According to reports, carriers are trying to prop up rates by sailing with empty vessels © Photo by Gary Hershorn/Getty Images
According to reports, carriers are trying to prop up rates by sailing with empty vessels © Photo by Gary Hershorn/Getty Images

How falling shipping rates have taken the market by surprise

12 October 2022

Rates for shipping containers from Asia to the US are falling towards pre-pandemic levels and may still have further to drop, while long shipping delays are increasingly disappearing from the market, according to analysts.

Factors such as falling demand, China’s zero-Covid rules and factory closures in the country for the Golden Week holiday are pushing down spot rates – especially on the trans-Pacific Asia-to-US-west-coast route.

Figures from the Baltic Index compiled by online freight shipping marketplace and platform provider Freightos show rates to the US west coast plunged 20% this week, to $2,361. That compares with $20,000 a year ago – a decline of two-thirds since May.

Yet even as imports from Asia into the US are falling, retailers are struggling with excess inventory – much of which was built up in the first quarter when ports were clogged and estimated delivery times soared.

SM reported last week that Nike had been left with excess inventories worth $9.7bn after it increased purchasing to mitigate extended lead times.

A sudden improvement in transit times, combined with the arrival of delayed deliveries from factories, saw in-transit inventory increase 85% in the first quarter of 2023.

Matthew Friend, Nike CFO, said: “We've seen quite a bit of volatility in transit times. We saw an increase in the second half of last year. And then most recently, this quarter, we saw a significant improvement in transit times after we and many others had made the strategic decision to buy [for] the holiday season earlier because of the longer transit times.”

According to reports, carriers are trying to prop up rates by blank sailings – sailing with empty vessels. But despite this, ships are still leaving Asia with substantial spare capacity.

Peter Sand, chief analyst at maritime data provider Xeneta, said: “It really is an eye-catching development.

“Shippers that have had their backs against the wall in negotiations for so long are seeing the market turn much quicker than many anticipated. They can now move three 40ft containers for the price they paid for just one only a few months ago.”

On the plus side, shippers are able to work without lengthy shipping delays. The China to US west coast shipping time is now down to 83 days – compared with 112 days in January to mid-February.

“It would be fair to say that the problem has been cut in half from a timeline perspective. Prior to the pandemic, the baseline was 45 days for transportation time. Strictly speaking this means that 43% of the supply chain delay has been ‘fixed,’” said the CEO of container consultancy Vespucci Maritime, Lars Jensen.

The Loadstar quoted a UK carrier as saying: “Other than at the start of the pandemic, I can’t recall another time when the market has turned so quickly, and it looks like it will get a whole lot worse before it gets better,” he said.

Judah Levine, head of research at Freightos, said some analysts even believed that rates could soon fall below the break-even point.

“Smaller carriers who operate smaller vessels – many of whom are paying expensive charter rates and were new entrants on the trans-Pacific as spot rates spiked – and currently operate about a third of trans-Pacific capacity may be the most exposed to falling prices making operations unprofitable,” Levine said.

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