By Arthur Chen.    Photo：Pixabay

According to the report, the freight rate in the 36th week was subject to the decline in Asian export trade volume. The Shanghai Shipping Exchange announced the SCFI Shanghai export container freight rate index on the 11th, with a weekly decline of 10.3%, and a decline of 12% for the US West coast. The industrial insights predict that the US$3,000 to US west coast will be gone, and it may fall into a battle to defend the US$2,000. The decline of the Mediterranean trades, which was originally a rather small decline, has also expanded by 11.56% since this week. The US$3,000/FEU to the US west coast is an important indicator. Once it falls below the US$3,000, many small and medium-sized ships will withdraw from the European and American trades and change to the intra-Asian markets. At present, the freight rate per TEU in Southeast Asia fell below US$500 to US$463, a decrease of 17%; the price per TEU in the South American trades fell by US$798, and the price was US$7,183, a decrease of 9.9%. Most people agree that the current decline in the container shipping market is irreversible, and major shipping companies still have different views on whether the container shipping market will fall or plunge in the future. A more pessimistic scenario is that in next year 2023, major shipowners will have to face the newly effective Existing Ship Energy Efficiency Index (EEXI) and Carbon Intensity Index (CII). In order to meet emission standards, major shipowners still need to pay relative costs for ship clean energy transformation for ship emission reduction, and major shipping companies will face more challenges next year.

Under the circumstances of weak demand, sharp drop in spot freight rates, and continued congestion in European and American ports, shipping lines will cancel several voyages on major routes such as trans-Pacific and Asia-Europe in the near future in order to maintain spot freight rates in the market. On major routes such as Trans-Pacific, Asia to Northern Europe and the Mediterranean, 94 out of 748 scheduled sailings were cancelled between Weeks 37 and 41, a cancellation rate of 13%. 64% of the blank sailings will occur on trans-Pacific eastbound routes and 23% on Asia to Europe and Mediterranean routes. The three major alliances cancelled a total of 79 sailings, including 31 cancellations by the 2M alliance, 26.5 cancellations by the THE alliance and 21.5 cancellations by the Ocean alliance. The typhoon also affected operations at the ports of Shanghai, Ningbo and Busan from early September, and disrupted sailings in Asia. This has already led to more operational disruptions in Asia, with the shipping industry facing a downward trend that is likely to continue as spot ocean freight rates soften.

Few days ago, Yang Ming Line stated that with inflation suppressing consumption, freight rates are continuing to “normalize” due to reduced cargo volumes. In the past two years, the freight rate on the European and American trades have soared to over ten thousands more, which is not normal, but it will not return to the low level of around US$2,000 before the pandemic. We will look at the economic outlook after October. If it goes in a positive direction, shipping industry is expected get benefit, and the freight rate may has opportunity to stop falling and rebound. The Chinese Lunar New Year will be on January 21st (New Year's Eve) and It is expected that the peak shipping season shall be occurred to December this year. If the container shipping price increases that time, it will be beneficial for the liners’ European trades in December each year for renewing contracts. However, the reality is not conducive to shipping companies, because the global economy has reversed, and the decline in freight rates has expanded. As the spot rate falls, the shipping lines are under pressure to renegotiate those signed contracts. Yang Ming Line will negotiate to different degrees for different customers. or amendments, including short-term discounts. At present, the spot price to the US west coast has been revised down to 3,500-3,900 US dollars, and the US east coast is more than twice that of the US west coast. Compared with before the 2019 pandemic, the profit of the liners are still in good shape.

Under the downward pressure on shipping rate, encountering of the Russian-Ukrainian war and inflation, consumers' purchasing power drastically declined. Coupled with the prolonged port congestion effect, serious delays in shipping schedules, and compressed space supply, it helped to moderate the decline in freight rates. It is estimated that inflation may reach peak in the first half of 2023 next year, driving purchasing power be gradually recovered. However, as new built vessels are launched, port congestion and labor shortages ease, the space supply will increase compared with this year in the market. The three major shipping research institutions Drewry, Alphaliner and Clarksons all estimate that the growth rate of space supply this year and next year is higher than the growth rate of demand. Of course, it is foreseeable that the three major shipping alliances will still apply blank sailing methods to maintain reasonable freight rates. As for how much is a reasonable shipping rate ? Market demand is the most important factor.

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