12 December 2022 Demand collapse intensifies The new global demand data for cargo loaded in October clearly shows that the collapse seen in September was not a short-term fluke but was indeed a sustained large-scale drop in freight volumes. As a matter of practicality, the October data is the newest data available and is measured at time of loading, which also implies this is the impact felt at the destination end with a time lag of roughly a month for European-bound cargo. At a headline level, the number of containers shipped globally declined -9.3% in October compared to last year. And what is perhaps even more telling is that this is also -4.3% lower than October 2019 before the pandemic. But even these poor numbers fail to correctly capture how badly the market is performing. The standard way of measuring demand is simply to count the number of containers being shipped. However, it is important to also take the distance into account. It requires more vessel capacity to move cargo from China to Germany than it does to move cargo from Sweden to Germany. If market demand is instead measured in TEU*Miles thereby including the distance, market demand has declined -12.8% in October compared to last year and is also down -7.7% compared to October 2019 before the pandemic. CARGO VOLUMES AT PRE-PANDEMIC LEVELS But the poor global performance fails to capture the severity in the two major trades from Asia to Europe and North America. On these trades October saw a 24% year-on-year decline into North America and a 26% decline into Europe. In both cases the cargo volume is now below pre-pandemic levels. This is a decline which is very close to being as severe as the drop seen in the early pandemic phase in 2020 and almost as severe as the drop seen when the world was impacted by the financial crisis more than a decade ago. The underlying reason for the sudden collapse in market volume is that importers have initiated an inventory correction and consequently have drastically reduced production and purchase orders. Until inventory levels are brought down to satisfactory levels, the demand collapse is likely to continue. In practical terms this likely means a market bottom could be reached in Q1 2023. CARRIERS ARE RESPONDING IN KIND Such a severe decline in demand is prompting a response from the carriers, as it is causing freight rates to plummet. In recent months spot rates have declined rapidly but remained substantially above pre-pandemic market levels. This means that the process was one of market normalization. However, this has changed in recent weeks where increasingly individual cases of rate levels were seen below pre-pandemic levels. In mid-December this reached a level where the WCI spot rate index for Asia to North Europe also dipped below pre-pandemic levels. The only trade which has held firm has been the Atlantic trade to North America due to capacity shortages. However, this is likely to change in the short term as the carriers presently are poised to increase capacity by 30% on the North Europe to North America trade and by 44% from the Mediterranean to North America. Furthermore, the drop in demand had eased the pressure on ports and terminals and hence bottlenecks issues continue to improve and are on track to a full resolution during Q1 2023. DSV – Global Transport and Logistics At DSV, we keep supply chains flowing in a world of change. We provide and manage supply chain solutions for thousands of companies every day – from the small family-run business to the large global corporation. Our reach is global, yet our presence is local and close to our customers. More than 75,000 employees in over 90 countries work passionately to deliver great customer experiences and high-quality services. We aspire to lead the way towards a more sustainable future for our industry and are committed to trading on nature’s terms.
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