Heading towards normalisation
The container shipping market is still a long way from the normal state it was in before the COVID pandemic, but the latest data shows that the market is now on its way back to normal.
In the period from the end of January to mid-June this year, the steady decline in freight rates from Asia to the US and Europe could be explained by the normal seasonal decline at that time of year. From mid-June onwards, significant deviations began to emerge, with rates falling further, although they should have been rising under a normal seasonal trend. This has now been the case for almost two months and is a clear sign that the underlying extremes that have affected price developments, especially over the past 18 months, are receding.
However, shippers hoping for a quick return to normal freight rates must be patient. Spot rates on the major routes from Asia to Europe and North America peaked in September 2021. If rates continue to fall at the speed we have seen since then, this means that the rate level will not normalise until sometime in the second quarter of 2023.
Congestion problems continue, despite minimal increase in freight volumes
The trend in freight volume has been relatively subdued, the latest data for June 2022 shows an increase in global freight volume of just 0.6% - and this follows four months of declining volumes compared to the same period last year. On the main Asia-to-Europe route, volumes fell by as much as 10% compared to June 2021, and this is now the fifth consecutive month that volumes have fallen in this way.
It is worrying that, despite the fall in freight volumes, the market has not been able to solve the congestion and infrastructure problems. Which also means that there are still long queues of ships waiting for unloading. The latest data from Sea-Intelligence shows that in June, 40% of all ships arrived on time. Despite the very low level, this is an improvement, as the on-time rate has been below 40% for the past 14 months. In comparison, exactly three years ago, in June 2019, the on-time rate was 83%.
This persistently low on-time performance shows that many ships are stuck in congestion outside the ports. This means that 9.3% of the world fleet of container ships is still unavailable due to delays.
Risk of strikes still present
In the first half of 2022, there was great concern about strikes among dockworkers on the US West Coast as their collective agreement expired on 30 June. At the time of writing, there is still no new contract, but both parties are continuing negotiations and there is currently no strike action. What was not considered at the beginning of the year was the risk of strikes elsewhere. In recent months, we have seen strikes at ports and among truck drivers and train crews in several countries in Europe and in South Korea. It seems very likely that this will continue in the coming months.
This means that, despite decreasing freight volumes, the shifting bottlenecks in ports and on land will put a brake on the decrease in freight rates, simply because these bottlenecks keep some capacity out of the market.
Given this situation, shippers should consider that we are now in a phase where the market is gradually returning to more normal conditions, but also that this is a rather lengthy process. They should also keep in mind that there is still a high risk of a sudden deterioration in local conditions, particularly because of strikes. There is a small risk of a sudden increase in freight volumes, and therefore in freight rates, in September, in anticipation of the holiday associated with China's Golden Week. Should this happen, the effect will be temporary and then the market will fall further towards normalisation, and most likely at a faster pace than is seen right now.
Seeking for balance
A balance must therefore be struck between the opportunities for reducing freight costs on the one hand and the need to protect one's own supply chain from bottlenecks on the other.
