Sea freight rates are expected to drop by 70%! The coffee industry will benefit!

According to shipping consulting firm Linerlytica, freight rates are expected to fall by 70% over the next 12 months because shipping companies have not been able to stop the decline in freight rates since July, according to statistics from the Shanghai Container Freight Index (SCFI).

It is understood that since the beginning of this year, prices in the consolidated shipping market have shown the characteristics of not being weak in the off-season and falling in the peak season. In April, it should have been a traditional off-season, but due to factors such as continued tension in the Red Sea and increased efforts by altitude suppliers to rush shipments before imposing tariffs, prices in the consolidated shipping market have been rising.

However, after entering July, July-September was originally the peak season for the consolidated shipping market. However, as liner companies increased their capacity and market demand decreased, freight rates began to fall. Linerlytica believes that freight futures continue to weaken, and freight prices in Northern Europe are more than 70% lower than current spot prices. Although the decline is not as severe as the collapse in freight rates at the end of 2022, current freight futures prices are expected to continue to fall in the next 12 months. Although the Red Sea issue is still full of uncertainty, it will not rebound at the end of this year, and freight rates will not rise significantly at the beginning of 2025 like this year.

In addition, long-term contract rates have the greatest impact on the global container shipping market, so container freight rates are expected to fall by more than 70% by June next year, according to the latest CoFIF EC contract from the Shanghai International Energy Trading Center (INE). But chief analyst at maritime benchmark platform Xeneta believes that a prerequisite for a 70% price drop will be a resolution of the Red Sea crisis and the resumption of ships trading through the Suez Canal.

However, this news is good news for the coffee industry. Coffee transportation mainly relies on shipping, and the drop in container freight rates can reduce transportation costs. Especially in recent times, transportation costs have increased and supply chain pressure has increased due to insufficient container capacity.

Help relieve pressure on the supply chain and may have a positive impact on coffee prices. Earlier, due to reports of production reductions in coffee production by countries such as Brazil, Vietnam and Indonesia, coupled with high transportation costs, the price of coffee also rose, which to a certain extent curbed consumers 'desire to purchase. Therefore, the current drop in freight rates stimulates market demand and has a positive impact on coffee production and sales.

However, recent Reuters interviews with 11 traders and analysts showed that due to concerns about worsening weather and reduced supply, it is expected that by the end of 2024, the prices of Arabica and Robusta coffee futures will be higher than the current price.

The main reason for concern is that production in the largest coffee-producing countries has declined significantly, and both Brazil and Vietnam are currently reporting drought. It is expected that the upcoming La Niña weather in September may aggravate the current harsh situation and affect coffee production in the new season next year. It has an impact, so prices will remain high and may continue to rise.

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