Rising Ocean Freight Rates Impact U.S. Imports

Rising ocean freight rates are posing significant challenges for U.S. importers by impacting the global supply chain and inflating costs for businesses and consumers.

With the Federal Reserve and the U.S. economy showing progress in reducing inflation, the current surge in ocean freight rates presents a new challenge and is becoming a significant concern for the supply chain on a national and global level.

Ocean freight rates from Asia have been on an upward trajectory. Since the beginning of April, average spot rates from the Far East to the U.S. have significantly increased—by 30% to the U.S. West Coast and 22% to the U.S. East Coast.

According to the CNBC Supply Chain Heat Map, spot ocean freight rates from the Far East to the U.S. increased by 36%-41% month over month, and ocean carriers raised additional charges, known as general rate increases, by roughly 140%.

With these increases, the price of a 40-foot cargo container has reached $12,000. Predictions indicate that ocean cargo prices could climb to $20,000, potentially even reaching the COVID-era peak of $30,000—and may remain high well into 2025.

According to the Defense Intelligence Agency's report on the economic impact of the Houthis' Red Sea attacks, container shipping through the Red Sea had declined by approximately 90% between December 2023 and mid-February 2024. 

Using alternate shipping routes around Africa adds about 11,000 nautical miles—which translates into one to two weeks of transit time—and approximately $1 million in fuel costs for each voyage.

Global supply chain disruptions

The lack of empty containers in manufacturing regions, particularly in China, is creating bottlenecks and increasing congestion at main gateways. Even if there is capacity in the market, the fear factor can push up rates, and shippers could face months of elevated rates and increased delays if higher demand continues to overtake available capacity.

However, because shipping volumes are increasing, the duration and extent of these price increases could be less severe than what was witnessed during the pandemic. Ports should be able to handle the higher volumes more effectively as off-port container yards strategies are already in place.

A shift to air freight

As ocean freight rates continue to rise and create bottlenecks in the supply chain, many businesses are turning to air freight as an alternative, leading to increased demand and higher prices in this sector as well.

With 98% of the world’s cargo traditionally moved by ocean, a small percentage shift to air freight can lead to substantial volume increases. According to Niall van de Wouw, Xeneta’s chief airfreight officer, a 0.2% shift to air freight can result in a 10% increase in air freight volumes.

Air freight rates from China to North America surged 43% year-on-year in May, reaching $4.88 per kilogram. This rise is driven by the extraordinary boom in e-commerce demand, with companies like Apple, Temu, and Shein opting for air freight to ensure faster delivery times.

Implications of rising ocean freight rates

Higher shipping costs can quickly reverse progress made in reducing goods prices. Peter Boockvar, chief investment officer at Bleakley Financial Group, emphasized that the global economy is experiencing a new era of inflation volatility, despite the Fed’s latest comments and Consumer Price Index data in the U.S. showing progress on disinflation.

“The spike in ocean shipping rates, along with air is a reminder of this,” Boockvar stated. “We’ve seen in the past goods prices can easily be reversed upward. Higher for longer rates are real.”

Shippers are also frustrated by the sharp increase in supply chain pricing. Nate Herman, senior vice president of policy at the American Apparel and Footwear Association, pointed out that despite low demand and increased vessel capacity, “carrier general rates exploded with up to a 140 percent increase”.

Potential mitigation strategies

To cope with the rising costs and potential delays, businesses must explore various strategies, including increasing their reliance on air freight despite higher costs, adjusting shipping schedules, and investing in supply chain resilience measures. These strategies can help mitigate the impact of rising ocean freight rates and ensure continuity in supply chains.

Please contact one of our trade professionals for more information on how rising ocean freight rates might affect your business and how to mitigate the associated risks.