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No evidence yet of widespread price-out of low-value cargo

Analysis by Sea-Intelligence finds no firm evidence yet that record-high sea freight rates are ‘pricing out’ cargo from the market to significant levels, despite anecdotal reports indicating that it is beginning to happen – or soon will

There’s no firm evidence yet that the current record-high sea freight rates are ‘pricing out’ low-value cargo from the market to significant levels, according to analysis by Sea-Intelligence, despite anecdotal reports indicating that it is beginning to happen – or soon will.

In its latest Sunday Spotlight briefing, Sea-Intelligence examined the relationship between transpacific cargo weight and value “to determine if the unprecedented increase in freight rates over the past year has created a situation where low-value commodities are being priced out by higher-value commodities”.

The container shipping analyst and consultant started its analysis by looking at Asia to US west coast (USWC) spot and contract rates, along with the US$ customs value per kilo of containerised cargo moved on the transpacific.

Sea-Intelligence CEO Alan Murphy, said there was no firm evidence of any significant pricing out in the second half of 2020, commenting: “If the high freight rates are pushing out low-value cargo, we should see the average value of the cargo increase, as freight rates go up. This was, however, not the case. The swings in the second half of 2020 were well within the long-term variability.

“We followed this by an examination of HS2-level commodity groups, but did not find any discernible differences between the higher-value and low-value commodity groups. We did the same for the HS6-level commodity groups as well, coming to the same conclusion.”

May 2021 v 2020 comparison

The company then charted the relationship between cargo value in US$ per kilo of cargo weight versus the year on year (Y/Y) growth in cargo weight in May 2021 over May 2020, for 909 different HS6-level commodity groups, with cargo weight in either month of more 1,000 metric tonnes – accounting for 92.2% of the entire transpacific container trade.

“Once again, we did not find any statistically significant support for the hypothesis that low-value commodities are being priced out,” Murphy added.

Possible price-out within commodity groups

However, he noted: “That said, we have to stress that the analysis does not provide any basis to claim that low-value cargo owners are not being squeezed out of the market, as it is entirely possible that a price-out happens within commodity groups, rather than across commodity groups. Unfortunately, the US Census Bureau data does not support conducting an analysis on cargo-owner level.”

 Source: Lloyds Loading List



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