Shipping rate shake-up could squeeze importers and exporters

Red-hot spot shipping rates are softening but New Zealand is lagging behind the trend in Australia. Photo / Michael Craig

The flipside of a softening in sky-high shipping spot rates as consumer demand eases is that shipping lines may compensate by reducing space for New Zealand importers and exporters, warns a freight sector leader.

Rachel Madden, president of the Customs Brokers and Freight Forwarders Federation, said as yet the softening had only been seen in spot rates - contract rates had yet to ease.

"We know that with softening of freight rates, shipping lines may look to reduce overall capacity. They may look to blank sailings and slide services," Madden said.

Blanking means an expected service call from Shanghai or the US would skip Auckland, for example. Sliding a service means pushing it out from one week to the next.

The good news was that spot rates were softening leading into the peak Christmas shipping season, Madden said.

Another plus was that with the change, freight operators hadn't been advised by shipping lines of the usual, pre-Covid, peak season surcharges, which had added up to US$300 to pre-Christmas freight rates.

However Madden noted spot rates had increased so much that these previous peak surcharges could be already built in by shipping companies.

The softening of shipping rates is a result of global inflation and the associated economic downturn. Consumers have tightened their wallets and household demand for goods has reduced. Air freight space, which almost disappeared in the pandemic, is also recovering.

"But [regardless] shipping line rates are significantly higher. We don't expect them to come down to pre-Covid levels for many years," Madden said.

On the downside, New Zealand wasn't seeing freight rates for cargo from China and the US coming down as fast as Australians were, she said.

Nor was New Zealand seeing the same improvements in ship call frequency and available capacity.

"Australia has a lot more services calling than New Zealand. We're a lot further away. That counts against us," Madden said.

"Also at ports throughout New Zealand we don't see berthing windows yet. Auckland doesn't have berthing windows yet and that has a flow-on effect to what we see coming into Tauranga or Lyttelton.

"Until berthing windows come back we're not going to have that vessel reliability."

"Berthing windows" are berthing times a port offers vessels under a schedule. Covid-fuelled global shipping disruption and supply chain upheaval has seen them disappear from most ports.

Rachel Madden is the new president of the Customs Brokers and Freight Forwarders Federation. Photo / Supplied

Madden said warehouses in New Zealand were "full to overflowing". Freight sector modelling had changed from supplying customers "just in time" to "just in case".

"That means inventory is here that is needed for next week, in two weeks, or next month."

On sharp rises in costs at all points of the supply chain, Madden said surcharges had crept in everywhere. Ports had introduced infrastructure levies or charges under another name, there were fuel surcharges, and truck companies delivering in Auckland were charging a congestion surcharge.

Auckland's port introduced an infrastructure levy "for ongoing infrastructure costs" in January. The levy is $20 per laden TEU (twenty-foot equivalent box) for every loading or discharge from the port. A planned second stage to increase the levy to $40 had been delayed indefinitely, a Ports of Auckland spokesperson said.

The skills shortage right across the supply chain and the increase in the minimum wage had fuelled labour costs for all participants, from truck operators to freight forwarders, Madden said.

"Our costs in my company are probably 10 to 15 per cent more. We know the market rate for a forklift driver would now be anywhere from $24 to $35 an hour, that's gone up $7 to $8 an hour from 12 months ago.

"For truck drivers, it's $27 to $37 an hour.

"For freight operators [freight forwarders] salaries have gone up between $15,000 and $20,000. If I have to replace an operator I know I'm going to have to pay a minimum of $10,000 and up to $25,000 more. With all these increases the overall cost of importing has gone up - exporters are saying the same."

Even with the reduction in consumer demand, Madden believes shipping companies will continue their pandemic-time expansion into air freight and warehousing operations, with the aim of being the sole provider of freight service from factory to consumer.

"How profitable that is, or how good they are at it, remains to be seen," Madden said.

"In New Zealand your customer is quite different to an Australian or US customer. Our customers like a lot of communication. They like to know who they're talking to, they like to email and have a lot of dialogue. They like to talk to their freight forwarder about their best options, the most efficient option.

"I'm of the opinion shipping lines will struggle with that. Their representatives are maybe not in the country. They may be more inclined to use IT services. You have to chatbot them. Freight forwarders in the South Island are extremely experienced with their area. They know the best routes."

Madden said the same applied to New Zealand warehouse customers.

"They like to ring and they like to have a person they are able to build a relationship with. It's important to the New Zealand customer to know what their warehouse is doing - they may want to come out and see their product. When you're working with a much larger warehouse there's not always the same flexibility or personalised service.

"If you treat all your customers exactly the same, potentially that's not suitable for New Zealand."