image via

It has been an anemic peak season for ocean freight haulers as container shipping rates have plunged from pandemic highs and Americans and Europeans continue to pull back on purchases of consumer goods.

Daily market prices to move cargo from Asia to the U.S. and Europe in September were down as much as 90% from early 2022, a bad sign for ship operators since voyages are often unprofitable at current rates.

The largest container carriers have responded by canceling sailings en masse this year, mainly on the route from ports in China to the U.S. West Coast, according to data from shipping platform Xeneta. More cancellations are planned this month following the Golden Week holiday in China where manufacturing sites are idled, according to boxship executives and brokers.

Ship operators are also mothballing vessels to keep operating costs down, resulting in a 7% reduction in container capacity in September compared with a year ago, according to Peter Sand, chief analyst at Norway-based Xeneta.

Companies such as A.P. Moller-Maersk MAERSK.B -3.27%decrease; red down pointing triangle, Mediterranean Shipping and CMA CGM have been bracing for leaner times this year after Covid delivered a surge in business and profits for their operations. Maersk, which is seen as a bellwether for global trade, posted in August a second-quarter profit of $2.9 billion, compared with $10.3 billion in the same period last year.

The cheaper rates benefit shipping clients such as large retailers, which faced steep price increases for ocean freight transportation and capacity restrictions during the Covid-19 pandemic.

Ocean freight movement is a key component of global trade and the slowdown in activity illustrates how large shippers are increasingly cautious about product orders. Containerships move more than 95% of manufactured goods.

In normal years retailers such as, Target and Walmart bring in larger amounts of cargo in the summer months ahead of the year-end shopping season. As a result, carriers deploy more ships to handle the stepped-up demand.

That isn’t happening this year, continuing a monthslong trend of rock-bottom prices and weak demand. Wholesale inventories have been ticking down in recent months, but they are well above prepandemic levels, a sign that orders for goods may remain depressed for some time.

Other modes of moving freight are also dealing with the fallout from weaker demand and industry shakeouts as a result.

That unease is also trickling down to shoppers. U.S. consumer confidence dropped to a four-month low in September amid concerns about higher prices and a possible economic recession, though households remained generally upbeat about the labor market. Hiring accelerated with 336,000 new jobs added in September, the highest monthly increase since January.

A slower peak season has meant that the ports of Los Angeles and Long Beach in California, the country’s two biggest entry points for Asian exports, are handling fewer containers.

The average daily freight rate from Shanghai to Los Angeles stood at around $1,800 per box in September, down from more than $7,000 in September 2022. Freight rates hit a record $20,000 per box during the pandemic in 2021.

Big cargo owners can lock in preferable shipping rates under long-term contracts lasting up to a year. But when the spot market collapses the shippers try to get out of them.

People with knowledge about freight costs for large retailers say they have seen an average 45% decline in ocean-shipping expenses this year. Those people said some retailers are actively negotiating to lower prices agreed to under long-term freight contracts signed last year or earlier this year.

“There is little visibility going forward. Carriers are fighting with shippers weekly over rates,” said Xeneta’s Sand.

Big carriers don’t publicly disclose freight-contract details. Figures from Xeneta show that the number of long-term contracts signed over the past three months with big shippers was down 69%.

In a bid to drum up business, shipowners are sending available vessels to the East Coast, giving American importers mainly from Europe some of the lowest transport costs in years.

Another ominous sign for pricing is that more boxships are being delivered over the next year. Fleet capacity for the year through September was up 4.7%, while container trade demand fell 2.3%, according to London-based shipping broker Braemar. Overall fleet capacity is slated to increase 8.3% this year and 8.9% next year, Braemar estimates show.

“Liners are reviewing capacity management to include aggressive demolition, long-term blanked sailings, and considering delaying new buildings, depending on how distressed the market becomes,” said Braemar container shipping analyst Jonathan Roach.

Source: October 10, 2023 | By Costas Paris