Fares on major ocean trade routes are sinking during the industry’s peak season after cargo owners shipped holiday goods early and inflation dampened consumer demand.
The cost of shipping a 40-foot container from China to the US West Coast is now about $5,400 a box, down 60% since January, according to the Freightos Baltic Index. A container shipped from Asia to Europe costs $9,000, 42% less than at the beginning of the year. The rate for both routes, while still above pre-pandemic levels, peaked at more than $20,000 last September.
Market conditions have made a sharp reversal from earlier in the pandemic. Freight rates rose about 10-fold in 2021 as supply chain disruptions, port delays and a surge in cargo sent importers scrambling for ship space. Some large retailers like Walmart Inc.
they even chartered their own ships to bypass bottlenecks last year.
This year, Walmart and other retailers ended up with too much inventory after scrambling to get goods in earlier than usual in anticipation of shipping delays and demand that didn’t materialize. Manufacturers also moved the goods earlier than usual. Clothing retailers like Gap Inc.
and toy manufacturers including Hasbro Inc.
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reported spring increases in inventory levels that typically occur closer to the holidays.
“For spot prices, the party is over,” said Jonathan Roach, container shipping analyst at London-based Braemar. “The backdrop of a potential global recession, driven by rising energy prices and high inflation, is weighing on the market. The pandemic boom in demand for consumer goods has calmed, and spending on travel, leisure and services has revived in 2021.”
Shipping rates are expected to ease further for the rest of the year and into 2023, according to shipowners and analysts. A raft of new ships will hit the water over the next two years with net fleet growth expected to exceed 9% next year and 2024. In comparison, container volume growth will be marginally negative next year and will increase around 2% in 2024, according to Braemar.
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Better buy Co.
Chief Executive Officer Cory Barry said in an earnings conference call last Tuesday that transportation cost pressures are easing. He said the electronics retailer, whose sales are shrinking, is finding it easier to get cargo space on ships and trucks.
“This is really an off-peak season because for the first time, volumes moved in the second half are lower than those moved in the first half,” said Peter Sand, chief analyst at shipping data provider Xeneta. “There is a lot of uncertainty given the ongoing war in Ukraine and the global economic downturn.”
Spot container shipping rates have fallen so quickly, Xeneta said in an August report, that prices have approached long-term contract prices, which are traditionally discounted, and were even below contract prices in some markets. Most large importers, such as Walmart, carry their cargo through long-term contracts rather than paying spot prices.
The line’s 10 largest ships have enjoyed big profits over the past two years. Recent quarterly earnings in industry bellwether AP Moeller-Maersk MAERSK.B -3.18%
A/S was $8.59 billion, beating what it usually makes in a full year. However, many companies have warned of weakening market conditions in the second half of 2022.
“We need to pay close attention to the impact of inflation on consumer demand and behavior,” China Cosco Shipping Corp., which operates the world’s fourth-largest shipping fleet, said in its first-half report last Wednesday. “Coupled with changes in the delivery of new ships, the supply side of the industry will face a new situation.”
Shipping executives and analysts said they do not expect freight rates to return to pre-pandemic levels, in part because of higher fuel costs. In 2019, the average cost to ship a container across the Pacific to the US West Coast was $1,500.
Ocean carriers are investing billions in new technologies and fuels that will significantly reduce carbon emissions from their ships. “The added cost of cleaner shipping will not go away and will be a factor in increasing prices in the long term,” Braemar’s Mr Roach said.
— Liz Young contributed to this article.
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