Weakening Shipping Demand Ahead of Chinese New Year

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Softening Market Indicates Uncertain Future

The global supply chain continues its trend of surprise and unpredictability. Following a relatively quiet quarter, shipping demand looks to soften even more as the calendar turns to 2023. Historically, the holiday surge continues into January as buyers and shippers try to get ahead before the Chinese New Year festivities. 

Late January and early February are always a sensitive time for international business in Asia, because all factories and ports close for two weeks. Employees will travel home to visit family. Even when the factories officially reopen after the holiday, it takes time for production to ramp back up. These anticipated delays usually translate to buyers stocking up in early January. The same was expected this year, especially with shipping times peaking at 110 days from Asia to the United States. However, due to a combination of factors, including inflation contracting the global economy, that is not the case. On the positive side, the weakening shipping demand means prices are falling and shipping times are finally coming down.

Freight Rates Have Fallen Sharply

Industry experts expected a market correction at some point. The shipping industry is cyclical, like all industries. It was only natural that the peak pricing from 2021 would return to normal as the world learned to deal with coronavirus. But nobody anticipated it arriving so soon and so acutely.

Spot rates for 40-foot containers for passage between Hong Kong and Los Angeles are significantly lower year over year in December 2021. In some instances, rates are below the average from 2015. This presents a major shock to the system. With the future murky, this is a rare opportunity for buyers to expand margins before rates rise again.

Covid Still Has a Stranglehold on the Middle Kingdom

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Adding to the calculus is the evolving Covid response in China. The Chinese government finally acquiesced after weeks of protest to relax their “zero-Covid” policy. The irony on the ground is public commerce has come to a standstill in major cities, as citizens brace for an all but certain Covid outbreak. Beijing is described as a ghost town and people are scrambling to prepare themselves for the worst.

The Chinese New Year is a time when streets are filled with revelers, but those celebrations might have to be put on hold if the Covid response is still lacking. Alternatively, factories might face staffing issues during the restart if there is a Covid outbreak during the Lunar New Year festivities.

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Potential for a Price War

Inflation has put a damper on the holiday season in the United States, but 2023 could be a good time to be a buyer. Or, at least, a good time to be importing international goods. There are rumors bubbling of an impending price war between major shipping lines.

Freight forwarders and governments rushed to increase capacity of containers, ports, and more during Covid. Capacity is no longer an issue, with the drop in demand. Major shipping lines will do whatever they can to attract customers. This could also be a year of consolidation with larger players looking to swallow up smaller companies. 

“There is a high possibility of an all-out price war,” Christian Roeloffs, co-founder and CEO of Container xChange stated. “With the competitive dynamics in the container shipping and liner industry, I don’t expect especially the big players to hold back, and we do expect prices to come down to almost variable costs.” No need to feel too bad for the shipping lines as a whole, though. They pocketed a reported $122 billion in profits from January to September 2022.

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