Global Trade Shifts From Backlogs To Empty Containers, Shipowners Cancel Sailings

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As inflation weighs on international trade and consumer spending, ocean carriers are cancelling dozens of sailings on the busiest routes in the world during what is often their peak season. This is the latest indication of the economic whiplash affecting businesses as reported by the Wall Street Journal.

October cancellations

The October cancellations are a sharp reversal from just a few months ago when scarce shipping space pushed freight rates higher and carriers’ profits to record levels.

Trans-Pacific shipping rates have plummeted roughly 75% from year-ago levels.

The transportation industry is grappling with weaker demand as big retailers cancel orders with vendors and step up efforts to cut inventories.

FedEx Corp. recently said it would cancel flights and park cargo planes because of a sharp drop in shipping volumes.

On Thursday, Nike Inc. said it was sitting on 65% more inventory in North America than a year earlier and would resort to markdowns.

Erosion in global economy 

The erosion in global economic conditions, from the war in Ukraine to factory shutdowns in China, have dealt heavy blows to trade activity.

The International Monetary Fund has cut its forecast for global growth in gross domestic product multiple times this year.

Consumer prices are rising at the fastest rates in years in the U.S., countries in Europe and other parts of the world.

One response to the melting demand has been to reduce sailing trips.

In September, container capacity offered by ship operators in the Pacific was down 13%, dropping the equivalent of 21 ships that can each move 8,000 containers in a single voyage, from a year earlier, according to shipping-data providers Xeneta and Sea-Intelligence.

Reduced demands 

Carriers also are increasingly canceling trips along key Asia-to-Europe routes, the data providers said.

“In the first week of October, one-third of previously announced capacity will be blanked and for the second week, it will be around half,” said Peter Sand, chief analyst at Xeneta. 

“The downturn pace in recent weeks has been very fast and it looks like carriers misread the low volumes of a nonexistent peak season.”

Daily freight rates now average $3,900 to move a single container across the Pacific, compared with $14,500 at the start of the year and more than $19,000 in 2021, according to the Freightos Baltic Index.

The rotation, which MSC operated in alliance with A.P. Moller-Maersk A/S, was suspended “due to significantly reduced demand for shipments into the U.S. West Coast during the past weeks,” according to a customer notice posted Wednesday on MSC’s website.

Cancelled sailings 

MSC declined to comment beyond the notice as did a Maersk spokesman.

Some carriers are reluctant to share details on cancelled sailings to avoid showing competitors what is happening in their network.

Consumer spending on bulky items like furniture and appliances that are often imported into the U.S. has cooled in recent months, according to government data.

“The global economy has thrown a few curveballs this year, and our outlook on future demand is uncertain and tepid,” said Jonathan Roach, a container analyst at Braemar. 

The top six ocean-freight carriers move more than 70% of all containers worldwide.

Freight rates on key shipping routes remain above pre-pandemic levels, and the largest operators have plenty of cash to weather a near-term economic downturn.

Bunker fuel prices, which have cooled since hitting records this summer, are above their late 2019 levels.

Port operators are also charging more for ships to dock, passing along the higher energy prices they are facing to the carriers.

“The cost of electricity, particularly in Europe, is significant because the cranes and other heavy equipment run on electrical power,” said Tiemen Meester, chief operating officer for ports and terminals at DP World, a Dubai-based operator of terminals in ports worldwide.

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Source: Wall Street Journal

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