Ocean shipping rates on the major ocean trade routes have tumbled more than half from the beginning of the year, according to The Wall Street Journal.
The start of the fourth quarter is typically the industry’s peak season, but many importers have already shipped their holiday goods earlier in the year while rising inflation rates reflect the decline in consumer demand.
The Freightos Baltic Index, which measures the cost to ship a container overseas, is now at $5,286, down from $9,293 in January.
The cost to ship a 40-foot container from China to the U.S. Pacific West Coast is currently down 68 percent at $4,797 from $14,977 in January, according to the shipping index.
A container shipped from Asia to Europe now costs $9,142, over 40 percent less than at the start of the year, but the rate for both key routes still remains above pre-pandemic levels.
In 2019, the average cost to send a container across the Pacific to the U.S. West Coast was $1,500.
This is a major reversal from the last year’s pricing trends, when shipments from China to the U.S and Europe both hit a combined peak of more than $20,000 last September.
The world’s ten largest cargo carriers had enjoyed a bump in profits over the past two years.
The latest quarterly earnings at industry bellwether A.P. Moeller-Maersk A/S were $8.59 billion, according to the WSJ, far ahead of what it normally took in during an entire year.
Factoring in Post-Pandemic Boom
Supply chain disruptions for importers in 2021 became a crisis, as retailers and companies faced a shortage of container space due to supply-chain disruptions, port backlogs, and a surge of cargo from a pandemic-induced boom in consumer demand.
Freight rates jumped by roughly ten times last year because of the disruptions, forcing large retailers such as Walmart and Target to charter their own vessels to avoid the massive bottlenecks.
After dealing with massive logjams during the 2021 holiday season, many retailers attempted to avoid that situation again by importing goods earlier than usual.
This year however, there were fewer delays, while the demand for consumer goods failed to materialize due to higher market prices deterring many shoppers from buying, leaving the same big retailers left with an excess of overstocked items and serious financial losses as they attempt to dispose of their inventory.
Manufacturers also moved goods earlier than usual in anticipation of a supply crunch, with many stores reporting receiving a surge in items far too early.
Many shipping companies are now warning of weakening market conditions in the second half of 2022, said the WSJ.
Maersk dropped its previous outlook for global container volume growth in 2022 from 1 percent to minus 1 percent, as it expects shipping routes to gradually return to normal in the fourth quarter, due to easing congestion and an increase in capacity.
“The global decline in consumer spending, which was already perceptible this summer, will lead to more normal international trade conditions in the second half as well as to a downturn in shipping demand,” said Rodolphe Saade, CEO and chairman of CMA CGM, one of the world’s largest shipping companies, in a statement.
CMA told Reuters that container volumes shipped by the company fell 1.3 percent year on year in the second quarter due to persisting congestion at ports, although volume rose 6 percent from the first quarter.
Analysts and shipping companies predict that shipping rates will continue to drop for the rest year into 2023.
Shipping experts told the WSJ that new ships will be deployed over the next two years, with an estimated net fleet growth of over 9 percent from 2023 to 2024.
Meanwhile, container volume growth is expected to be slightly negative in 2023, with growth of around 2 percent the following year, according to Braemar, a shipping investment advisory firm, to the WSJ.
Furthermore, shipping analysts told the WSJ that they do not expect freight rates to return to pre-pandemic levels, in part because of higher fuel costs.
Reuters has contributed to this report.