 2024, the SCFI sits at 2592, which is a drastic fall from its peak of 5051 back in mid-July. This represents a significant 48% decrease, and we are now nearing the rates we saw back in April.
The Current Decline: Key Data Points
Here’s a summary of the recent SCFI movements:
Peak in July: The SCFI reached its high point at 5051 on July 12, 2024, following several months of sharp increases driven by geopolitical factors and supply chain bottlenecks.
Subsequent Decline: Since July, the index has fallen consistently week after week:
August 30: 3876 USD
September 6: 3459 USD
September 13: 2841 USD
September 20: 2592 USD
What’s Driving This Downturn?
Several factors may explain this continuous decline in container freight rates:
Seasonal Adjustments: The post-peak season often sees reduced demand as retailers have already stocked up for major holidays. The sharp rate increases earlier in the year prompted many companies to front-load their imports, leading to less demand for shipping space later in the year.
Easing Supply Chain Pressure: While supply chain challenges remain, the situation has improved compared to the beginning of the year. Ports have streamlined their operations, and there is better coordination between transport and logistics providers. This has eased some of the upward pressure on freight rates.
Increased Capacity: Shipping lines have responded to the earlier rate increases by adding capacity, which has helped moderate the market. Additionally, some ships that were delayed due to port congestion or other issues have returned to service, increasing overall shipping availability.
What’s Next for the Market?
While the decline in rates is good news for shippers who have been grappling with high costs, the market remains unpredictable. It’s possible that rates may stabilize or even rise again if there are further disruptions, particularly with geopolitical tensions still simmering in some regions.
The industry will be closely watching key developments, including the upcoming Chinese New Year in early 2025, which historically drives up demand and could lead to another surge in rates. Moreover, energy prices, inflation, and global economic conditions will play a critical role in determining whether this trend continues or reverses.
How to Navigate the Changes
For importers and exporters, the continued fluctuations in freight rates mean that adaptability is key. Here are some strategies to consider:
Flexible Contracts: Consider contracts with flexible terms that allow adjustments based on market conditions, so your business isn't locked into high rates when the market falls.
Alternative Transport Modes: Depending on the type and urgency of the goods, explore other transport modes such as air or rail, which may offer more stable pricing.
Close Monitoring of Market Trends: Stay informed of weekly SCFI updates and broader market conditions to make informed decisions about shipping strategies.
How we have just helped a client with a New Ocean Freight Deal
As an example on how to navigate the current market, we’ve successfully negotiated a new long-term ocean freight deal for one of our valued clients. With an ocean freight budget ranging from 3 million DKK to 4.5 million DKK, we have managed to secure substantial savings of approximately 500,000 DKK annually through improved rates, better terms, and optimized contract conditions.
This not only improves their overall cost structure but also positions them for greater operational efficiency and flexibility in the coming years. It's a testament to the importance of ongoing negotiation and market insight in achieving meaningful business results.
By leveraging our deep expertise in freight negotiations and supply chain optimization, we are able to deliver real, measurable results for our clients—strengthening their bottom line while ensuring high service levels.
We have recently helped several customers in several industries with imports from the Far East, where we have secured them as best as possible against the current and future increases. This includes both FCL & LCL shipments. If you would like to discuss how these changes may affect your business, or have any questions, you are more than welcome to contact us.
Nicolaj Aarøe - Co-founder & Consultant na@slinkert.dk
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