The global shipping industry is on the verge of a transformative period in 2023 and 2024, with an expected surge in shipping orders. While it may seem counterintuitive, this influx could result in a drop in global shipping costs. The prices has already gone down to pre-covid level and with this influx, market is expecting a further prices drops in 2024. Record Capacity of twenty-foot long containers or twenty-foot equivalent unit ( TEU) are coming into the market:
- 2023 will see the largest TEU influx from newbuild ship orders ever
- According to JOC – Roughly 2.5M TEU to be injected into the global market by end of year; 3M TEU in 2024
In this blog, we’ll use hypothetical numbers and percentages to explore how this could happen.
Economies of Scale:
Imagine that in 2022, the average cost of shipping a 20-foot container from Shanghai to Los Angeles was $2,000. Now, with an influx of new orders in 2023 and 2024, shipping companies can leverage economies of scale. Let’s say the cost per container drops by 10%, resulting in a cost of $1,800.
With improved technologies, companies can reduce operational costs. Suppose these advancements lead to a further 5% reduction in shipping costs. This would bring the cost down to $1,710 per container.
Competition and Market Dynamics:
Increased competition often leads to price wars. Shipping companies might reduce prices to gain market share. If competition lowers costs by another 5%, the price per container could be $1,624.
Infrastructure investments, such as better port facilities and more efficient transportation networks, can reduce costs. If these investments save an additional 7%, the cost per container could drop to $1,509.
Eco-friendly practices may require upfront investments but can lead to long-term savings. Suppose these measures cut costs by 3%, the price per container might be $1,463.
Collaboration among shipping companies, governments, and international organizations can simplify processes and reduce expenses. Let’s assume another 4% cost reduction, bringing the price per container to $1,403.
Implications for Businesses and Consumers:
These hypothetical reductions can have significant implications:
For businesses: Lower shipping costs translate to cost savings. If a business ships 1,000 containers per year, they could save $597,000 based on the reductions mentioned.
For consumers: Reduced shipping costs may result in lower prices for goods, potentially saving the average household hundreds of dollars annually.
While these numbers and percentages are hypothetical, they illustrate how an influx of new shipping orders in 2023 and 2024, combined with various factors, could lead to a drop in global shipping costs. The key takeaway is that increased shipping orders can enable economies of scale, technological advancements, competition, infrastructure improvements, sustainability, and global collaboration to work together, ultimately benefitting businesses and consumers alike. Keep an eye on these developments as the shipping industry adapts to the changing landscape.