Freight rates from China to West Coast drop 90% as global trade plummets

Freight rates from China to West Coast drop 90% as global trade plummets

What China's Rapidly Falling Trade Demand Means for 2023's Supply Chain, Inflation

Logistics managers are sending the message to customers that the ocean freight market is correcting at a faster rate than expected.

Transport company HLS recently wrote to its customers: “We initially expected the market to be on the verge of correcting and normalizing sometime in 2023, but this is coming much sooner than expected.”

The peak of the market, according to OL USA CEO Alan Baer, ​​was the second quarter. “From there, a steady decline,” Baer said. The market may have bottomed out in November, he said, but added that “it’s still too early to tell if this is a trend.”

Despite the cash market crash, major shipping lines reported nearly $122 billion in profits in the first three quarters, according to Sea-Intelligence CEO Alan Murphy.

Trade data shows U.S. imports from Asia fell 11% year-on-year in October, which built on a decline in September. “We find no reason to be optimistic in November,” HLS told customers.

The ocean freight contract market tracked by Xeneta’s global XSI fell 5.7% in November, the third consecutive month rates fell and the biggest month-over-month decline since the launch of the XSI in 2019, according to Peter Sand, chief analyst at Xeneta. “For many carriers, the drop in XSI will trigger their average fares to drop and end record quarters,” he said.

Sand expects the difficult environment to continue given the 40% drop in Chinese manufacturing orders and logistics managers expect normalization of demand will not occur until next summer .

The shift from a supply chain that was struggling to meet unprecedented pandemic demand to a weak demand environment and a freight market now oversupplied with vessels and containers highlights the risk of a prolonged slowdown in the world economy. Central banks around the world are raising interest rates to fight inflation. Lowering demand is one of the goals of central banks, including the Federal Reserve, and it is driving down supply chain prices which had reached record highs and were a major driver of inflation. But monetary policy is on the right track as a supply and demand reset can turn into a recession. More and more CEOs are citing the risk of recession, signs of weakening consumption and slowing sales, but the Fed is expected to maintain a policy of higher interest rates. The market remains unconvinced that the Fed can engineer lower inflation without forcing a “hard landing” on the economy.

Data from Xeneta indicates that 85% of customers plan to reduce their ocean freight spending in 2023, while 42% say their volumes will remain “stable/consistent” with 2022, which Sand says suggests a further decline in volumes. freight.

Despite the latest “Zero Covid” policy easing measures announced by the Chinese government, delays in the delivery of raw materials and products by truck, coupled with early manufacturing shutdowns, are also pinching logistics windows for shippers.

“Orders are definitely down. Volumes are down,” said Worldwide Logistics Group CEO Joe Monaghan. “Overall vessel utilization is down even with the large number of virgin (cancelled) sailings.”

According to Freightos, despite the increase in canceled departures which has reduced vessel capacity, the hemorrhage in ocean freight prices continues:

  • Asia-US West Coast prices (weekly FBX01) fell 26% to $1,426/FEU. This rate is 90% lower than the same period last year.
  • Asia-US East Coast prices (FBX03 Weekly) was down 19% to $3,723/FEU, and is 78% below rates this week last year.
  • Asian. Europe prices (FBX11 Weekly) fell 2% to $3,974/FEU, and is 73% lower than rates this week last year.

Lower fuel prices are removing some pressure on container rates, according to a report by Judah Levine, head of research for Freightos, and the US East Coast has still seen gains from the pre-Covid market , as more Asian trade has shifted there. While Asia-US West Coast rates are now 5% lower than 2019, Asia-US East Coast rates are still 32% higher than three years ago. year.

With the sustained decline in orders, statistics published by BIMCO show that global container volumes fell by 9.3% year-on-year, leading to an overcapacity situation.

Christian Roeloffs, co-founder and CEO of Container xChange, an online platform for container logistics, says the drop in demand will have a further impact on freight prices.

“In 2023, there is a strong possibility of an all-out price war,” Roeloffs said. “It doesn’t look like the capacity restrictions we’ve seen over the last two years are about to return, so we’ll just have enough capacity on both the ship side and the container side. With the momentum competitive in the container and liner shipping industry, I don’t expect the big players in particular to hold back, and we expect pricing to return to near-variable costs. market consolidation.

The CNBC Supply Chain Heat Map data providers are artificial intelligence and predictive analytics company Everstream Analytics; the global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; the logistics provider OL USA; the FreightWaves supply chain intelligence platform; the Blume Global supply chain platform; third-party logistics provider Orient Star Group; global marine analytics provider MarineTraffic; marine visibility data company Project44; shipping data company MDS Transmodal UK; the Xeneta platform for benchmarking and analysis of sea and air freight rates; leading research and analytics provider Sea-Intelligence ApS; worldwide crane logistics; DHL Global Forwarding; freight logistics provider Seko Logistics; Planet, a provider of global geospatial and daily satellite imagery solutions, and ITS Logistics provide port and rail drayage services at 22 coastal ports and 30 railroad ramps across North America.

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