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Container freight rate slump deepens as weak demand seems here to stay

by Başak Ceylan -
  • 12/09/2022 (02:44)
The recent data from shipping consultants and freight booking companies show that an across-the-board slump in shipping rates, which has been in place since early this year, has gathered momentum recently, largely reflecting the obvious impact of inflation on consumer demand.

Commenting on the sharp year-to-date declines, several shipping and freight analysts said that this informally marked the end of the windfall brought by the Covid-19 in 2021, during which freight rates surged tenfold due to backlogs, disruptions, and unprecedented tightness in container availability.

From Asia/Shanghai to US West Coast/Los Angeles

According to data from Freightos, a global freight booking and payment platform, spot rate from Asia to US West Coast was $4,345/FEU as of September 7, indicating a weekly drop of around 20%. This was also 79% lower than the same time last year and the lowest since January 2021.

Maritime industry consultant Drewry’s data showed that freight rates on Shanghai-Los Angeles logged a weekly drop of 14% at $4,782/FEU as of September 8. This also indicated a yearly drop of around 59%.

China’s falling foreign trade was cited among factors contributing to lower shipping rates. According to official data, China’s exports grew by 7.1% year-on-year in August to $314.9 billion, indicating a slowdown as compared to a growth of 18% in July. Imports rose marginally by 0.3% in August from a year earlier to $235.5 billion, lower than 2.3% growth in July. The lower figures were driven by weak domestic growth amid Covid-19 lockdowns and a property slump in the country.

From Asia/Shanghai to North Europe/Rotterdam

Freightos spot rates from Asia to North Europe were lower by 18% on the week at $7,845/FEU as of September 7. Data also showed a yearly drop of around 45% in Asia-North Europe rates. Drewry’s spot rates from Shanghai to Rotterdam were 2% lower on the week and 48% lower on the year at $7,435/FEU as of September 8.

Several carriers were reported to have started using blank sailings to counter the dwindling volumes of trade on this lane. Dramatic freight rate falls in the Asia-North Europe route signalled the impact of a potential global recession, driven by soaring energy prices and rapid inflation rates.

As the escalating energy crisis threatens to disrupt production and consumption in Europe, local governments are increasing their efforts to shield the continent’s economy through new measures. However, some analysts express their doubts as to whether these measures would suffice to fend off a marked slowdown in the economy.

Global merchandise trade volume plateaus

A recent report published by the World Trade Organization (WTO) also showcased the slowdown in global trade volumes. According to WTO, global merchandise trade volume plateaued and year‐on‐year trade growth slowed to 3.2% in the first quarter, down from 5.7% in the fourth quarter of last year.

Although WTO predicted 3% growth in the volume of world merchandise trade in 2022, a slew of factors including “the ongoing conflict in Ukraine, rising inflationary pressures, and expected policy tightening in advanced economies” were cited as factors increasing the uncertainty about the forecast.

Further easing in freight forecast

Shipping rates are expected to ease further for the remainder of 2022, largely because piled-up inventories amid inflation-reduced spending capacity have weakened freight demand. New vessels scheduled to come on-stream over the next few years are also expected to increase the pressure on freight rates. According to shipping services Clarksons, the total capacity will increase 2.45 million TEUs in 2023 and 2.74 million TEUs in 2024, which correspond to 9.8% and 10.9%, respectively.
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