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Is the market finally going down?

Spot rates for container freight have been dropping for several months, and we are seeing more and more media reports indicating a decline in container volume. After two years full of problems, this sounds like good news for many shippers.

Shippers transporting cargo from Asia are on the eve of the 2022 peak season. Should they prepare for another year of lack of capacity and record high freight rates like in 2021? Or can they sit back and wait for the freight rates to drop down in the coming months?

And what about exports to the Asian continent? Are the falling import tariffs a sign that export tariffs will also take a dive?

When you dive deeper into the facts and figures, the question quickly arises: is the drop down really in sight?

Lower volumes?

When making business decisions, you normally look at objective facts, and based on these facts you decide. You do not allow yourself to be influenced by hope and expectation, or as little as possible.
The question of whether the market is declining should therefore be approached as rationally as possible. In this case, there is certainly evidence that the market is indeed in decline.

The latest figures from the website Container Trade Statistics show a decline in global container volumes. Measured in teus, these volumes show a decrease of 5.5% in April compared to 2021. But it is not only in comparison with April 2021 that volumes have decreased. Also compared to April 2019, i.e., before the corona pandemic, the April 2022 volumes are 1% lower. The drop will also be further affected by the fact that major importers, such as department store chain Target, have announced that they will be reducing their production orders in Asia.

So, if we stopped our analysis at this point, we would have enough data to conclude that the market indeed is descending.

Seasonal influence

However, this is not yet the right moment to stop this analysis. For example, are there currently any data indicating that the sea freight market is not in decline at all? The answer is: yes!

A closer look at the development of spot rates for cargo from Asia to Europe shows that the drop we are seeing now is in line with the traditional drop-in rates during this season. The graphic at the bottom of this article shows the spot rate on the index 100 during the peak we see every year around Chinese New Year. This makes the 2022 trend like the normal trend of the past ten years.

This clearly shows that the drop-in freight rates in 2022 can be explained by the normal decline we see every year around this time. So, there is no basis for saying that the market is weaker than normal. It can also be seen that the market was much stronger than normal before Chinese New Year 2022.

If you dive deeper into the figures, it becomes apparent that the rates from Asia to the Mediterranean are currently much higher than usual. However, rates from Asia to the US are much lower than you might expect. This indicates weakness in the market, but most of the decline can still be explained by seasonal influences.

Congestion is not yet a closed chapter

The congestion problems in the ports have not really changed significantly in recent months. In some ports, the situation has improved, whereas in others it has worsened at the same time. The queue of ships for the port of Los Angeles, for example, has shortened considerably, while the number of containers that cannot be pulled out of the port terminal in time is still rising. These numbers are even back to the level of November 2021.

It is also still difficult for many shipping companies to stay in line with the sailing schedules. Only 20% of the ships on the routes from the Asian continent to Europe still arrives on time.

The time taken to move a container (measured from the time the cargo is ready at the exporter's premises to the time the importing party takes delivery of it) is still more than 100 days on average. This is roughly twice as long as before the corona pandemic.

This means that although the volume of freight is falling, the sector is unable to solve further bottlenecks. Therefore, you can expect that when the high season starts and freight volumes increase again, these bottlenecks will get worse.

A lasting uncertain sea freight market

So we are back to the question: is the decline really in sight?

There are figures that clearly support the answer ''yes''. But a more nuanced look at the data suggests that the current weakness in the market is due to traditional seasonal influences, and so this points to a ''no'' answer to the question.

So, the problem for shippers now is the extreme uncertainty in the short term. Realistically, it is not possible to clearly predict whether we are heading for a new peak or whether the decline has already begun.

There is clear data to support both options. The easiest thing to do is to look at what is going to happen in the next 2-4 weeks. The following two points will prove to be of great influence in the coming weeks:

  1. Will the end of the Shanghai lockdown lead to increased demand for ocean freight from China? With the added complication of an increasing threat of another lockdown in the coming months. 
  2. Will the peak season start earlier than expected? This could be expected as worldwide supplychains are still operating with a 2-month delay compared to the normal situation.

Finally, one must also remain aware of the constant threat of new bottlenecks in the supply chains. For example, the agreement with the largest union of dockers on the American west coast expires on 30 June. No new agreement has been reached yet, and that could cause the necessary congestion in the American ports again. In addition, there are the necessary 'normal' problems that always occur somewhere during the year. For example, the truckers' strike in South Korea had a negative impact on the processes in the port of Busan. In the world's fifth container port.

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