Retailers Set Their Sights on Maritime Haggling for Cheaper Freight Costs

The average contract cost to ship a container from China to the West Coast of the United States dropped from $8,607 in April to $2,618 in February

In the ocean-shipping spot market, where importers book shipping containers without a contract, rates have dropped to $1,000 on some trans-Pacific routes

By negotiating with ocean carriers for long-term contracts, U.S. merchants hope to reduce ocean freight charges by at least 50 percent. The move is anticipated to assist these businesses avoid pricing rises or possibly price reductions. For instance, Costco Wholesale Corporation intends to incorporate any cost savings into their product prices. Each, the corporation imports more than two hundred thousand containers from Asia. The predicted duration of the negotiations will afford merchants the opportunity to take advantage of cheaper delivery costs and save millions of dollars. Several retail CEOs echo the confidence of Hobby Lobby Stores Inc.'s chief financial officer, Jon Cargill, who anticipates reduced ocean rates as the greatest important cost savings for his company in 2023.

The predicted reductions in ocean freight rates will be a comfort for U.S. retailers, particularly those that import items in large quantities. These cost savings could have a substantial impact on the retail industry, allowing businesses to give customers lower pricing or perhaps prevent price rises. The agreements with ocean carriers will provide retailers with a crucial opportunity to take advantage of these decreased rates and save millions of dollars over time. As they prepare for the annual TPM conference in Long Beach, California, retailers wish to make the most of this occasion.

Ocean-shipping rates to send a container from China to the U.S West Coast are falling

According to Norway-based transportation data firm Xeneta, the average cost of shipping a container from China to the U.S. West Coast was $2,618 as of Feb. 9. This is a result of decreased freight orders from merchants and diminishing consumer expenditure. The tariff increased from $3,174 on April 1, 2022 to $8,607 on April 1, 2022, as importers hurried to reserve space aboard ships for the summer and fall seasons. 

During last year's negotiations, shipping volumes soared as a result of increased consumer spending during the Covid-19 outbreak. This resulted in a 20% increase in freight and supply chain bottlenecks, which led cargo transit times to double and supply chain prices to skyrocket, contributing to a four-decade high in inflation. 

Importers anticipate that this year's contract negotiations will be different, as stores have reduced orders and cargo quantities are weak. As a result, ocean carriers are struggling to load their ships, and spot market rates for some trans-Pacific journeys have plunged to $1,000. Earnings for shipping corporations such as A.P. Moller-Maersk A/S are predicted to decline by roughly 80% this year due to weaker demand. Even though energy, labor, and raw material costs are high, retailers anticipate that decreasing ocean transportation costs will help stabilize pricing.