Ocean Cargo rates could continue to increase in 2013

Ocean Cargo rates could continue to increase in 2013

Ocean Cargo prices went up dramatically in 2012 as carriers tried to recover from high fuel costs and damaging price erosion seen in late 2010 and 2011.  Basically the shipping industry had too much capacity in 2011 and fierce competition for business pushed prices down to the point where no one in the industry could make money.

As the economy started to improve in 2012, cargo carriers were able to increase prices, but still not high enough to make consistent profits.   Many believe that prices will continue to increase in 2013 as carriers try to push rates up so that they can make reasonable profits.

The main reason that carriers were able to increase prices was due to collective discipline on the entire industry, rather than supply and demand.    The latest ships purchased are significantly larger than before, creating more capacity.    So the question is:  how much higher will ocean freight increase in 2013 and what impact will this have on the cost of goods?

Common economic wisdom says that the law of supply and demand will be upheld over the long term.   Therefore many believe that early 2013 price increases won’t stay long.   Pricing based on industry collaboration and discipline is rare and all it takes is one or two carriers to change and prices could fall across the board again like dominoes.   On the other hand, if carriers can’t make money, then some of them will go out of business resulting in reduction in shipping capacity.  The increases in lumber prices are an example of supply shrinking in the face of economic hardships.   If there is a significant decrease in cargo capacity, then prices should increase again.

The one positive aspect of higher ocean freight is that it can make importing from Asia less attractive and could result in more manufacturing coming back to the US.

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