Shippers continue to face volatility in container shipping rates due to ever-changing market dynamics. With so many factors influencing container rates — some predictable, some unpredictable — shippers need to explore creative ways to stabilize budgets outside of simply getting a good and/or lucky read on the market.
On the heels of the pandemic and post-pandemic rate swings, company leaders are looking to their in-house and third-party supply chain teams to deliver more consistent budgets and greater profitability. It’s never been more important for logistics and transportation teams to get the most bang for their buck, without sacrificing service. The more supply chain leaders can shield themselves from market extremes and rapid swings on the spot market, the better they’ll be able to deliver profitability back to the business.
In this article, we’ll explore three primary causes of current container freight rate volatility and then turn to three strategies shippers should employ to stabilize rates, including some that can help shippers beat market averages at every stage of the freight rate cycle.
What’s Behind the Current Rate Volatility?
While countless variables contribute to international container shipping rates, the current market has a few key factors suddenly driving container freight rates higher.
Persistent Disruptions
The 2024 container freight market has been driven by several major disruptions, headlined by the Red Sea Crisis, with Houthi rebel attacks in the Red Sea forcing diversions around the southern tip of Africa, adding significant time and fuel costs to shipments that would otherwise have been able to leverage the Suez Canal.
Drewry analysts polled companies on when they expect the Red Sea diversions to end, with a large majority indicating they don’t expect it to happen until the first half of 2025.
Other disruptions include natural disasters like the Panama Canal drought and geopolitical tensions like upcoming U.S. tariffs on Chinese-manufactured goods, both of which have combined with the Red Sea situation to influence the next factor.
Capacity Constraints
Capacity didn’t seem like it would be a concern in 2024 with new vessels scheduled to be put in service, but with longer ocean transits due to the issues noted above plus heavier than expected demand, the sudden container crunch is setting off global trade alarm bells.
Tariffs have driven some of the demand as U.S. shippers are pulling forward orders to move inventory across the ocean before tariffs take effect. And large inventories will be needed, as the National Retail Federation forecasts demand to remain above 2 million TEUs (twenty-foot equivalent units) through October 2024. That threshold wasn’t hit between October 2023 and May 2024.
Add the threat of port strikes to the mix and bad memories from pandemic-era port congestion, and supply chain leaders are rightfully hedging on the early end of peak season, which we’ll turn to next.
Seasonal Dynamics
Peak season is a somewhat predictable market condition as shippers prepare typically August-October for the holiday rush of consumer spending, but the past few years have certainly proven how variable even peak season can be, both in timing and intensity.
In 2024, peak season has already come early, which analyst Maritime Strategies International said was unexpected, catching many shippers by surprise, with impacts on both primary and secondary trade lanes.
Even when the timing is expected, seasonality can be more or less intense than anticipated, straining the accuracy of even the best budgets and forecasts. With the confluence of factors impacting shipping container rates, it’s critical for shippers to take action to mitigate the challenges and seek to build stability in their rates.
Building Rate Stability: Three Strategies to Safeguard Budgets
Container shipping rates will inevitably fluctuate even without the factors described above, which is why shippers need to find strategic ways to achieve rate stability that can lead to budget consistency. Those strategies are, of course, even more important when unpredictable volatility enters the picture. We’ll walk through three strategies you can use today to achieve lasting rate stability, even when the industry has little to none to offer.
Innovative Procurement Strategies
From RFPs to instant spot quotes, there are many ways that shippers can procure capacity, but we’ll highlight two innovative approaches here.
First, shippers should leverage long-term contracts to secure stable rates that aren’t so dependent on the whims of the market. It’s always a give-and-take relationship between shippers and ocean carriers in rate negotiations, but making a good-faith effort to establish long-term and mutually beneficial freight rates based on historical averages and on a fixed-rate basis can neutralize the spikes that challenge both shippers and carriers.
Second, shippers should establish strong partnerships that can lead to more stable rates. We’ll discuss this in more detail below, but in terms of procurement specifically, shippers can bring greater leverage into negotiations by combining freight volumes with other companies through a shippers association to secure better capacity.
Risk Management Approaches
Shippers also need to develop proactive strategies to identify and mitigate potential disruptions. This includes implementing contingency plans to address unexpected challenges, which enables a rapid response when market curveballs do come.
Shippers should also prepare plans for a variety of potential market conditions within and outside of the standard deviation. For peak season, for example, shippers could have a plan for early, typical, and late peak season for any freight that isn’t under contracted allocations, which allows for a quicker response with spot freight when it becomes apparent what the market is doing.
Leverage the Collective Advantage
One of the strongest but most underutilized strategies a shipper can employ is to leverage the collective power of being in a shipper’s association. A shippers association allows shippers to combine their volumes together, using collective procurement power to optimize shipping costs.
For example, this approach can neutralize seasonality, as shippers with opposite seasonal spikes can go in together to secure year-round capacity, which is a win for the ocean carrier, too, that doesn’t need to worry about an individual shipper failing to meet minimums. And the shippers association finds the synergies and handles the negotiation, further simplifying the process for each shipper, and achieving better budget outcomes for all involved.
Of course, shippers can also collaborate with industry peers and partners for enhanced visibility, technology integration, supplier sourcing, market intelligence, and any number of other benefits. A shippers association can facilitate helpful connections for each of those perks as well.
Gemini Shippers: A Source of Stability in a Volatile Rate Environment
The Gemini Shippers Association is a prime example of the collective advantage described above, helping shippers secure lasting rate stability in any market condition. Here’s how Gemini delivers for shippers:
Procurement Expertise
Gemini negotiates advantageous contracts with ocean carriers based on nearly 100 years of serving members with international trade expertise. Our approach ensures stable rates through strategic procurement practices, leveraging long-lasting relationships with all the top ocean carriers and knowledge across a wide variety of commodity classifications.
Risk Mitigation Strategies
Our proactive risk management solutions are tailored to specific challenges that shippers face, including customs and legal concerns. We provide guidance on navigating uncertainties in the shipping industry, with market intelligence insights to stay ahead of factors that may impact container shipping rates.
Technology Solutions
Gemini provides access to digital tools for real-time tracking and analytics, including a custom IT portal with track and trace, rate audit, and rate database. This creates operational efficiency and transparency in supply chain management by helping members navigate technology integrations for optimal visibility and efficiency.
Join Gemini to Bring Stability to Your Container Rates
Many factors contribute to container shipping rate volatility in today’s market, but the strategies we’ve explored can help you regain consistent container freight rates regardless of market conditions.
Join Gemini today — at no fee — to unlock the collective power of a shippers association that goes to work for you. We’re eager to add you to our membership and help you uncover all the benefits.
