Warnings of Worsening Container Demand, Inflation and Recession in Europe and U.S.

In an assessment of the global economy, one of the world’s biggest shipping companies said container demand will fall as much as 4% this year. According to A.P. Moller-Maersk A/S, price pressures will linger as elevated energy prices and labor shortages prop up costs across supply chains.

“It’s really hard to be very optimistic with a war on our doorstep and a bigger energy crisis this winter so that is impacting consumer confidence and therefore also demand. It’s quite likely that we either are or will soon be in a recession, certainly in Europe but potentially also in the U.S.,” Maersk CEO Soren Skou said in an interview on Bloomberg Television.

Maersk’s worsening outlook aligns with a global economy that is slowing down amid climbing inflation. Even though supply chain bottlenecks are easing, there are still ongoing disruptions from the war in Ukraine and China’s zero-COVID lockdown policies. “There are plenty of dark clouds on the horizon,” the company said in its third-quarter earnings report. “This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand.”

Maersk, which controls about one-sixth of the world’s container trade, said earlier this week that freight rates have come down faster than expected and warehouses in the U.S. and Europe are filling up as consumer demand for goods declines.

The company has said that the global container market is expected to be “broadly flat to negative,” in 2023 with risks “skewed to the downside” due to the macroeconomic outlook.

Source: American Journal of Transportation

Falling Demand Points to Unlikely Air Freight Peak Season

According to CLIVE Data Services, air cargo volumes have declined -8% year-on-year, for an eighth consecutive month in October. The market outlook “remains uncertain” with “no indication there will be a peak” during the traditional Christmas peak weeks, said CLIVE.

The drop in demand, measured in chargeable weight, stayed -3% below the pre-pandemic level in 2019. Global air cargo capacity continued to recover in October but at a slower pace and remained -7% below the pre-pandemic level. The dynamic load factor was 7 percentage points and 1 percentage point down in comparison to 2021 and 2019 respectively.

Global airfreight spot rates lowered for a second consecutive month in October. “We are six weeks away from Christmas and there is no indication there will be a peak. Air freight is certainly not currently suffering the decline of ocean, where Xeneta has recorded rate drops of 60%-70% in the last nine months. Ocean freight is responding to the market conditions much faster than air is and normalizing quickly from a rates point of view. The outlook for air cargo remains uncertain. We don’t see a pressure on capacity, and we don’t see an increase in rates,” said Niall van de Wouw, chief airfreight officer at Xeneta.

Economic pressures and the easing of ocean freight congestion mean airfreight growth next year is unlikely, said van de Wouw. He noted that in contrast, rising belly capacity and freighters coming to the market means ample capacity. Van de Wouw said only a limitation in ground supply could lower rates.

Airfreight rates on top volume corridors from Asia to Europe and Asia to the U.S. continued to fall in October,while general rates fell more substantially on inbound U.S. corridor routes than inbound Europe. This is attributed to added costs for EU routes, due to the closure of Russian airspace and lower spending by U.S. consumers.

Source: Air Cargo News

Two-thirds of Inflationary Pressures Tied to Fuel, Handling and Haulage

Data from Sea-Intelligence established there was a significant increase in underlying costs for operating liner services compared to the past two years. The analyst said the size of increase was key in “assessing what the baseline rate level might settle at once we get through the present rate renormalization”.

Sea-Intelligence noted few carriers provide detailed costs data so available data from Hapag-Lloyd was used as a representative of the market. The data showed three major cost categories - transport expenses, personnel expenses, and depreciation, amortization, & impairments. Transport expenses are subdivided into bunker, handling & haulage, equipment & repositioning, vessels & voyages (excl. bunker), and expenses for pending voyages (being a very small element, was not analyzed here).

The unit cost was calculated across transported volumes in that quarter. The data reveals bunkers costs have the largest cost increase compared to 2019, Alan Murphy, CEO at Sea-Intelligence highlighted. He added the cost increase in handling and haulage accounted for 37% of the unit cost increase, followed by bunker fuel which accounted for 30% of the cost increase.

"This means that two-thirds of the inflationary pressure is related to fuel, handling and haulage. This is also a key pointer as to where the carriers are likely to focus in the months ahead, as the ongoing market downturn will force carriers to focus on cost reductions," Murphy said.

Source: Sea-Intelligence

Container Volumes at Chinese Ports Up 4% Through Third Quarter 2022

Chinese container ports have achieved a 4% container volume growth during the first nine months of the year, compared with the same period in 2021.

China's box ports have handled 219.3 million TEUs from January to September 2022. The Ports of Shanghai, Ningbo & Zhoushan and Shenzhen remain the busiest container hubs of China with 35 million TEUs, 26 million TEUs and 22 million TEUs, respectively.

Smaller box ports in Beibu Gulf, Dalian and Rizao are the only ones that have achieved a double-digit percentage growth with 19%, 12.6% and 11%, respectively. Yinkou port is the only port on the list that has reported a container decline, seeing its box volumes decrease by-16.9%.

Cargo volumes have remained relatively steady in terms of tons during the first nine months of the year, marking a marginal year-on-year growth of 0.1%.


Source: Container News

U.S. Reshoring Trend Could Reduce Asia-originating Shipments up to 40% by 2030

U.S. companies have indicated that reshoring is accelerating. According to a report, Deloitte said some 62% of manufacturers it surveyed have started reshoring or nearshoring their production capacities. The survey included 305 executives at transport and manufacturing firms, mostly in the U.S., with annual revenue of $500 million to more than $50 billion (see Figure 1).

Respondents to the survey anticipate a significant share of Asia-originating freight to move onshore or nearshoreto alleviate supply chain challenges and improve competitive positioning (see Figure 2). According to figures cited in Deloitte’s ‘Future of Freight’ report, American firms are expected to reshore almost 350,000 jobs in 2022, up 25% from 260,000 in 2021. Transportation executives anticipate 20% of Asia-originating freight will move to closer-proximity markets by 2025, doubling to 40% by 2030, the report said.

Factors including global supply-chain snarls, rising e-commerce, geopolitical pressures, export restrictions, and a surge in robotics and automation are “combining to create conditions for this movement to finally have legs,” Deloitte said about nearshoring shift.

Goldman Sachs Group Inc. economists said more evidence is needed before declaring reshoring a long-term trend. They point to an increase in U.S. manufacturing facilities that are in the planning stages this year. “The increase is directionally consistent with a reshoring of production but the magnitude falls short of suggesting any meaningful turn in the tide,” they indicated in a recent report.

Source: American Journal of Transportation, Deloitte.com

Work Stoppage at Port of Oakland Supports U.S. West Coast Cargo Shift

Cargo-handling operations at the Port of Oakland in California were interrupted by longshoremen, who walked off the job on November 2. Three of Oakland’s four container terminals were forced to halt operations for Wednesday’s first shift a port spokesperson said.

Ad-hoc work stoppages and slowdowns which have hit all West Coast ports since the previous contract which expired on July 1, are contributing to declining cargovolumes. The Pacific Maritime Association said in statement late Wednesday that the move to shut down terminals to gain leverage in local negotiations was "counterproductive."

The West Coast’s market share of U.S. imports from Asia fell to 57.5% through the first three quarters of 2022, down from 61.2% in the same period last year. The share for East Coast ports increased to 35.1% from 32.8%, while the Gulf Coast’s share reached 7.1% from 5.7%, according to PIERS (see Figure 1).

West Coast ports depend on intermodal rail for shipping about two-thirds of their imports to the eastern half of the country. Ongoing rail uncertainties over contract negotiations with labor unions are also influencing shippers’ decisions to avoid West Coast ports. Additionally, congested rail ramps in Chicago, Memphis, and Dallas and rail containers that dwell too long at West Coast ports have also put the ports at a disadvantage, an industry consultant pointed out.

Source: Journal of Commerce

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