Globalization Remains on Solid Footing

Merchandise trade moved over longer distances in 2021 than at almost any time in the past 12 years, according to an annual Global Connectedness Index commissioned by a Germany-based forwarder and New York University’s Stern School of Business.

The index showed that international trade in goods was 10% above pre-pandemic levels as of mid-2022, and average trade distances increased during the COVID-19 pandemic. That’s partly due to China’s manufacturing resilience, according to the report.

The index, which measures the health of global trade, has continued to grow over the past decade despite multiple challenges such as the pandemic, the global financial crisis of 2007-09, and the war in Ukraine.

The study raises questions about increased regionalization following pandemic-related supply chain disruptions. “It remains an open question whether trade patterns will become significantly more regionalized in the future,” said Steven Altman, a senior research scholar at NYU’s Stern School and co-author of the report.

Altman said many companies continue to consider nearshoring; however, more than half of all trade already takes place within the region, thus raising the question of how much more trade will migrate to shorter regional distances.

Over the past year, the significant decline in shipping costs has lessened costs associated with long-range trade flows and created forward momentum for globalization. The Netherlands was named the most globally interconnected economy in 2021, followed by Singapore and Belgium. The U.S. ranked 28th, though it was the top performer among economies in the Americas.

Source: American Shipper

Easing Box Volumes Changes Global Container Flows

The respite in box volumes has led to falling congestion and changes in global container flows according to the Container Availability Index.

The Container xChange index, which measures the ratio of weekly import to export flows at ports worldwide, shows that the share of imports from the total volumes handled at the ports of Los Angeles and Long Beach, the two largest gateways to the U.S., has fallen -10% compared to last year.

Bloomberg reported that the number of containerships in U.S. coastal waters has fallen to less than half of the count a year ago.

At China’s second-largest container port, Ningbo, the share of imported containers has remained the majority since late last year as demand for exports fell. This follows two years where exports outstripped empty returns and imports. More than 5m empty standard containers were stacked at ports across China in early February, double the number before the COVID-19 pandemic, according to data from Dalian Maritime University.

“Global shippers must now navigate in a tricky environment, as carriers still rely largely on blank sailings when they should close services outright,” Peter Sand, chief analyst at freight rate platform Xeneta. “We see 2023 as a year of excessive capacity management by the carriers,” Sand said, listing the likely order of defensive measures the lines.


Can Shippers Find Relief in Airfreight Rates?

The market expects a rebound in the second half of the year, with air freight rates registering below the peak of the coronavirus and the Baltic Air Freight Index falling -1.5% last week. Yet, analyst Ti’s Air Freight Rate Tracker report presents a different picture, indicating the possibility of a continued downturn in the market which could impact contracts.

Noting that the shippers were once again diverting freight to ocean transport from air, the Ti report states, “In light of this uncertainty, freight forwarders will be hesitant to sign long-term contracts, and even withdraw from longer fixed-rate agreements with cargo airlines. With the massive pressure on cost savings following record high logistics spend over last year, shippers should finally see some relief in the short-term and benefit from lower rates, compared with the year before.”

Shippers may get some relief in the long run. There are speculations that the air cargo market could rebound once inventories are replenished in the second half of the year. “Looking ahead, inventory levels will probably need restocking at the end of Q2 and Q3, providing a much-needed boost to the air freight market,” noted Ti.

However, Niall van de Wouw, head of airfreight at Xeneta, said other factors were also at play, arguing, “I think there will be a longer, nastier period than people think. The U.S. is struggling to slow down its economy, so interest rates are going up and up. Lots of people are interested in de-stocking, thinking volumes will go up.” He said the outlook was more one of hopefulness than of confidence.

“There are a lot of signals; interest rates hikes and inflation. If there is de-stocking in Q3, plus a slowdown in the economy, that may have a net-zero effect on air freight,” he said while questioning whether there might be economic “ripples” from the downfall of Silicon Valley Bank. “People are hopeful for H2, but we’ll see.”

Source: The Loadstar

Optimism for a European Restocking Surge

Falling energy prices signal a reduced risk of recession this year. Analysts and forwarders are optimistic that this could lead to a push to replenish inventory in the second half of the year.

“Once the retailers start to empty their warehouses, which is likely to happen at the end of the second quarter and beginning of the third quarter, volume should increase and stop the fall in rates,” Viki Keckarovska, freight team leader at Ti said during a webinar.

A senior executive at a global freight forwarder said the ocean freight market is normalizing despite weak trade flows on many lanes. Even with microeconomic headwinds, the market is heading towards stabilization with the expectation that overall demand will improve in the second half of the year.

S&P Global’s PMI survey data for February showed that European pre-production inventories fell for the first time since September 2021 as companies stepped up efforts to unwind safety stock buffers.

Most of the forwarder outlooks for the year are speculative, indicating that significant uncertainty overshadows Europe's demand for containership imports. Despite easing consumer price inflation, it remained high at 8.5% in January. Analysts say rising interest rates, tighter credit standards, and housing market corrections would also hinder near-term growth.

Yet, David Rea, chief economist for Europe, the Middle East, and Africa for real estate company JLL, said the economic hardship was likely to be short-lived, supporting a possible second-half return of demand.

A spokesperson for a Germany-based logistics provider highlighted the lingering uncertainty over demand and the unwinding of safety stocks even as supply chain reliability improves. “Warehouses remain well-stocked after the COVID-19 pandemic,” the spokesperson said. “Shipment numbers are currently declining somewhat, and the cost of transport by air and sea has dropped to 2019 levels. Further prognoses are difficult to make at the moment.”

Source: Journal of Commerce

Less Capacity Correction on Asia-Europe than on Trans-Pacific

According to Sea-Intelligence’s recent report, Asia-Europe capacity correction was not as strong as on the Trans-Pacific. This is because schedule capacity up to four weeks out has lined up closely to actual deployment. Conversely, on the Trans-Pacific, weekly scheduled capacity over two weeks out has been considerably higher than actual deployment. Meanwhile, carriers have been adding capacity on the Asia-Mediterranean corridor, having scheduled less.

In recent weeks, schedules three to four weeks out were somewhat reflective of the actual deployment on Asia-Europe. “If anything, the lines ended up adding more capacity. Although schedules 5 or more weeks away had roughly 6-23% “extra” capacity, this was nowhere close to the capacity correction that was seen on the Trans-Pacific,” says Alan Murphy, CEO, Sea-Intelligence.

For Week 7, the capacity correction was on the higher end, whereas for Week 9, it was on the lower end, meaning there was a higher capacity correction in Week 7. According to Murphy, carriers on the Asia-Europe route corrected capacity “too aggressively” for week 7, but ended up adding some back in the weeks leading up to the week of deployment.

On Asia-Mediterranean, for the three week period of Weeks 7-9, there was a trend of positive capacity correction where capacity was added back instead of taken out.

Source: Sea-Intelligence

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