Why Do Freight Rates Rise Fast but Fall Slowly?

There is a pattern in the shipping market that has been repeatedly validated by cargo owners yet remains consistently difficult to adapt to: when freight rates rise, they jump almost on a "daily" basis, but when they fall, they crawl downward on a "weekly" or even "monthly" timeline. During the super-bull market of 2020–2021, the Shanghai Containerized Freight Index (SCFI) quadrupled in less than a year, whereas the subsequent two-year decline was protracted, volatile, and marked by repeated oscillations. This "fast-up, slow-down" phenomenon is not a random fluctuation but rather the systemic outcome of the shipping industry's supply structure, cost mechanisms, and market game dynamics. Understanding the underlying drivers has tangible decision-making value for cargo owners engaged in international logistics for heavy-lift and project cargo.

I. Rigidity on the Supply Side: The Ceiling and Floor of Capacity Adjustments
Shipping capacity exhibits a natural "asymmetric rigidity." When demand surges, the global container fleet cannot expand its capacity in the short term—a new vessel takes two to three years from order placement to delivery, and available ships in the charter market are often snapped up during peak seasons, leaving very limited incremental capacity that can be deployed in the near term. The "ceiling" on capacity is reached quickly, and once a supply-demand gap emerges, freight rates climb sharply.

However, when demand declines, the "floor" on capacity proves stubbornly slow to descend. Idling vessels (lay-up) is by no means cost-free: ships still incur insurance, maintenance, basic crew wages, and other fixed expenses, while prolonged lay-ups involve hefty reactivation costs and compliance risks. More critically, the three major shipping alliances actively reduce effective capacity through "blank sailing" strategies—cancelling sailings and merging routes during demand downturns—thereby artificially tightening supply to support rates. The essence of this capacity management is to create a deliberate buffer for freight rates during downward cycles, making capacity contraction far slower than its expansion.

II. The Pulse-Like Nature of Demand: Surges Are Events, Declines Are Processes
Sharp spikes in shipping demand are typically driven by sudden events: the restocking wave during the pandemic, the rerouting via the Cape of Good Hope due to the Red Sea crisis, the Suez Canal blockage, major port strikes, and so on. These events release concentrated demand for capacity within a short period, creating "pulse-like" rate spikes. Cargo owners, acting under uncertainty, rush to secure space in a panic, further amplifying the elasticity of short-term demand and pushing rates to levels in a matter of weeks that would otherwise have taken months to reach.

In contrast, demand declines are gradual processes. Inventory destocking takes multiple months, adjustments to trade orders involve renegotiations across supply chains, and the shift from a "rush-to-ship" mentality to a "wait-and-see" posture inherently requires time to digest. More importantly, many bulk trade contracts and long-term shipping agreements lock in scheduled cargo volumes for a period, meaning that even as spot rates begin to slide, contracted volumes continue to be shipped as planned. The contraction on the demand side carries a natural lag. Sharp increases are "event-driven," while declines are "process-driven"—this fundamental difference dictates that the pace of rate decreases is inherently slower than that of increases.

III. Stickiness in the Cost Structure: The Ratchet Effect of Surcharges
The shipping cost structure exhibits a notable "ratchet effect"—it is easy to raise surcharges but hard to lower them. The Bunker Adjustment Factor (BAF) is the archetypal example. When international oil prices rise, carriers swiftly adjust BAF upward to pass on costs, often with adjustment windows as short as two weeks; but when oil prices fall, BAF adjustments lag noticeably, with justifications typically citing that "some costs have already been absorbed" or that "fluctuations need to be smoothed to maintain service stability."

Similar stickiness is observed across multiple other charges, including Port Congestion Surcharges, Peak Season Surcharges (PSS), Currency Adjustment Factors (CAF), and Low-Sulfur Fuel Surcharges. These surcharges are layered on one by one during an upward cycle, but during a downward cycle, each must be "negotiated" away individually, with every removal requiring time-consuming bargaining between cargo owners and carriers. The net effect is that the overall freight rate decline proceeds far more slowly than the ascent—rising is a matter of "adding up," while falling is a matter of case-by-case negotiation.

IV. Market Concentration: Pricing Rhythm Under an Oligopoly
The global container shipping market has seen steadily increasing concentration over the past decade. Today, the three major alliances—2M, OCEAN Alliance, and THE Alliance—together control roughly over 80% of capacity on the major east-west trunk routes. Under this oligopolistic structure, the leading carriers wield considerable pricing power, and the market operates less as a purely competitive arena and more as a "managed market" with oligopolistic coordination.

When rates are rising, the tacit coordination and follow-the-leader dynamics among carriers enable swift transmission—once one line announces a General Rate Increase (GRI), the others typically follow suit within one to two weeks, with increases resonating across the alliances. Conversely, when rates are falling, carriers have a strong incentive to slow the decline by controlling capacity deployment and reducing slot supply, and they may even proactively announce "test" rate hikes to gauge market resilience. This game structure—"united in chasing increases, consensus-driven in defending rates on the way down"—objectively creates resistance layers that slow the descent of freight rates.

V. Practical Implications for Heavy-Lift and Project Cargo Owners
For cargo owners dealing with heavy-lift items, engineering equipment, complete plant equipment, and other specialty cargo, the above dynamics have even more pronounced implications. The pool of available carriers and routing options for heavy-lift shipments is inherently limited, market transparency is lower, and the "fast-up, slow-down" effect is further amplified. The following practical recommendations are worth considering:

Adopt a "contrarian mindset" toward freight rates. When rates spike sharply, there is no need to lock in prices in a panic, because sharp increases tend to accompany pulse-like demand and are of limited duration; when rates are at low levels, on the other hand, it is advisable to actively secure medium- to long-term space and contracted rates, because low-rate windows tend to be shorter than expected.

Monitor leading indicators of capacity supply. Newbuilding delivery schedules, scrapping volumes, and alliance capacity deployment announcements are more forward-looking than the rate indices themselves. When large-scale blank sailings and newbuilding delivery delays occur simultaneously, that is often a signal that rates are about to turn upward.

Differentiate spot-market and contract strategies. Given the high unit value and strict delivery timelines of heavy-lift and project cargo, it is unwise to rely entirely on the spot market. Locking in a certain proportion of contracted rates during rate troughs can effectively control logistics cost volatility during upward cycles.

Make good use of the negotiable space in surcharges. Many surcharges are not set in stone and can be negotiated, especially during downward rate cycles when cargo owners' bargaining power is relatively stronger. Systematically reviewing the reasonableness of each surcharge item is a pragmatic path to reducing overall logistics costs.

Conclusion
The deep logic behind the "fast rise, slow fall" of freight rates is rooted in the shipping industry's DNA—heavy assets, long cycles, and high concentration. The asymmetric rigidity of supply, the pulse-like nature of demand, the ratchet effect in cost structures, and the pricing game under oligopolistic markets—these four factors combine to shape this enduring pattern. Understanding this logic is not about predicting every fluctuation with precision, but about establishing a more rational procurement cadence and risk-hedging strategy amid volatility. For participants in international logistics for heavy-lift and project cargo, those who can remain calm and forward-looking in the face of asymmetric rate movements will be best positioned to secure cost advantages in long-term supply chain competition.