The shipping industry is facing a classic boom and bust cycle due to market volatility. The pandemic brought disruptions in global supply chains, leading to increased demand for container shipping. This increase sparked a surge in freight rates, which has led to a rush of new vessel orders. However, this sudden influx of new vessels is now causing an oversupply of shipping capacity, leading to a decline in rates. Let’s explore this further.
Boom and Bust Cycles
The shipping industry is particularly vulnerable to boom and bust cycles due to its long lead times. The process of ordering and building new vessels can take several years, meaning that by the time a new ship is ready for use, market conditions may have changed. This creates a situation where shipping companies may find themselves with an excess capacity, leading to a decline in rates.
Navigating Unpredictable Rates
The oversupply of shipping capacity is just one of many factors contributing to the rate decline. The pandemic led to a slowdown in global trade as countries implemented measures to contain the spread of the virus. This slowdown in trade reduced the demand for shipping services, further exacerbating the oversupply of capacity. Now, shipping services have spiked in demand.
Shipping companies must proactively manage their supply chain risks to mitigate the effects of this type of market volatility. This can be done by working with a professional logistics company.
Shipping companies can also use the latest digital technologies to improve the transparency and efficiency of their supply chain processes. There have been incredible logistics software and tech advancements that can be leveraged to any company’s advantage. Talk to a professional logistics company to learn more about them and which ones are right for you.
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