28-09-2022 End of the line for liners? Splash Extra
Just over a year ago on September 10, 2021, the Freightos Baltic Exchange Global Container Index peaked at $11,109. On September 9 this year, it stood at $4,682, a fall of 58%. As of September 23, it had fallen to $4,232, passing on the downward slope its level in January 2021 as rates began to rise exponentially. The descent has been almost as steep as the ascent was last year. As stock markets warn of recession in the US, as interest rates rise from historic lows and consumer confidence falls, US imports remain near all-time highs according to the McCown Container Volume Observer report from September 22. The report shows that the top 10 US container terminals imported 2.17m teu in August, the fifth-highest monthly tally on record. August was up 3% on July but flat year on year. Data from MarineTraffic suggest that the number of containerships queuing to unload in the US has fallen by about a quarter between July and September, to around 113 vessels. West coast US ports have taken the lowest share of US imports since the early 1980s. This is due mostly to liners switching discharge from Los Angeles and Long Beach (volumes down 11%) to Savannah, Houston, and New York (volumes up 12%).
Congestion remains an issue in many parts of the world and less congestion is not by itself enough to have caused such a decline in container freight markets, according to Vivek Srivastava of VesselsValue, who writes in a recent blog post that, “a variety of unexpected threats have surfaced to disrupt trade flows and supply chains in the major arteries and veins of the global economy. This disruption manifests itself most clearly in port congestion. It is a mistake to think this is over and is somehow to blame for dry bulk and container shipping’s wider woes.” Analysts at Shipping Strategy point out that port dwell days for empty containers being shipped out of the US and Europe exceed import days for full containers arriving, so port congestion is as much a factor of moving air-filled boxes as cargo-filled boxes. Furthermore, there is anecdotal evidence that buyers are delaying shipments to delay payments, suggesting that liquidity is becoming an issue and slowing down the movement of goods by sea. For instance, the Federation of Indian Export Organizations notes that among Asian buyers of Indian containerized exports, “the demand for liquidity has gone up as buyers are delaying the payments and asking exporters to withhold further shipments or release small quantities of such shipments.” As of mid-September, freight forwarders in India report weakening demand for exports to China, Hong Kong, and Singapore, with rates to Shanghai/Tianjin falling from around $500 per teu to $350 per teu in the last month and further to $300 to Hong Kong. The Federation of Indian Export Organizations says that “The contraction in global trade is also visible from the sharp decline in the freight rates, which have reduced by about 50% on major trade route… With inflation plaguing all economies, inventories are very high globally in all economies as the purchasing power has dwindled which has affected the offtake and thus the demand is slowing.”
As energy prices continue to rise in Europe, the European Commission is said to be working on ways to help corporations facing a liquidity crunch. On September 23, the People’s Bank of China injected RMB92bn ($13bn) of short-term liquidity into the banking system to avoid what Bloomberg refers to as a “cash crunch at quarter-end”. The root of liquidity problems for Asian economies and emerging markets globally seems to be the rising value of the US dollar. Cutting interest rates weakens the currency, making imports more expensive, which drives inflation if price rises can be passed on, or tightens liquidity for importers if not. The result seems to be a rapid fall in global containerized trade from a peak of 15.5m teu in May to 15.1m teu in July and possibly 14.7m in September. The consequence for freight rates on routes is clear. China–US west coast rates per teu slid 54% from $5,760 or so on August 23 to $3,450 on September 23. On the reverse route, where availability is tighter due to more ships heading direct from Asia to the US east coast, rates have risen 26% from $790 to $960 over the same period. On the head haul China-North Europe route, rates have fallen 27% from around $10,000 on August 23 to $7,300 on September 23. A lack of demand in China means that rates on the backhaul have also fallen from $700 to $500 over the same period. In the Atlantic, westbound rates from North Europe to USEC are down from $8,500 to $6,900 between August and September while the reverse route rates have seen less of a drop, from around $600 to $570, having briefly dipped to $500 in early September.
The Drewry World Container Index fell below $5,000 on September 15, having fallen for 200 days straight. Technical analysts note that the 200-day fall is to a 61.8% Fibonacci retracement level. Maybe that’s why Yang Ming Marine Transport chairman Cheng Cheng-mount told a Taiwan Stock Exchange investment seminar on September 12 that the market correction is “temporary” and that “We can adjust our shipping capacity according to the market“ to offer stability. If we are back in a situation in which the liners must manage supply to support freight rates, then non-operating owners of container ships should be concerned. Time charter rates could do with some stability, as they are going downhill faster than Franz Klammer. Since August 1, the Harper Petersen Harpex Index of 12-month time charter rates shows a 40% fall from 4,400 to 2,580. Similar numbers are available from other brokers. It would appear then that the liner shipping boom was after all a consequence of the disruption to global logistics that the pandemic caused, followed by the unprecedented fiscal loosening practiced in, even by countries with a reputation for fiscal discipline in recent decades, such as the US and UK. All in all, it looks like the container shipping boom is now over.