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Demand collapsed in September

Detailed demand data is unfortunately always released in the market with some time delay, but the release of the new demand data for September 2022 is certainly worth taking note of.

The data is compiled by Container Trade Statistics who measures demand at time of loading. This means the same developments will subsequently become reflected in for example port handling or customs statistics in the subsequent month at destination.

Looking at the data, the total amount of TEU shipped globally in September declined almost 9% compared to same month last year. This could potentially reflect a very strong peak season in 2021 compared to a “flatter” peak in 2022, hence it is relevant to also compare to September 2019 before the pandemic. In that case it runs out that volume is 3% down compared to 2019. In September 2022 the global container shipping industry moved 350,000 TEU less than they did before the pandemic.

A better way of looking at demand is to measure it in terms of TEU*Miles. This means looking not only at the number of containers moved but also taking the shipping distance into account. Moving a box from Shanghai to Rotterdam takes more effort than moving a box from Rotterdam to Felixstowe. In this way, the situation is seen to be even worse. Global demand in TEU*Miles declined 13% in September compared to last year and compared to pre-pandemic in 2019 demand is down 8%. This is basically the same level of demand collapse as we also saw in April and May 2020 when the pandemic first impacted the markets.

Two trade routes behind the TEU Miles decline

The reason why TEU*Miles declined substantially more than if we only measure TEU is that demand declined substantially on the two largest trades which also has very long sailing distances. Demand from the Far East to Europe was down 20% and demand from the Far East to North America was down 25%. In both cases the volumes being shipped are now below pre-pandemic levels.

Such a rapid downturn in demand is caused by a beginning inventory reduction. In many places importers find themselves with overstocked inventories and as supply chains slowly improve, they get even more goods delivered. And this at a time where consumer sentiment is worsening rapidly driven by fears of inflation, high energy prices and war. It could therefore very well be that the drops in demand will persist in the near-term future.
Part of the impact is of course the continuing rapid decline in freight rate levels. Most major trades are still above pre-pandemic levels, but the Pacific trade into the US West Coast is rapidly approaching 2019 rate levels and thus far do not show signs of stopping.

Further cancellations expected

Looking into the next few months it should be expected that carriers will cancel a substantial number of planned sailings in order to better match capacity to the drop in demand. With all presently known cancelled sailings, the capacity in November from Asia to US West Coast will still grow 3% compared to last year. In December capacity is poised to grow even higher, compared to last year – hence it is inevitable that we will see a drastic increase in blank sailings announced in the coming weeks.

In the Asia to North Europe trade, the capacity increase in November is presently 4% and then it will increase to 13% growth in December – again an indication that we should also expect additional blank sailings announced in the coming weeks in this trade.

All in all, the new demand data shows a market undergoing a significant correction, and this is a key driving force in the rapid erosion of freight rates. To the degree the downturn is driven by an inventory correction, this is a process that could be completed sometime in Q1 2023. If that is the case we should expect a new surge in demand already in peak season 2023, causing a sharp rebound in the market. The uncertain factor is the depth of the possible recession facing the global economy – if this becomes worse than expected, the rebound might be postponed until late 2023 or early 2024.

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