Smoother trade and a weakening global economy push down shipping rates
Plummeting container rates may help reduce inflation and indicate reduced supply chain disruption, but signal a weakening global economy
Port congestions and container shortages are beginning to be less of a problem, partly helped by waning demand from Western economies. Container shipments between Asia and the United States have dropped dramatically, as have container freight rates. Retailers and bigger shippers or buyers are showing more caution about future outlook and, as a result, are ordering less.
The latest Drewry composite World Container Index which acts as a benchmark for container prices, shows a price of $3,145 per 40-foot container. This is 68% lower than where spot prices stood at the start of 2022 and 67% beneath the same time last year. The price has now fallen 35 weeks in a row, according to the index.
At the peak during the Covid-19 pandemic, prices reached more than $10,000 per container. The current price, though, is still 120% higher than pre-pandemic rates which stood at about $1,420.
The slowdown in what was once a frantic pace for global freight and containers shows no signs of abating with Shanghai-Rotterdam falling by nearly $600 in the week from 20th October to 27th October.
Excluding rubber products, container shipments for all products from Asia to the United Sates are down year on year, as of September this year.
Although there has not been a sharp fall in US retail sales, it is presumed that the drop in container shipments comes as a result of US retailers cutting orders and winding down inventories.
Sliding container prices and rates in Europe reflect declining consumer confidence across the continent. As a result, the European market is awash with 40-foot high-cube containers according to Container xChange, the logistics platform.
Idle time for containers is also on the rise. According to Container xChange: “Containers are stacking up at a lot of import-led ports. Shippers are giving containers away just because containers are being stuck there.”
While this change in dynamic should feed through to final product prices and help dampen what are currently high global inflation rates, it indicates a weakening global economy.
It will be key to continue to monitor this trend and how major shipping firms react as pricing power slips away from them. Should prices continue to fall and come close to pre-pandemic levels, it will indicate that a much weaker demand cycle is in progress across global supply chains.