China – Italy container freight rates plummet below 5,000 dollars

The rates for sending 40 containers drop for the 32nd consecutive week to an average value of $ 3,689, 64% lower than the amount found a year ago Shipping Italy reported

New sharp decline in freight rates for container transport by sea, the 32nd in a row looking at the composite index developed by Drewry which takes into account the eight most important routes globally.

In fact, the latest report from the analysis company shows an 8% decrease in the costs of 40 container  shipments, for an average value of 3,689 dollars, 64% lower than the amount found a year ago (or 10,377 dollars). as well as 1% at the average value of the last 5 years ($ 3,723).

A sign, the latter, that Drewry reads as a trend towards a return to normal, although the figure is still 160% higher than that of September 2019.

Among the routes analyzed, the new decline found on the Shanghai-Genoa (-6%) stands out, where fares now slide below 5 thousand dollars, precisely to 4,912. However, the freight rates for container shipments from the Chinese port to Rotterdam are losing more ground (-13%), thus returning to be cheaper than those to the Mediterranean ($ 4,724).

The decline, even in this latest round of surveys, appears to be generalized, with the exception of the transatlantic routes (from Rotterdam to New York but also vice versa, unlike what was observed a week ago). In particular, the cost of sending a container from the Dutch port to the US port gains 3% and reaches $ 7,252, while on the reverse route the rates rise by 4% to $ 1,305.

For the rest, more or less substantial drops can be found in the rates for shipments on the Shanghai – Los Angeles routes (-9%, $ 2,295), Shanghai – New York (-5%, $ 6,887), Los Angeles – Shanghai (- 4%, $ 1,226) and finally Rotterdam – Shanghai (-4%, $ 967).

On the other hand , maritime research consultancy Drewry emphasizes as container shipping’s historic pandemic-fueled bull run comes to an end, ocean carriers are entering a period of “managed decline” where capacity management will be key to maintaining super-cycle gains in the next year,

Carriers had it a little too good during the pandemic as an upsurge in demand combined with chronic supply chain congestion pretty much guaranteed profit windfalls.

According to Drewry, ocean carriers have seen earnings before interest and taxes (EBIT) of over $400 billion since the second quarter of 2020—just a remarkable number compared to past performance.

“Carriers didn’t really have to do too much to fall into the profit bonanza of the past two years,” says Drewry.

But now that the market is “in a tailspin” as high-inflation saps consumers’ spending power and spot rates have fallen considerably from September 2021’s peaks, carriers will need to work much harder to keep profits going forward.

In the latest Container Forecaster, Drewry poses the question: do carriers have the tools to mitigate the upcoming supply and demand shocks?

What carriers do do next will go a long way in answering that as the sector is entering a period of “managed decline.”

“Failure here will mean that the industry will be doomed to return to the low-margin pre-pandemic trend. A golden opportunity to reset expectations will be lost, possibly forever,” says Drewry.

While carriers have no control over demand for container shipping services, the one thing they can control is the supply of ships, and it seems this critical piece is being “attacked on multiple fronts.”

Easing congestion means “lost” capacity is returning to the market, expedited by an ailing demand, according to Drewry. Also, as a result of over-ordering during the boom, a wave of new containerships hitting the water in 2023 will add an additional supply of 2.6 million TEUs.

Read: 1 in 5 Containerships Globally Are Stuck Waiting Outside Congested Ports

Drewry says it’s the speed with which the market has turned that leads it to believe that “carriers will fight back with more proactive capacity adjustments than previously envisioned.”

“In our analysis we argue that following consolidation and alliance restructuring carriers are better placed now to tackle the “danger” years than ever before, and that they will pull the right capacity levers to ensure a soft landing for the market,” says Drewry.

“The fact that carriers have not halted the precipitous decline in the spot market (that has run for 31 weeks at the time of writing), might suggest otherwise, but it must be remembered that rates are still very profitable, even at their recently diminished values.

“Carriers will have accepted that prices and profits were unstainable and a correction was inevitable at some point. In our view, the group-think has been to milk those profits for as long as possible, but start cutting back when rates sink close to a level that would be acceptable in the long run.

Recent news of more East-West service suspensions, including a 2M Transpacific loop, indicates that time is now,” Drewry says.

Carriers are unlikely to sit by as spot rates continue to tumble, with Drewry forecasting near-record levels of demolitions in 2023, among other “levers” to control the supply side.

“To maintain profitable business they will look to offload as many older, more polluting ships from the market as quickly as they can…

This capacity reducing lever will be pulled along with others, namely pushing back deliveries of newbuilds and greater idling, effectively calling on shipbuilders and independent owners to share some of the supply burden,” Drewry says.

Still, carriers face an uphill battle in 2023. If successful, they’ll have a chance of keeping their profits from returning to pre-pandemic levels.

“Assuming carriers do exactly as we expect, those combined actions will still be insufficient to fully bridge the supply-demand gap next year, with an estimated net increase in effective capacity of 11.3%, way above the projected demand growth of 1.9%.

Adding in missed sailings will, however, get them closer and should be enough to keep freight rates and profits above 2019 levels.,” according to Drewry.

“If they succeed next year they will need to rinse and repeat for 2024.”