Accelerating decline! Freight rates may fall to pre-epidemic levels by the end of the year!

A large amount of new capacity was delivered while the market demand was decreasing. The peak season of the November Golden Week was not prosperous and freight rates continued to fall.

Freight rates fall for 17 consecutive weeks

According to data released by the SSE, the latest edition (10.14) of the SCFI index fell 108.95 points, or 5.7%, to 1814 points, down 65% from its high at the beginning of the year.

Four major routes in Europe and the United States straight down, including the U.S. West line, Europe line fell by more than 12% in a single week, down 74% and 67% respectively from the high point.

Last week, the U.S. West line per FEU freight rate fell by $302 to $2097, down 12.5%.

The US East line fell $343 per FEU, losing $6,000 down to to $5,816, down 5.6 per cent.

The Europe line fell US$369 per TEU to US$2,581, down 12.5 per cent.

The Mediterranean line fell US$252 per TEU to US$2,747, down 8.4%.

South America (Santos) up US$95 per TEU to US$5,120, or 1.89 per cent.

The Persian Gulf line was up US$295 per TEU, or 28.40 per cent, to US$1,171 per week.

Industry analysis pointed out that although the SCFI index has been down 17 weeks in a row, but last week's decline did not increase because of the Golden Week, but rather than the average weekly decline of nearly 10% in previous weeks narrowed.

Persian Gulf and South America and other routes, freight rates rebounded, Asian line rates also stabilised, it is estimated that the fourth quarter in Europe and the United States line off-season prices will not fall too much, Asian line peak season is supported.

The demand in Europe and the United States is slowing down rapidly due to factors such as interest rate rise, inflation, war and epidemic affecting consumer confidence, but while the demand for transportation is falling, there is a large amount of capacity released from the market, mainly from the easing of port congestion and the successive launch of new ships.

Freight rates may fall to pre-epidemic levels by the end of the year

Container shipping spot rates could fall to 2019 levels as early as the end of this year as a result of faster-than-expected rate declines and easing port congestion, says a new research report from HSBC.

Last Wednesday, the global bank lowered its demand forecast for 2023 and raised its capacity supply forecast for 2022-2024 to reflect the easing of port congestion that is releasing tied-up capacity into the market.

"As a result, we now expect the Shanghai Container Freight Index (SCFI) to bottom in mid-2023 and shipping industry profitability to bottom in the second half of 2023." Parash Jain, head of shipping, ports and Asia transport research at HSBC, wrote in its global container shipping report. This follows its forecast that ocean freight rates will bottom in 2024.

With freight rates falling so sharply, HSBC reports that there are "significant downside risks" to shipping companies' profit levels over the next two years. The bank expects shipping companies' profits to remain resilient in the third quarter of this year, but to decline from the fourth quarter onwards and continue to do so until 2023.

Shipping companies: I didn't expect to make more this year

Evergreen Marine General Manager Xie Huiquan recently said that the market originally thought that 2021 was already the peak for the shipping industry, but he did not expect to make better profits this year. The overall revenue performance of the market in the first half of this year was very bright, and can be said to be the best performance in the history of the six months.

In the face of falling freight rates and reduced demand, Xie Huiquan believes the container shipping market is returning to its normal footing after three years of madness, but the future outlook is not pessimistic.

However, due to the rising US dollar, high inflation and the war in Russia and Ukraine, the traditional peak season in the third quarter was uneventful and revenue was down on the previous two quarters. Although the third and fourth quarters did not perform as well as originally expected, the full year will still be good, if not better, than last year.

Looking ahead to next year, Xie Huiquan said, the container shipping market still depends on the supply and demand situation, the demand side depends on the evolution of the US dollar, inflation and the war between Russia and Ukraine, but the global economy is still estimated to maintain positive growth, the International Monetary Fund (IMF) forecast GDP growth rate of 2.7% next year.

On the supply side, new ship deliveries are forecast to grow by 8.2%, with 5-7% of slots to be released as a result of port congestion, although 10% of capacity could be absorbed by the new carbon regulations coming into force next year.

The 8.2% increase in new ship deliveries is not a step in the right direction, so the actual increase in supply is not as severe, so we are relatively conservative but not pessimistic about the market in 2023.

Analysts said that the current level of European and American lines are still above cost price, the main shipping companies can still make a profit, but many high-priced chartered shipping companies or small ships may face a loss turning point, especially the U.S. West line.

On the other hand, the three major shipping alliances have sufficient capacity to control capacity, with the top ten global consolidators holding 85% of the market, and can further control capacity supply by pumping vessels and reducing classes.

In order to cope with the great reduction in demand for freight from the Far East to North America and the fall in freight rates, the top two shipping giants, Mediterranean Shipping and Maersk Line, have announced the closure of certain services.

Source: Wai Hang Yun