As global trade shifts from backlogs to empty containers, cargo shipowners cancel sailings. During what is normally their peak season, ocean carriers are cancelling dozens of sailings on the world’s busiest routes, the latest sign of the economic whiplash affecting businesses as inflation weighs on global trade and consumer spending.
The October cancellations are a stark difference to just a few months ago, when limited shipping space drove up freight rates and carriers’ profits to all-time highs. Last October, companies such as Walmart Inc. and Home Depot Inc. were chartering their own ships to avoid port bottlenecks and meet a surge in import demand.
Trans-Pacific shipping rates have fallen by roughly 75per cent from the previous year.
The transportation industry is dealing with lower demand as large retailers cancel orders with vendors and increase inventory-cutting efforts. FedEx Corp. recently announced that it would cancel flights and park cargo planes due to a significant drop in shipping volumes. Nike Inc. announced that it had 65per cent more inventories in North America than a year ago and would resort to markdowns.
The deterioration of global economic conditions, from the Ukraine war to factory closures in China, has taken a heavy toll on trade activity. This year, the International Monetary Fund has reduced its forecast for global GDP growth several times. Consumer prices in the United States, Europe, and other parts of the world are rising at the fastest rates in years. Reduced sailing trips have been one response to melting demand. Carriers too are cancelling more trips along key Asia-Europe routes, according to data providers. The period between late summer and early fall is traditionally the busiest time of year for the major carriers, as retailers and other importers build inventories in preparation for the holiday shopping season.
According to the Freightos Baltic Index, daily freight rates for moving a single container across the Pacific now average USD3,900, down from USD14,500 at the start of the year and more than USD19,000 in 2021.
Mediterranean Shipping Co., the world’s largest container carrier in terms of capacity, recently cancelled several sailings, including a six-ship service from China to Los Angeles and Long Beach.
According to a customer notice on MSC’s website, the rotation, which MSC operated in collaboration with A.P. Moller-Maersk A/S, was suspended “due to significantly reduced demand for shipments into the U.S. West Coast during the past weeks.” According to MSC, the suspension will remove nearly 12,000 containers per week from the trans-Pacific trade, and the action will help strengthen the transit times it offers.
MSC and a Maersk spokesperson both declined to comment beyond the notice. According to a Hapag-Lloyd AG spokesman, the company has not cancelled any sailings due to lower demand. Two other major container operators, Cosco Shipping Holding Co. and CMA CGM, did not respond to requests for comment.
Some carriers are reluctant to share information about cancelled sailings in order to avoid showing competitors what is going on in their network. Voyages may be cancelled due to port congestion, scheduling issues, or a drop in demand.A flotilla of new container ships on order will add capacity over the next two years, putting pressure on freight rates as more ship space becomes available.
As per London-based shipping adviser Braemar PLC, ocean container capacity is expected to rise by 4per cent this year, 8.8per cent in 2023, and 9.7per cent in 2024. “The global economy has thrown a few curveballs this year, and our outlook on future demand is uncertain and tepid,” Braemar container analyst Jonathan Roach said. “Overcapacity will most likely become a problem from the middle of 2023 through 2024, and possibly beyond.”
Overcapacity forces operators to compete on price, putting downward pressure on freight rates. Beginning in 2008, boxship operators experienced significant losses, prompting industry consolidation. More than 70per cent of all containers worldwide are moved by the top six ocean-freight carriers.
Freight rates on key shipping routes remain above pre-pandemic levels, and the largest operators are well-capitalized to weather a short-term economic downturn. Carriers’ costs are rising as well. Bunker fuel prices, which have fallen since reaching new highs this summer, are still higher than they were in late 2019. Port operators are also charging more for ships to dock, passing on to carriers the higher energy prices they are facing.
“The cost of electricity is significant, particularly in Europe, because cranes and other heavy equipment run on electricity,” said Tiemen Meester, chief operating officer for ports and terminals at DP World, a Dubai-based operator of terminals in ports around the world.
