Inflation remains high, but shipping prices have begun to fall as some U.S. importers have reduced orders for goods amid concerns about rising inventory levels in recent months and uncertainty over continued strength in consumer spending.
The Wall Street Journal recently reported that according to Baltic Freight Index (Freightos Baltic Index) data, the freight from China to the United States West Coast last week was US$8,934 per container, down 38.5% from the beginning of the year and nearly down from the same period last year. 50%, but still four times the level in June 2020. Industry observers expect shipping prices to remain above pre-pandemic levels until at least 2023.
As the main route in the container shipping market, the drop in freight rates on the US line has also triggered bearish sentiment on the container shipping market. JP Morgan logistics industry analysts released a report in early June, warning of the risk of recession in the shipping industry. Once the warning was issued, the global shipping sector plummeted. The report's argument mainly comes from the demand side. Data cited by analysts show that since May 24, container imports to the United States have dropped by more than 36%.
However, industry insiders believe that this data cannot fully and truly reflect the entire picture of beauty lines. It pointed out that there are many factors affecting the decline in U.S. line cargo volume. The "import volume dropped by 36%" data quoted by JP Morgan was intercepted for a short period of time (June 7 compared to May 24 data). is not Universally representative. But the current volume of goods in the US has indeed decreased.
The person pointed out that The biggest change in the container shipping market this year is still on the demand side. In 2021, due to the deformed and abnormal consumption caused by the epidemic, demand in the United States will reach its peak. This is mainly related to the growth of home consumption, but this year's demand It will begin to weaken and will gradually return to normal service consumption. In addition, inflation in the United States has intensified this year, and the prices of many daily necessities and food have increased by at least 30 or 40% compared with before the epidemic. The impact of inflation on the demand side will be more obvious in the second half of the year.
Container ships transport more than 95% of the world's manufactured goods. Supply chains have been in turmoil over the past two years due to drastic changes in consumer buying habits during the global pandemic.
In the early days of the crisis, retailers and other companies began building up inventories as consumers bought goods in bulk, supported by savings and government stimulus. The surge in orders has pushed ocean freight rates and liner profits to record levels. The situation is also exacerbating port bottlenecks and shortages of containers, freight trains, truck drivers and warehouse space.
The Wall Street Journal reported that, according to data from liner companies and terminal operators, inbound container volumes at the 10 largest U.S. ports have dropped by an average of 25% since May this year. Port operators are gradually clearing their container yards, with the number of ships waiting to dock off Los Angeles and Long Beach falling last week to 22 from 109 in January, according to the Southern California Marine Exchange.
The industry generally believes that the root cause of this round of container shipping super bull market comes from the stronger-than-expected continued strong demand for U.S. imports amid the epidemic. But more and more evidence points to a weakening trend on the demand side in the United States. At present, some companies have cut orders with suppliers, and retailers such as Target and Walmart said they are dealing with excess inventory due to over-ordering. question. Moreover, inflation dampens consumption more broadly. The accumulation of inventories and the peak of US inflation will inevitably lead to a slowdown in new import orders, thus increasing the damage to US container import demand.
The data also shows signs of a fall in demand for the US line: According to Alphaliner statistics, Asia-North America route container volume increased by only 19% in the first two months of this year compared with the same period in 2019, compared with the high growth rate of 37% in the fourth quarter of 2021. fall back.
According to the latest report from S&P Global Market Intelligence, container freight rates are expected to fall by 20-30% in the second half of this year. At the same time, due to high inflation, widespread consumption patterns and Supply-side pressure on new shipbuilding has led to slower trade growth, and dry bulk freight rates have seen a similar proportional decline.
Analysts at S&P Global Market Intelligence said container freight rates are likely to fall to an average of $6,000-7,000/FEU, which would be a sign of trouble for traders and consumers facing high inflation due to high freight and fuel costs. kind of relief.
The report stated that as the congestion in China's ports has eased as the epidemic restrictions have been relaxed, the current freight rate has fallen from the high level of US$9,000-10,000/FEU, which is a major downside risk in the second half of the year, especially in the first half of the year. After the peak season in the third quarter.
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Taiwanese research institutions pointed out that the container shipping market supply and demand tend to be balanced, and it is not easy for freight rates to rise sharply. Although the combination of new shipping capacity and fuel oil is beneficial to support profits, industry freight rates will fall back in the future. , The long-term contract exchange for price next year will have room for a downward trend, ending the positive view in the past two years.
Generally speaking, the good times of 20-40% surge in freight rates during the traditional peak season in the second half of 2020 and the second half of 2021 are difficult to repeat. expects that when the traditional peak season arrives in the third quarter, freight rates will only slow down to single digits. The quarter-on-quarter growth rate is not as good as expected; with the arrival of the relatively off-season in the fourth quarter, demand has decreased, and freight rates are expected to drop by double digits quarter-to-quarter. This will put pressure on the European line long-term contract negotiations at the end of 2023. The agency predicts , that global economic growth will slow down in 2023, the supply of new ship capacity in the market will increase, and the SCFI comprehensive freight index will decrease by 30%. This will make the performance of long-term U.S. line contracts face uncertainty in the first half of 2023, and there is a risk of a decline in new contract prices, which is expected to reduce the average freight rate by 40% annually.
Demand is the key, the next few weeks will be the key, beware of the risk of demand inflection point!
But there are other voices. According to the National Retail Federation (NRF), retailer inventory levels are increasing in dollar value, but due to strong customer demand, an important performance ratio - inventory to sales - remains low. Low. "As long as consumers continue to buy at record rates, retailers will need to continue to stock up on goods to meet extremely high levels of demand," NRF CEO Matthew Shay said.
Industry analysts do not expect freight rates to fall simultaneously. Capacity remains tight as nearly all available container ships are sailing and new ship deliveries will not begin until next year.
Source: shipping network
