9 September 2022 The speed of descent intensifies Over the past month spot rates on some of the main trades have seen only declines, but also an increase in the speed of the decline. But this still does not mean that normal market conditions will prevail just yet – the overall SCFI spot index which covers 13 different export routes out of China is still 215% higher than the pre-pandemic average in 2019. SPOT RATE DEVELOPMENT Let us first look at the spot rate development as measured by the World Container Index (WCI) in the most recent 5 weeks from 11th August to 8th September. The most severe development has been in the Pacific trade from Asia to the US West Coast. In this trade the spot rate has declined 32% over the 5-week period in total, but during this the rate decline was 14% in the last week alone. The trades from Asia to Europe has also declined, though not quite as steeply. Rates have dropped 17% to North Europe and 19% to the Mediterranean. Until now the rates from Asia to US East Coast as well as from North Europe to North America had held firm with none or limited weekly declines until mid-August, but in recent weeks this is beginning to change. 1st of September saw the Asia to US East Coast rates decline 3% and this was followed by a 4% decline on 8th of September. Similarly, the Atlantic rates declined first 1% and then 2% in the past two weeks. Whilst these declines are small compared to the other major trades mentioned, this is likely to intensify going forward. What we are seeing here is a time lagged effect which was caused by the operational congestion on the US East Coast. As this is gradually improving, rates also start to come down. THE REASONS FOR A DECLINE IN SPOT RATES And here we are at one of the two root causes of the decline. As congestion is gradually improving, this releases more capacity into the market as well. In January 2022 almost 14% of the global capacity was unavailable due to congestion. The latest data from July shows 9.3% of global capacity being unavailable and since then bottlenecks have improved even further. In the port complex of Los Angeles/Long Beach the queues of 100+ vessels seen in early 2022 are almost entire gone. The consequence is a sharp increase in capacity deployed on the key trades, creating a downwards pressure on freight rates. DEMAND IS DECLINING In terms of demand, the new data from Container Trade Statistics for July shows an increase in global demand year- on-year of 0.6%. However, this overstates the actual demand impact. Major trades have seen declines in demand, whereas most of the growth took place in short distance trades within Asia. If demand is measured in TEU*Miles and not just TEU, the data shows global demand to have declined -1.7% in July 2022 compared to 2021. But the data also shows TEU*Miles to have declined -1.6% compared to July 2019 before the pandemic. DSV – Global Transport and Logistics 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. 75,000 employees in more than 90 countries work passionately to deliver great customer experiences and high- quality services. Read more at www.dsv.com
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