Navigating the Chaotic World of Ocean Freight Rates for Apparel Companies

ocean-freight-apparel.jpgThink of us as modern day Will Turners, protecting your apparel on the high seas from the nefarious, notorious pirates of, er, inexorable global economic forces.

For example, the Baltic Dry Index is basically an index tracking how much it costs to move raw material by sea. But for our purposes, it's a good indicator for examining the price of cargo shipping in general -- and how difficult it can be to secure advantageous ocean freight rates.

According to Bloomberg:

"The Baltic Dry Index, a measure of costs to ship dry-bulk commodities, fell to the lowest monthly average in more than 25 years as a glut of vessels weighed on freight rates. The index averaged 701 in February, the lowest level since August 1986, according to the London-based Baltic Exchange. Today it climbed for a fifth session.

"This represents a massive supply-side challenge," Anastassis Margaronis, president of Diana Shipping Inc., said yesterday on a conference call. "The newbuilding order book continues to be a major concern for dry-bulk shipping."

The global fleet of more than 9,000 dry-bulk vessels will expand by 17 percent this year, Howe Robinson estimates, more than double its forecast for a 7.3 percent gain in demand for seaborne raw materials. Hire costs will only recover late next year even if the number of older ships removed from the market were to double in 2012, according to its projections."

In other words, shipping rates dropped because global demand dropped in the wake of the 2008 financial crisis. This -- plus the fact that ship-building has largely continued apace -- meant that suddenly there was a huge surplus of ships (check out this report about idle ships anchored in the Straits of Malacca), which meant that shipping rates dropped significantly.

But while rates are currently low, the future is fairly uncertain. A recovering U.S. economy means would normally mean that shipping rates would recover with it. But, the rapidly unfolding mega-crisis in Europe means that, globally, demand could continue to stay low. Whether or not a sustained American recovery outweighs the European crisis is the question (assuming, of course, the U.S. recovery is actually sustained). Other factors such as a potential Chinese financial collapse and complicated shipbuilding issues could also make rates rise or fall.

Here's the point:

The next few years could be a pretty chaotic time for shipping rates. Yet, for apparel companies, shipping expenditures can make the narrow difference between the robust success of a product line and an over-priced bust.

We can help.

A big part of our apparel supply chain management services involves monitoring the complicated world of international transportation management. Knowledge is power, and we know how to drive down transportation costs as much as possible. In addition to ocean transportation we can take care of other apparel 3rd party services, such as:

  • Air transportation
  • Shipment consolidation & deconsolidation
  • Production order tracking
  • Customs clearance management
  • Customs brokerage management
  • Foreign trade zone management

We'd love to help. Contact one of our apparel 3PL experts to learn more.

Posted: 3/21/2012 2:01:07 PM by Global Administrator | with 0 comments

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