Freight Forwarders Aren’t Sure When Demand Will Return

Date: Thursday, June 15, 2023
Source: Sourcing Journal

Although container demand has plummeted this year, freight forwarders are optimistic that a turnaround is on the way.

Sixty-nine percent of more than 400 freight forwarders surveyed by Container XChange say they hope demand will rebound before 2023 ends.

But the “when” is what’s unclear, according to the container logistics marketplace platform, with only 18 percent expecting demand to resurface within one-to-three months—just as peak shipping season arrives.

Another 51 percent say they believe in a rebound for container demand, but don’t have a clear outlook of timeline.

According to Container xChange’s June Forecaster, the persistent decline in container prices comes amid new kinks in the supply chain, including labor disruptions on the U.S. West Coast, a technical recession in the Eurozone and the Panama Canal drought.

“The supply-demand imbalance worsens with upcoming vessel deliveries and low scrapping rates. Spot rates are at pre-pandemic levels in most trades, and contract rates are sliding,” said Christian Roeloffs, co-founder and CEO, Container XChange in a statement. “Coupled with low demand, the industry continues to grapple with overcapacity of containers and vessel capacity. Now we have labor disruptions and the Panama Canal drought, which in normal circumstances would lead to an uptick in freight rates as they absorb effective capacity, but any significant price effect is now highly doubtful in the current market.”

Roeloffs predicted that this means that supply chain reliability will deteriorate again for shippers, potentially leading to a “pull forward” on orders.

“This in turn will likely ‘flatten out’ any peak season and further decrease the likelihood of a freight rate increase in the second half of 2023,” he added.

A recent Descartes report shows that demand is still lagging. Last month’s U.S. container import volumes were down 20 percent, but up 0.5 percent from pre-pandemic levels in May 2019. On a month-by-month basis, imports increased 3.8 percent from April 2023 to 2.1 million 20-foot equivalent units (TEU). As with the first four months of 2023, the growth in import volume in May continued to track alongside 2019 volumes with a difference of 1.3 percent for the same period in each year.

Container XChange data indicates that prices so far aren’t rising heading into the peak season, with the platform calculating that the average price of a cargo-worthy 40-feet container in the U.S. in May was $2,048, marking a drop of 40.6 percent since May 2022 when the same price was $3,092.

A study of average 20-foot cargo-worthy container prices on the Container XChange platform indicates disappointing demand.

Containers into the Port of New York/New Jersey saw their average price fall 67 percent since June 2021 to $1,175 per TEU from $3,525 in the prior-year period. Containers arriving at Port of Long Beach came in second with a drop of 63 percent to $1,431 in June 2023 from $3,865 per TEU two years ago.

At the Port of Los Angeles, TEUs on average declined 29.5 percent to $1,667 in June 2023 from $2,366 per container.

Falling volumes were seen at three major Chinese ports as well, including Shanghai (42.5 percent), Ningbo (44 percent), Shenzhen (41 percent), plus the Port of Singapore (42 percent).

In comparison, the Drewry World Container Index (WCI) composite index of $1,681 per 40-foot container is now 84 percent below the peak of $10,377 reached in September 2021. It is 37 percent lower than the 10-year average of $2,688, indicating a return to more normal prices, but 18 percent higher than the average 2019 pre-pandemic rates of $1,420.

Roeloffs noted that minimum offer prices tend to gravitate towards the level of variable costs, which he estimated have surged approximately 15 to 25 percent since 2019 depending on the trade lane. Consequently, the lower end of freight rates offered by carriers also increased by 15 to 25 percent, he said—similar to the Drewry numbers.

“This poses challenges for shippers who now face higher variable costs for transporting cargo,” said Roeloffs. “Despite the significant decline in average container rates from 2021 to 2023, reaching almost 85 percent reduction, the underlying variable costs remain elevated—which makes a significant additional and sticky decrease in spot freight rates unlikely while contract rates still have room for further depreciation.”


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