Wednesday, December 14, 2022

Freight Rates Are Down 90% To Western US From China

Freight Rates Are Down 90% To Western US From China

Year over year, ocean freights rates have lowered by 90% for cargo heading to the US West Coast from China. While a decline for the second half of 2022 has been seen, November marked a month-over-month record for a price drop – in the middle of the peak season.

The current situation

Several logistics managers have been dropping messages to their clients in the ocean-faring freight market to warn them of the freight rates that are due to be corrected in 2023. They also warn them of a faster rise in price than had been forecast earlier too. In a recent statement to their clients, HLS wrote that they were previously expecting the market would correct itself and normalize in 2023, but it comes earlier than they thought.

Freight Rates Are Down 90%
Image for representation purpose only

Despite a rapid decline until Q4 and the subsequent collapse of the spot market, huge shipping lines have reported $122 billion in profits in the first three quarters of 2022, per Sea-Intelligence’s CEO, Alan Murphy.

However, trade data reflects an 11% drop year over year in Asian imports to the US in October, further compounding the declines that were reportedly observed in September 2022.

The outlook

The ocean freight contract market experienced a price drop of 5.6% in November, the third consecutive month rates have lowered and the greatest drop since 2019. Per Peter Sand, the Chief Analyst at Xeneta, exceeding disruption to the market is going to bring an end to a record-breaking quarter followed by a record-breaking quarter for several shipping liners.

Sand added that Xeneta considers the challenging environment to persist, and orders from Chinese manufacturers will fall as much as 40% from the current standing. Several logistics managers believe that this is an accurate outlook, and do not expect demands to normalize until 2023 (summer) at the earliest. Xeneta data reflects that 85% of customers plan on decreasing ocean freight spending by 2023, lending credence to claims cargo volumes from Asia will keep falling.

Concluding remarks

Rates between the US West Coast and China are 5% lower than they were in 2019. However, cargo channels to the US East Coast from China remain 32% higher than what were three years back. With COVID restrictions implemented by China now loosening slightly, and the rate of fuel normalizing throughout the year, stability in the market might not be that far. While the volume of the global container has fallen 9.3% on a year-over-year basis, 2023 poses an interesting question: when will the demand between China and the US normalize? This is because the freight rates will normalize with it.

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