The Drewry World Container Index, which tracks the price of shipping containers, shows that the cost of a 40-foot shipping container is up more than 250% compared to a year ago. Since October, escalating violence in the Red Sea has kept rates elevated as ships favor longer, less risky routes.

FreightWaves founder and CEO Craig Fuller joins Asking For A Trend to give insight into increased shipping rates and what this means for global trade moving forward.

Fuller outlines what's putting pressure on prices: "The capacity constraint is how long it takes to ship from point A to point B, and if having to add time, it just takes a lot of available days of capacity off the market. And that's exactly what's happening. But also I think the shipping container lines...they have a massive amount of market share. The top ten container lines have 90% of the market share in containers and historically have been bad at managing price and passing some of their costs on to consumers and managing their ability to manage price. Since COVID, they've gotten their act together and have been able to really have an enormous amount of pricing power over their customers. And we're seeing that play out in the market right now. "

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Nicholas Jacobino

Video Transcript

Now shipping rates just keep sailing higher.

Shipping consultant, Drey's World container index rising 4% this week and is up more than 250% from a year ago.

Since October escalating violence in the Red Sea has kept rates elevated and ships favor longer, less risky routes.

And joining me now to talk about all this is Craig Fuller founder and CEO of freight waves.

Craig.

It is good to see you there.

There was an interesting article today, Craig II, I don't know if you saw it was in Barons just talking about this very topic and talk about how shipping rates have soared.

That according to the report, Craig sending goods around the world by ship is at least five times as expensive as it was last year.

Craig.

I mean that that stat just jumped out at me.

Help us explain that.

Craig, what, what is driving that?

Yeah, Josh, this is a a big topic in supply chain circles is what's happened in the ocean market really driven by two things.

One is import volumes are much higher than expected and continue uh to be incredibly robust.

It tells us that retailers are pretty confident about consumers in the second half as well as they are prepositioning products uh to prepare inventories, uh potential uh labor issues on the east coast, but also uh tariffs that may come with the new administration should, should we see a change in the election?

So that's one issue.

And the second issue is there is a little bit of, of, of because we've had geopolitical disruptions, particularly with the Red Sea.

We've seen uh a risk premium put on it, almost a war risk premium that the ocean shipping container lines are passing on to their customers.

So Craig just to dive into that age specifically.

So what you're suggesting is so because we have Houthis attacking these vessels, the vessels, Craig have to actually go around Africa, they can't use that shorter Red Sea route.

And that, that's meaning increasing obviously time and costs.

Yeah, that, that takes capacity o off the market because if you think about it, the capacity constraint is how long it takes to ship from point A to point B and of having to add time, it just takes a lot of available days of capacity off the market.

And that's exactly what's happening.

But also I think the shipping container lines, I mean, they have a massive amount of market share.

The top 10 container lines have 90% of the market share uh share in containers.

And his historically have been bad at managing price and, and passing those, uh some of their costs on to consumers and managing uh their ability to manage price.

Uh since COVID, they've gotten their act together and have been able to really uh uh have an enormous amount of pricing power over their customers.

And we're seeing that play out of the market right now.

Are there certain companies or certain sectors?

Craig that are gonna be more effective than others?

You know, is it car makers or apparel makers?

For example.

Yeah, most of what you see in containers is a consumer and retail centric.

So 75% of the imports that come in containers are actually consumer goods uh headed for retail.

So these are products that you would see at a big box retailer or potentially online ecommerce.

That's for the majority of products, containers, the stuff that we typically think of as raw materials uh is not moving historically in containers, a lot of the raw materials move in bulk and that's like an entirely different market.

The good news about the fact that we're talking container specific is we're talking about one part of the economy which is consumer consumption uh and not really related to wholesale input costs.

So uh a lot of what you see in terms of the transportation cost and those retail goods, transportation is a relatively small piece of the actual cost of goods sold.

So consumers will not see an enormous impact in terms of of inflation on what they actually buy or erosion of their pricing power, uh, versus what you would see, uh, if this was raw material, input, input goods which tend to show up in all sorts of manufactured items.

Oh, interesting.

Uh, and bottom line, you know, shipping rates.

Craig, if I asked you to take out your, your crystal ball here, I mean, where do you see those headed?

Are we gonna stabilize here or do we keep moving higher?

Yeah, I think this is uh this is the time of the year of the next two months where we'll see peak activity, ocean shipping container, uh volumes drop precipitously in October.

So what you're seeing right now is really a preclude for what you'll see for the rest of the really rest of the shipping season.

Uh And so um it is going to say pretty high, but like I said, I think consumers are not going to experience the level of uh price increases or inflation that they experienced back in COVID.

These rates are much lower, even at $7000 a container.

It's much lower than it was during COVID when we were out to $20,000 a container.

So it won't be as significant.

And the most important thing that drove a lot of the inflation uh was really the lack of products that we saw during COVID.

And that's not happening right now.

There is no shortage of capacity to move transportation.

This is merely a pricing issue that uh retailers are having to contend with and their input costs, but it's gonna be marginally impactful to consumers.

I want to get you out on this.

Craig.

It was just something you mentioned.

I want to come back to it in the US.

How there are apparently a strike by, by dock workers.

Craig could be coming.

Tell us about that and potential impacts.

Well, this, this happens every couple of years somewhere in the North America where we see the threat of strikes.

A couple of years ago, it was the uh west coast longshoremen.

Uh that was a discussion.

They ended up not striking, they ended up having uh threatening to strike, but those issues were resolved.

Uh We saw uh Vancouver and British Columbia, uh dock workers uh did end up striking that, that did get resolved.

Uh We're now seeing it play in the East Coast.

So these things periodically uh pop up, we see shippers have become very accustomed to that.

These are companies that pay for shipping services have become very accustomed to these types of labor disruptions.

And so they will route products to different parts of the country.

So there is some good element of this is that this is the east coast and because it's the east coast and not the west coast is that most of the items we expect for retail tend to come through the West coast and less so on the east coast.

Uh so that uh shippers can plan accordingly and use other ports.

Uh because they have the alternatives.

A west coast uh strikes would have been far more disruptive.

Craig, a big important topic.

Thanks for taking the time to walk us through it.

Appreciate it.

Thank you for having me.