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Collapse on demand intensifies

New global demand data for ‘cargo loaded in October’ clearly shows that the collapse we have seen in November was not a short term drop but was indeed a sustained large-scale drop in freight volumes.

This October data is the newest data available and is measured at the time of loading. Meaning that the impact felt at the destination end comes with a time lag of roughly a month for European-bound cargo.

At a headline level, the number of containers shipped globally declined with 9,3% in October compared to last year. And what even more telling is, is the fact that this 4,3% lower than October 2019 before the COVID-19 pandemic.

But even this poor numbers can’t correctly capture how badly the market is performing. The most standard way of measuring demand is to simply count the numbers of containers being shipped. However, it is also important to take the distance into account. It is logical that it requires more vessel capacity to move cargo from China to the Netherlands, than it does to move cargo from Sweden to the Netherlands. When measuring the demand in ‘TEU Miles’ (and including the distance), market demand declined with 12,8% in October compared to last year. Compared to October 2019 before the COVID-19 pandemic it has declined with 7,7%.

Cargo Volumes are at pre-pandemic levels

The poor global performance fails to capture the severity in the two major trade routes from Asia to Europe and From Asia to North America. On these trades we saw a 26% year-on-year decline into Europe and a 24% decline into North Europe. In both cases the cargo volume is now below pre-pandemic levels.This decline is very close being as severe as the drop seen in the early pandemic phase in 2020 and almost as svere as the drop seen when the world was impacted by the financial crisis more than a decade ago. 

The underlying reason for the collapse in market volume is that importers have initiated an inventory correction and drastically reduced production and purchase orders. Until the inventory levels are brought down to satisfactory levels, the collapse in demand is likely to continue. In practical terms: the bottom of the market could be reached in Q1 2023.

Carries are responding

Such a severe decline in demand is prompting a response from the carriers, as it is causing freight rate to drop. In recent months spot rates have declined quick but remained substantially above pre-pandemic market levels. Meaning that this process was one of market normalization. This has changed in recent weeks where increasingly individual cases of rate levels were seen below pre-pandemic levels. Reaching a level in December where the WCI spot rate index for Asia to Europe dipped below pre-pandemic levels.

The only trade route holding firm, has been the Atlantic trade to North America due to capacity shortage. However, this is likely to change in the short terms as the carriers plan to increase by 30% on the Europe to North America route and by 44% on the Mediterranean to North America route.

The drop in demand has also eased the pressure on ports and terminals and hence bottleneck issues continue to improve with focus on a full solution during Q1 2023.

Beware that the market is still instable

Shippers should still be mindful that the carriers will response to this collapse by increasingly making changes to their sailing schedules to reduce capacity. This can come in form of blank sailings, port omissions as well as entire service cancelations. Some of the smaller new carriers have already announced their withdrawals. In addition to that some carriers have now begun to re-route vessels from North Europe to Asia via the longer route around Africa as this will both save costs for the Suez Canal transit as well absorb vessel capacity taking the longer transit time.

The market should therefore be seen as inherently unstable in the coming months from both a commercial and an operational perspective.

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