Why The Sea Freight Industry Is So Broken
At Xeneta we’re trying to make the sea freight industry more transparent, as we believe lack of transparency creates a dysfunctional market.
Let’s have a look at why this industry is so broken.
1. No standard
If you’re a company that needs to ship stuff in containers over sea, you’ll get price quotes (from shipping lines or freight forwarders) delivered in excel sheets.
Every supplier has its own standard, meaning there actually is no standard.
They tend to use different layouts, different names (on ports, regions, container sizes etc) and different ways of displaying other relevant data. As a final touch they often contain mistakes, because they’re created by humans.
This means that programatically comparing prices is a huge pain.
At Xeneta, we use a mix of machine power and human power to churn through sheets, so that we can turn the chaos into actionable data, like the graph below.
So a simple graph like this, which we take for granted in other markets (stocks, currencies, commodities) is actually really hard to create for the sea freight industry.
Plus, there’s the effort of convincing shippers to share their data, but that’s a completely different story.
2. General Rate Increase
If you look closely at the graph above, you’ll see multiple spikes throughout it. This is because shipping lines regularly decide to increase their prices simultaneously, so called General Rate Increases (GRI).
In the days following a GRI, the suppliers experience spare capacity and start lowering their prices in order to attract volume and fill up their order books again.
Below you’ll see how the GRI’s plays out on the Market Average price on the Shanghai to Rotterdam lane throughout a year:
Imagine if all the big airlines once a while simultaneously increased their prices with 30–100%. That’s exactly what’s happening here.
In other words, a perfect sign of a dysfunctional market.
3. Market High vs. Market Low
The graph above only shows the Market Average price for short term contracts.
Let’s zoom in on one of the GRI spikes and look at how it affects the the overall spread of the market by looking at the Market High and Market Low instead:
The Market High price is 1 536 USD, while the Market Low is 387 USD.
So if you’re bad at negotiating sea freight prices you risk paying 4 times as much as the ones who’re good at it.
This week is an extreme example, but throughout the following months, the Market High vs. Market Low price difference on this lane stabilised itself at around 300 percent.
4. Huge supplier spread
This price differences isn’t just because various shipping lines price themselves differently. The spread is just as big internally as well. Let’s zoom into one shipping line and see the range of prices it offers to its customers on a specific corridor:
At worst, this shipping line‘s highest prices are 4 times as high as the low ones.
So even if two customers have the same suppliers on the same lane they are likely to pay two completely different prices.
There are many other broken things about this industry, this was just four of the most apparent examples, to give you an impression.
If you’re interested in getting insight into this market, don’t hesitate to c0ntact us.
