By Arthur Chen      Photo : Ussama Azam

Since the second quarter, Walmart in the United States has canceled orders of billions of dollars, and Target store has also canceled orders of $1.5 billion. Almost the entire retail industry is busy destocking and slashing prices. Destocking has also had a serious effect, resulting in a sharp drop in ocean rate. The news of "order shortage" in Chinese manufacturing factories has been in place since May, and the international environment is mostly the same. The economic recession after high global inflation has had a huge impact on importers and manufacturers, and the decline in orders is also reflected to Southeast Asia, South Asia and other countries. In the first half of 2022, Vietnamese economy has been recovering strongly all the way, and there is also a shortage of labor and difficulty in recruiting workers so as to not enough time for production. But in the second half of the year, the situation went down like a slide, and many companies had begun to less purchase orders, and began to take vacations, sabbaticals or layoffs. Indian textile industry is also feeling the gusts of cold wind. Affected by inflation and economic recession in European and American countries, India's clothing and home textile orders from the United States and Europe have dropped by 15% to 20%. In addition, the delivery time of existing orders has also been delayed, because Europe and the United States zero Bangladesh clothing orders began to decline since July, and new orders fell by 20% compared with the same period last year. Retailers in the European and U.S. markets are either delaying finished product shipments or delaying orders.

According to the latest information released by the Shanghai Stock Exchange on August 26, the SCFI index continued to drop by 275.57 points to 3154.26 points last week, falling to a new low since early May last year. As high as 11%, the intra-Asian trades also fell by as much as 21%. Among the three major routes, the freight rate per FEU on the Asia/US East coast dropped by US$191 to US$8,801, a drop of 2.12%. Although it hit a new low since mid-June last year, the decline was lower than that of other routes. The freight rate per FEU on Asia/US west trade fell by US$648 to US$5,134 per week, to a new low since mid-July last year. The decline expanded from 6% in the previous week to 11.2% , showing a double-digit weekly decline for the first time. The European trade is also difficult to stop falling, and the freight rate per TEU fell by US$347 to US$4,441, a drop of 7.25%, hitting a new low since late April last year. Judging from the current freight rates, the container shipping market has determined that the peak season in the third quarter will not be prosperous. Due to inflation in the European and American markets, sluggish demand and overstocked inventory, as the supply of goods decreases, the pressure of shipping companies to fill the space has led to the phenomenon of bargaining of rates. The decline in freight rates has become a trend. Strikes and congestion at major ports in Europe and the United States will determine the declined range in freight rates. .

Conversely, the shipping market has an opportunity to get rid of congestion and delays as commodity demand freezes. This is the chaotic situation that used to take up most of the shipping companies' capacity and led to skyrocketing freight rates. According to the Sea-Intelligence report, container ship delays have been improving since the worst of the situation in January 2022, before normalizing in about a year by early 2023. According to the data, the average delay time of ships arriving late in July was 6.23 days, which was 21% shorter than the average delay time of 7.95 days in January. The reduction in delays has resulted in improved schedule reliability for container ships. In July, the schedule reliability of container ships improved to 40.5% from 30.4% in January. If the pace from January this year continues to improve, it could normalize by April next year. The results of these forecasts for the normalization of the ocean freight market can infer that freight rates will also return to the normal as same as before covid outbreak in 2019. It is estimated that the new contract freight from Asia to the West Coast of the United States will fall at the level of USD 3,000/ FEU next year. This shows that the once-in-a-century "carnival" party in the container market has officially entered history before the new contract in 2023 takes effect in May.

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