‘Freight Recession’ Sinks Container Prices

Date: Wednesday, April 12, 2023
Source: Sourcing Journal

Cargo container prices are a long way off from where they were to kick off 2023, with North American shipping containers now more than 20 percent cheaper for importers.

But according to the latest monthly report from container logistics platform Container XChange, industry professionals forecast that container demand is likely to rebound by the end of the year—and prices along with it—after cratering in the second half of 2022.

The container price sentiment index (xCPSI), a sentiment analysis tool by Container XChange that concurrently surveys supply chain professionals on their short-term price expectations, continued to show negative readings in mid-March, as seen below.

But the results consistently turned positive on March 24, when the index swung from -12 to 10—a figure that stuck through the next four days. By April 1, the index had reached an all-time high of 32, when the index started showing confidence building for the coming quarter.

Container XChange’s survey of 664 supply chain professionals appears to back up the expectation that 2023 will bring a better peak season than 2022 did. Forty-eight percent of respondents expect 2023 will be better based on a potential revival of container rates leading up to the peak season, while 42 percent don’t anticipate a better peak season this year.

Another 9 percent responded “maybe,” indicating that there is still a shroud of uncertainty hanging over the rest of the year.

In Container XChange’s April container market global forecaster, co-founder and CEO Christian Roeloffs, attributed much of the doubt to ongoing external factors that continue to impact the state of the shipping industry.

“The global container logistic ecosystem is like a spider’s web. One disruption does not linearly impact the knot. Instead, every disruption reverberates across the web—sometimes in unexpected directions,” said Roeloffs. “The increase in Fed rates, the banking sector crisis and the strikes might seem concentrated in one region, but they have their impact across all trade lanes.”

The prices of 20-foot dry cargo containers declined in every major region in the first quarter of 2023, the forecaster said. North America registered the biggest decline in average prices for these containers at 20.6 percent. The Middle East and Indian subcontinent (ISC) combined for the second-largest drop at 15.2 percent, while 20-foot cargo containers in Southeast Asia had prices plummet 13.7 percent during the January-to-March period. Across the board worldwide, container prices plummeted 14.3 percent in the three-month stretch.

Most of the container price fluctuation leveled out since the early parts of the first quarter, with global prices declining just 2.7 percent in the final month of the period. Within that stretch, the Middle East/ISC region saw the biggest one-month price drop at 8 percent, while Northern Europe and Northeast Asia experienced 0.7 percent and 1.7 percent container price increases.

On a week-over-week basis, global containers saw a 1 percent price increase, likely feeding into some of the optimism that a bounce back is in play.

Harry Duong, a shipper-owned container (SOC) team lead at international freight forwarding company Pudong Prime, is one of those that remains upbeat about how 2023 is expected to play out. Duong noted in the April forecast that non-vessel operating common carriers (NVOCCs) and freight forwarders cannot afford to wait to adapt to current freight demands.

“The anticipated changes in the industry, particularly after contract renewals towards the end of the first half of 2023, signal a crucial time for preparation,” said Duong in a statement. “With cautious optimism, we foresee that this year’s peak season will be better than the previous year….”

Roeloffs seemed less enthusiastic in his comments on the outlook for the rest of the year, but does expect demand to kick back in later in the year.

“Despite avoiding a global financial and economic recession for now, the shipping industry is experiencing a freight recession due to the postponement of inventory replenishment cycles by retailers who overstocked,” Roeloffs said. “As we look ahead, we anticipate a subdued rebound in demand as retailers begin to deplete their excess stock in the coming months, leading up to the peak season.”

Amid all the concerns regarding container prices and demand, the Container XChange report also called out the ongoing shifts in sourcing, with companies seeking to diversify countries of origin or in some cases, develop “China Plus One” strategies.

The market forecaster cited trade data from Vietnam and China to illustrate how the countries are being impacted by the shifts. According to Vietnam customs data, Vietnam’s two-way trade in February was up almost $3 billion over January, despite February being a slightly shorter month. On the other hand, China’s exports to the E.U. totaled 552.837 billion yuan ($80.3 billion) from January to February 2023, a year-over-year decline of 5 percent.

“The diversification of trade will prove to be beneficial for ocean trade because this will cause a boom to the regional trade within Asia,” Roeloffs said. “It will also lead to more locations adding to the direct trade from the region to North America or to Europe. So, diversification will play a role and in general, this will soak up more capacity than what we would have had on transpacific China to the U.S. or China to Europe alone.”


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