A longshoreman directs shipping containers, July 5, 2018, in Savannah, Ga. (AP Photo/Stephen B. Morton)
In a sign that a global recession may be coming, the cost to ship containers from China to the West Coast of the U.S. has undergone “extraordinary hemorrhaging,” with spot rates halving in the four weeks ending Oct. 7 alone.
Freight rates have been falling for months as global trade slows due to reduced demand for goods, according to the latest data from S&P Global Market Intelligence. Fewer supply chain disruptions that built up over the pandemic have also helped lower container shipping rates, but a lot of the slowdown in container and vessel demand is due to weaker cargo movement, GCaptain reported.
However, retailers are not necessarily ready to pass the savings on to shoppers.
Ships are reported to be leaving Asia for the U.S. West Coast barely three-quarters full, and spot rates are on track to fall through the $2,000 watershed this week. The spot price for a 40-foot container plunged 20 percent the week of Oct. 7 to $2,361, compared with a typical premium rate a year ago of $20,000.
The steepest decline in spot container shipping rates is in the Asia-West Coast market, according to Freightwaves.
A company’s freight costs vary depending on whether they are fixed by contract for a period of time or based on spot-market rates that can change more quickly.
For example, Costco, which sells discounted bulk goods to members, uses contract rates for more than 80 percent of its total freight, Wall Street Journal reported. It can take anywhere from six months to a year for lower shipping costs to translate into lower prices for consumers, said Chuck Grom, a managing director at Gordon Haskett Research Advisors. Higher costs in other business areas can delay price drops even longer.
Despite the lower prices for shipping goods and things like gasoline and steel, Costco Wholesale Corp.’s chief financial officer said he isn’t in a position to pass savings on to customers yet. Pricing hasn’t decreased at the company’s 839 stores, according to CFO Richard Galanti.
Costco locked in the prices it pays to suppliers months ago, in some cases, and inflation persists from rising labor costs, which means lower shipping and commodities prices aren’t necessarily benefiting the company’s balance sheet yet, Galanti said.
