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Peak season should be here but the momentum that built up in container shipping rates in August evaporated in September. Analysts at Linerlytica report that sentiment “continues to deteriorate” and that freight rates are falling despite shipping lines blanking increasing numbers of sailing. Freight rates are back to 2018 levels on many routes with the bonanza experienced during the pandemic boom an increasingly distant memory. Part of the reason is weakness in demand in the two main consumer regions of the US and EU. That weaker consumer demand has been an intended consequence of higher interest rates set by central banks to discourage borrowing. As households spend more of their income on mortgage repayments, there is less disposable income to spend on imported consumer durables. The S&P Global US Manufacturing PMI increased to 48.9 in September of 2023 from 47.9 in August, beating forecasts of 48.0. Inventories of finished good fell faster than at any time since November 2021 which may have prompted the PMI reaction. Business confidence rose to 47.6 points compared to 46.4 points in July. As inflation falls, real wages are finally growing again in the US, good news for the current administration as an election year beckons. The US economy is doing rather better than Europe’s but this has not benefited containerised trade figures due to the realignment of US supply chains. Investment bank Schroders reports that Mexico has overtaken China to become the number one exporter of goods to the US: “As of July, Mexico had a roughly 15% share of exports to the US, whereas China’s share had fallen to 14.6% from a peak of almost 22% in March 2018.” Schroders says that China can still benefit from any future upturn in the goods cycle, but its position as the number one exporter to the US may not recover any time soon especially as changes to US consumption patterns have made the country less import-intensive. Meanwhile, with no solutions in sight to the water shortage in Panama, some lines are offering to unload cargo on the Mexican Pacific coast and move it overland into Texas and beyond via the rail network. That might boost Mexico’s trade figures further. There are however reports of a boom in railroad container hijackings and thefts in New Mexico, Texas, California and Illinois. Security consultants Verisk report 582 thefts in Q2 with nearly $45m of losses. The LA Times reports “an average of 90 containers a day have been burglarized” since December 2020. US west and east coast ports both reported more than a 20% decline in January to August 2023 imports from Asia though imports to US Gulf ports from Asia fell by only 3.7% according to PIERS, and total US container import volume for August was slightly up by 0.4% on July at 2.2m teu. To date, this year’s US containerised imports totals are closely tracking those of 2019 before the pandemic struck. Thus the Freightos Baltic average freight rate for a 40 foot container shipped from China to the US west coast fell by 12% in the 28 days to September 22, ending up at $1,778 giving up about half of its gains achieved in the previous 28 days. On the China to US east coast route, rates fell 14% to $2,650 over the four weeks to September 22. Meanwhile, European Purchasing Managers Indices are at their lowest levels since 2013, discounting the pandemic disruption. The August reading was just 47.0 points, down from 48.6 in July and well below expectations for a small increase to 48.8. The expectation is now that the EU will experience negative growth in Q3 having grown by 0.3% in Q2. Of greater concern perhaps was an even sharper slowdown in German manufacturing and services. The European Central Bank is expected to keep interest rates on hold at 3.75% as inflation is expected to fall with lower demand, despite higher energy costs due to geopolitical shenanigans. The weak economic data coincided with a slump in containerised freight rates from Asia to Europe. They fell 34% in the week and 43% in the four weeks to September 22 basis Freightos data, ending up at $996, the lowest reading on record. Rates form Asia to the Mediterranean were down 4% on the week and 25% over four weeks to $1,124. There is probably some effect on these rates of forthcoming National Day Golden Week in China which runs from October 1 to 7. It may have led to a reduction in bookings, though in previous years there has more often been a surge of bookings to move inventory out of China before the holiday. Liners are reported to be shifting capacity out of the transatlantic trades on which demand is also said to be slumping. Rates from North Europe to the east coast of North America were stable week-on-week for September 22 at $1,124 but they were down 14% over four weeks and by nearly 80% from over $5,000 at the start of 2023. On the backhaul eastbound route, rates have been stable in September at around $530 per feu. The evidence is increasing that liner shipping is facing not just a come-down from its pandemic high but structural change to global supply chains and demand. The outlook, with so many vessels to deliver into routes which may have peaked, is not pretty.

Containers face severely deteriorating conditions

Liners will face structural changes.

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