After a year in which freight rates continued to set new
highs, spot rates are on the decline in 2022 with experts pointing to a series
of factors likely contributing to an ongoing decline. The steady drop that
began in January is continuing with many experts questioning if rates have
peaked due to lower demand even before the industry’s massive new building
efforts begin to provide the expected dramatic increases in capacity late in
2023 and beyond.
“We have seen a sharp decline in freight rates in the last
three months due to a decrease in sales and full inventories as we enter the
traditional post-Chinese New Year lean season,” said Shabsie Levy, CEO and
Founder of Shifl, a technology platform helping shippers plan and manage their
supply chain. According to their analysis, trans-Pacific container spot rates
between China and the U.S.’s East and West coast ports are down by half between
January and March 2022.
The Drewry World Container Index bears out the trend
demonstrating that the same factors are at play on a global basis. Last week,
they reported that while rates are still up by two-thirds over a year ago, the
global spot rate average was down nearly four percent for the week. Freight
rates on transpacific routes they noted declined for the fifth consecutive
week, with prices to the U.S. down anywhere between six and eight percent, with
a smaller one to two percent decline to Europe. Further, in the past month,
container shipping costs overall have fallen by about 12 percent, according to
the Drewry World Container Index.
While the drop in spot freight rates due to reduced volumes
and inflation is more prevalent in the U.S., Shifl China’s offices also point
to recent COVID-19 lockdowns in major Chinese manufacturing hubs that are also
contributing to the decline. China has been moving through a series of rolling
lockdowns around different parts of the country, impacting northern ports late
in 2021 followed by closures around Ningbo early in 2022. However, the most
significant and concerning lockdown is ongoing and being extended in Shanghai,
home to the world’s busiest container port.
Officials from the Shanghai International Port Group and the
Chinese government insist that the port continues to operate normally denying
reports of growing backlogs. The state media China Daily quoted a port official
refuting reports of 300 or more ships waiting offshore saying it was currently
around 50 vessels. He stated that the port had handled 396 vessels last week
near its maximum of 400. Some shipping companies such as Maersk are also reporting
that they have so far not canceled any sailings while there are however
indications of increasing blanked sailing and rerouted ships. Lloyd’s
Intelligence however calculated that as of April 4, 140 containerships are
waiting outside the ports of Shanghai and nearby Ningbo.
While the terminals in Shanghai are officially open,
trucking capacity is dramatically limited with drivers required to provide
negative COVID tests to move around the city and enter the port area. Further
many factories remain closed reducing the flow of goods to the port and in turn
reducing demand for the ships.
The decline in demand is also showing up at other points in
the supply chain. The Marine Exchange of Southern California for example
reported that the number of containerships waiting for berth space at the twin
southern California ports reached a new low at the beginning of this week. The
number of containerships fell to just 33 vessels on April 4, down by more than
two-thirds from the peak in January.
Other factors are also contributing to the declines in
demand which are in turn driving freight rates lower. Consumer spending appears
to be returning to more typical pre-COVID levels as people have resumed more
normal daily routines while strong inflation and higher gasoline prices also
caused consumers to cut back on discretionary spending. Similarly, high fuel
prices drove up trucking and other costs prompting retailers and others to
further slow their orders to control costs.
“We expect the rates to continue their downward trend up to
the 2022 peak season at which time the rates will go up, albeit not to the
levels seen in 2021” predicts Levy. “Shippers must plan their inventory and
order placements,” warns Levy recommending that they remain wary of committing
to fixed long-term rates at current levels.
Shifl also warns that some of the current issues might
contribute to a new supply chain storm and rate fluctuations. They point to the
likely backlog of goods piling up in China with the potential for a new
onslaught to the U.S. West Coast ports when operations head back to normal in
China. Further, they point to the potential for further disruptions impacting
freight rates suggesting that the return to normalcy in Chinese operations
might coincide with the ILWU longshoremen contract negotiations due to start
next month in anticipation of their contract expirations this summer. Shippers
and carriers have already begun to worry about the potential for disruptions at
the West Coast ports and how that might impact freight rates.