Spot freight rates extend drops amid signs of dipping demand

Shipping costs on transpacific routes have been declining gradually since March 2022 after sky-rocketing to unprecedented levels with the release of pent-up demand during the pandemic. Ocean freight rates between China and the US coasts are now below where they were a year ago as Shanghai’s reopening has yet to send a surge of ships and containers.

Spot freight rates on steady decline since March

Data shows a steady decline in transpacific spot freight rates, starting from March, when Shanghai began imposing lockdown measures to cope with the worst Covid-19 outbreak in two years.

According to the latest weekly assessment by Drewry, the composite index for global container spot rates decreased by 3% last week to $7,286 per 40 foot container. This was 10% lower than the same week in 2021 while it represented a cumulative decline of 23% from March.

The latest assessments also showed that Shanghai-Los Angeles rates were at $7,952 per 40 foot equivalent unit, down by 7% year-on-year and 5% month-on-month. Shanghai-New York rates were also down by 7% year-on-year at $10,403 per 40 foot container. This indicated a monthly drop of 5%.

Still no sign of pent-up demand after Shanghai reopening

The congestion at Shanghai ports has been easing gradually following a two-month lockdown, and another partial lockdown imposed on June 10. Ocean freight market analysts reported volumes began picking up again following the Shanghai reopening. However, analysts noted this recovery has yet to translate into a big surge of ships and containers in congested European and US ports, although earlier forecasts had called for a rise in freight rates upon the end of lockdowns.

This was largely attributed to uncertainties on a macro level, such as high inflation in global economies, dwindling consumer demand and a resulting slowdown in orders by major retailers.

How will reduced consumer demand affect freight conditions?

According to some analysts, this inflation-driven slowdown in consumer spending and the possibility of a global recession could be a harbinger of weaker conditions for freight carriers.

Despite some major carriers reducing shipping capacities and using blank sailings to maintain rate levels, weaker consumer demand could further push freight costs down. The analysts highlight increasing signs of inventory surpluses at major US retailers and Asian consumer electronics producers. As the retail industry is a key driver in freight rates, rising inventories can bring an improved availability in container space and further weakening in shipping costs, analysts argue.

Some volume projections for 2022 remain strong

However, global freight and shipping exports continue to advise caution for the third quarter, considering that this is the traditional peak. In addition to expectations of stronger volumes amid peak season, volumes still to come as Shanghai rebounds should also be monitored closely for the near-term.

The National Retail Federation said in its June report that they were expecting continued shipping capacity constraints and a likelihood of a recovery in freight rates from their recent declines. According to the report, despite demand headwinds stemming from anti-inflation policy measures, this year will be another “bumper year” for carriers, terminals and ports as the uptick in volumes from China is felt.