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What do Interest Rate Hikes Mean for Ocean Shipping and Ocean Freight Visibility?

December 8, 2023

In 2022, the Federal Reserve of the United States raised interest rates seven times. This left American shippers facing the highest rates seen at any time in the last 15 years, with a benchmark interest rate of 4.50%. Despite these high rates, Federal Reserve officials expect rate hikes to continue well into 2023, with benchmark rates eventually reaching as high as 5.25%, according to reporting from MarketWatch

As the Federal Reserve uses interest rates to push back against the rising inflation causing consumers to suffer, businesses are paying the price. In an interview with CNBC, Mike Loewengart, Head of Model Portfolio Construction at Morgan Stanley Global Investment Office, warned business owners to expect the worst when it comes to interest rate hikes in the early months of the new year: “While it was good to see inflation come down these last two months, the Fed will need to see a few more signs over a longer time frame that inflation is under control before a full pivot,” said Loewengart, “Fed hikes and volatility have been central themes of 2022, and investors should expect both–along with hits to corporate earnings–as we enter the new year.”

With more interest rate hikes on the way, logistics professionals across the transportation industry are working to understand what higher interest rates mean for their ocean shipping operations. 

Port Congestion Cools as Volumes Weaken 

Throughout the U.S., ports are seeing the effects of lower import volumes due to rising interest rates. Global Port Tracker, a port monitoring division of the National Retail Foundation, recorded 1.78 million TEU entering American ports in November 2022, down 15.8% from 2021, according to reporting from Furniture Today

These falling volumes have caused port congestion to cool significantly from its pandemic heights when ships were left waiting for hours outside of busy West Coast ports. As congestion cools, ocean shippers have a much easier time finding not only unloading berths but also on-shore labor and chassis. “Ports have been stretched to their limits and beyond but are getting a break as consumer demand moderates amid continued inflation and high interest rates,” said Jonathan Gold, NRF vice president for supply chain and customs policy, in an interview with Furniture Today, “Consumers are still spending and volumes remain high, but we’re not seeing the congestion at the docks and ships waiting to unload that were widespread this time a year ago.

Ocean Carrier Mergers and Acquisitions (M&A) Will Change to Reflect the New Reality

2022 was a banner year for mergers and acquisitions throughout the ocean shipping industry. Major carriers like Maersk, Hapag-Lloyd, and ONE (Ocean Network Express) spent millions acquiring smaller carriers. These acquisitions followed a period of extreme hardship for ocean carriers, as years of volatile fuel prices, labor stand-offs, and COVID-19 port closures took their toll. As a result of these challenges, smaller carriers were forced to partner with or be acquired by mega-carriers.

Experts predict mergers and acquisitions to continue into the new year. In a Dec. 14 post on their website, Maersk wrote “With the economic situation deteriorating, it is likely that 2023 will bring further consolidation in freight forwarding, as companies seek to increase their capabilities and geographical reach.” 

However, despite predictions that consolidation will continue throughout the transportation industry, some transportation industry experts predict that this consolidation will take a more subdued form in the new year due, in part, to rising interest rates. “It’s going to be a very active M&A year … What will be different compared to 2021 and the first half of 2022 is that there’s very different risk in the market,” said Spencer Tenny in an interview with TruckNews, “This will be reflected in the size and shape of transactions that get done. We won’t see as many transformational-type mergers and acquisitions as we did in 2021 and 2022. But small- and mid-sized transactions will be abundant.” 

As consolidation continues to shrink the number of competitors within the transportation marketplace, both overland and ocean carriers will find it more difficult to justify mergers and acquisitions as borrowing becomes more expensive. 

Fuel Costs Likely to Fall as Fed Institutes Further Rate Hikes

After years of volatile fuel pricing, the ocean shipping industry is finally likely to see some relief in fuel costs in the coming year. This is largely due to the cooling effect higher interest rates have on the broader economy. Less economic activity leads to less fuel consumption, which in turn lowers demand for fuel and, accordingly, fuel prices. 

The lower fuel costs brought about by falling interest rates offer shippers a promising outlook for the new year, especially as rates continue to plummet throughout the ocean freight industry. In some trade lanes, such as the vital China-West Coast route, rates fell by as much as 90% YoY in 2022, according to reporting from CNBC. For shipping professionals suffering from plummeting rates, lower fuel prices could provide much-needed relief. 

How Does Improved Ocean Freight Visibility Help Shippers Contend With Rising Interest Rates?

As shippers contend with rising interest rates, many are turning to improved ocean freight visibility as a means of bolstering efficiency throughout the supply chain. Improved ocean freight visibility, offered through an innovative, API-enabled ocean freight visibility platform, offers shippers unprecedented insight into their supply chain operation, both at sea and at the port. Through the implementation of ocean freight visibility solutions, shippers can streamline operations to withstand the negative effects of rising interest rates.

Ocean Freight Visibility Offers Relief From Unpredictable Port Congestion

As port congestion begins to abate following the Federal Reserve’s recent interest rate hikes, shippers are struggling to adapt to new realities at logistics hubs. Through a partnership with an ocean freight visibility provider, shippers can harness the power of real-time milestone tracking, ensuring that all logistics partners are notified the moment a shipment enters a new stage of the supply chain. 

Communication Through Ocean Freight Visibility For a Fast-Paced M&A Landscape

Mergers and acquisitions are on the rise in the transportation industry. Fueled by recent economic turmoil, this trend is likely to continue into the new year. As shipping alliances and partners reorganize in pursuit of maximum efficiency, communication can become difficult. These communication struggles can quickly lead to inefficiencies and, if left unaddressed, delayed shipments and exceptions. 

With integrated communication tools, an ocean freight visibility provider offers shippers the ability to communicate asset location and status within a single software interface, allowing all logistics partners within a supply chain to maintain complete freight visibility over shipments. 

Ocean Freight Visibility Helps Shippers Take Full Advantage of Falling Fuel Costs

As fuel prices fall, shippers are looking to take full advantage of potential operational savings. Improved ocean freight visibility provides shippers with a birds-eye view of their supply chain operations, offering macro-level insights into efficiency opportunities. Paired with lower fuel costs, on-demand ocean freight visibility allows shippers to access unprecedented efficiency in their supply chain operations. 

With Interest Rates Rising, Shippers Turn to Ocean Freight Visibility from OpenTrack 

The Federal Reserve shows no signs of changing course in 2023. As rising interest rates send shockwaves throughout the global supply chain, shippers are using ocean freight visibility to meet the challenges of an increasingly dynamic logistics landscape. With OpenTrack, shippers can access a broad range of ocean freight visibility assets to maintain freight visibility in challenging times. 

  • Automated Exception Alerts mean that logistics partners throughout the supply chain stay informed of the latest supply chain events and exceptions. 
  • Real-Time Milestone Tracking helps shippers harness the power of ocean freight visibility analytics to track a shipment's trajectory throughout the transportation process. 
  • Convenient Ocean Container Tracking through an API-enabled freight visibility provider shows shippers the big picture of their logistics operations, helping reveal opportunities for unprecedented efficiency. 

As rate increases set the global transportation industry on an unpredictable course, OpenTrack is providing shippers with unprecedented access to on-demand, real-time ocean freight visibility. Book a demo with OpenTrack today, and see how real-time ocean freight visibility can revolutionize your supply chain operations today.

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