As the global economy continues to sputter, demand for goods has decreased, causing freight rates to fall in lockstep.
Due to reduced global COVID-19 congestion and a slowdown in China’s exports, the shipping sector has reported a 60 percent drop in freight rates. The fall occurred between January of this year and is also anticipated to continue in the coming months, putting shippers’ bottom lines at risk.
According to the Shanghai Export Container Settlement Freight Index (SCFIS), the European route (basic port) scored 5028.58 points on September 12—a decrease of 8.1% from the previous period. Moreover, The U.S.-Western route faces a similar problem where it scored 2343.20 points—a reduction of 11.1% from the prior year.
The easing of supply chain disruptions and worldwide factory shutdowns brought on by the pandemic has led to a decline in freight rates. Weaker cargo movement was also accounted for a large portion of the slowdown in container and vessel demand. Since fewer ships are required to transport goods, this negatively impacts the shipping industry, based on the most recent data from S & P Global Market Intelligence.
As the Chinese government takes action to stop the spread of COVID-19, closing its borders to foreign trade also brought less demand for shipping vessels as the country’s foreign exchange slows.
The need for container ships has also increased with more goods transported by sea due to the rise in online shopping during the pandemic. This has hurt shipping companies’ rates because they now have to compete with container ships for customers.
As the global pandemic continues to impact trade and the Chinese economy, freight rates are expected to fall further in the coming months. The result of this occurrence could harm the bottom lines of shipping companies. S & P Global Market Intelligence predicts that rates will decrease even further if the demand for goods and services continues to slow down.
While for supply, schedule reliability has continued to increase over the past three months. Although the current schedule reliability has improved from the average for the entire year of 2021 and is only 10% behind December 2020, it is still significantly below pre-pandemic levels. This indicates that backlogs at the busiest ports around the globe are continuing to decrease and that the skyrocketing dividend from changes in freight rates caused by supply chain disruptions will eventually recede, according to the latest monthly data from Sea-Intelligence.
However, it was concluded by experts from Drewry, another top consulting firm in the shipping sector, that a significant easing might not be feasible until the second half of 2023 due to the slow decline in high rates and shipping company profits.
Despite the unforeseen circumstances, it is clear that shipping companies and the affected nations remain hopeful that the freight situation eventually improves and, hopefully, the global economy.