Container freight rates continue to tumble amid muted peak season

Demand for containerised freight is coming under increased pressure amid a decrease in consumer demand and growing inventories. As most major importers shipped peak season orders earlier than usual to avoid space issues, the magnitude of this peak season has been less pronounced than previous years.

Global container index down for 21st week

Drewry’s composite World Container Index dropped by 2.6% to $6,820 per 40ft container last week, logging the 21st consecutive weekly decrease. This also marked a yearly drop of around 24% when compared with the same week last year.

A slump of 35% since all-time peak

Current spot freight rates also represent a sharp fall of 35% from the peak hit back in September 2021 while the cumulative fall in the last 21 week has reached 21%.

Drewry data also showed that freight rates on Shanghai – Genoa dropped 19.5% to $10,300 per feu and rates on Shanghai – Rotterdam slid by more than 35% to $9,092 per feu since this year’s peak in late January. Spot rates on transpacific lanes, Shanghai – Los Angeles and Shanghai – New York fell by 30-35% during the same period to $7,280 and $9,842 per 40ft box, respectively.

High inventories, weaker demand add to pressure

Increasing inventories, global financial tightening amid rising inflation, and a shift in consumer spending from goods to services remain as factors weighing on spot rates. The latest report on US container import volumes forecast declines for July and August imports while lower demand and earlier-than-usual shipping of peak season orders are expected to bring even sharper drops in import volumes in September and October.

Current rates still 5 times higher than pre-pandemic days

Although these factors account for lower container spot rates and volumes, they still stand at elevated levels compared with pre-pandemic norms. According to Drewry data, the composite World Container Index is still 5 times higher than in July 2019.

According to analysts, the main factor keeping spot rates elevated was the ongoing congestion at key ports. The recent reports highlight backlogged ports in the US and in Europe. In a recently released advisory on the ongoing congestion at key ports across North Europe, Maersk -a Danish shipping company- reported further disruptions and delays. These were largely attributed to workforce strikes and a reduction in labour as we enter the summer period.

Port congestion also remained an issue in China, where ongoing partial restrictions and mass testing are fuelling concerns over full lockdowns.

Some analysts also point at the unexpectedly high inventories as a factor keeping ports congested. As consumer demand started to drop, inventories have risen considerably, causing imported goods to stay at port container yards for extended periods of time.

Are pre-pandemic rates on horizon?

Although maritime analysts and shipping consultants largely agree that the peak season this year is going to “muted” as a result of weakening demand for goods, most find it unlikely that freight rates will decline to pre-pandemic levels in the near-term. This forecast is largely based on expectations that major shipping lines would then resort to capacity reductions to balance the slowdown in demand.

With the persistent congestion at ports and (albeit muted) peak season orders, spot freight rates are mostly expected to take a longer time to unwind from pandemic highs.