The container shipping industry experienced a temporary surge due to the pandemic and government stimulus, leading to a boom that was not expected to be a lasting change in market dynamics. However, the aftermath of this boom and its impact on container shipping markets remained uncertain, as reported by Freight Waves.
Shipping lines downturn
Initial expectations of a recession and reduced consumer demand led to shipping lines cancelling sailings and reducing capacity. However, contrary to predictions, the container shipping industry is experiencing a downturn that is being poorly managed by ocean carriers. Non-operating owners (NOOs) of ships, on the other hand, are performing better than anticipated.
How markets differ from expectations
Despite strong retail spending in the U.S., container import demand has declined, leading to concerns among economists and shipping lines. The disparity is attributed to inflated inventories causing a temporary mismatch. Container lines have cancelled sailings but not enough to offset the lower import demand, resulting in falling spot rates and renewed contracts at lower levels. Despite this, ocean carriers are financially stable with reduced debt and high cash reserves. Surprisingly, there is still robust demand for leased ships, and charter rates have stabilized at profitable levels, providing downside e protection for non-operating owners.
Freight rates continue to falter
The trans-Pacific freight market is experiencing significant challenges despite attempts by carriers to increase rates. General rate increases (GRIs) have not been effective in sustaining higher rates, and spot freight rates have seen a double-digit decline year to date. The China-West Coast spot rate dropped 27% to $1,224 per forty-foot equivalent unit, while the China-East Coast spot rate fell 14% to $2,347 per FEU. Market participants have reported further softening in the trans-Pacific freight market, with carriers reducing their offer levels. Linerlytica noted that carriers are slashing rates on trans-Pacific routes and face limited options to prevent a collapse in rates. The delivery of new containership capacity has reached a record high of 256,000 TEUs in the last four weeks, exacerbating the situation. The resolution of the West Coast port labour contract negotiations is expected to reduce the risk of peak season disruptions but may weaken the trans-Pacific rate outlook.
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Source: Freight Waves
