Global News Container shipping market showing clear signs of weakness: analysts

Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, noted that China’s export cargo was shifted to other ports such as Ningbo and Qingdao in the north and Shenzhen in the south during the two-month Shanghai lockdowns to control the spread of COVID-19, offsetting the downturn in Shanghai.

“To the degree this is correct, it implies that the anticipated surge of extra cargo out of Shanghai might not materialize, as the cargo to a large degree has been produced, and shipped, via alternate means,” Murphy noted in his latest Sunday Spotlight newsletter.

“A lack of surge cargo can also add additional credibility to the notion that the market is not as strong as expected, and hence the reason for falling spot rates,” he added.

Murphy also pointed to the persistent and severe delays in overall transportation time for cargo on the trans-Pacific, which should have resulted in an earlier start to the peak season and added upward pressure on rate levels.

"Looking at the rates the past week, that is not the case at all,” he wrote. Dampened demand for ocean shipping Container shipping carriers have benefited from a steep rise in spot and contract rates since April 2020 as demand soared, quickly filling all available capacity and overwhelming terminals in the US and North Europe. Since April 2020, spot rates on Asia-US West Coast have increased more than six times, with long-term contract rates up almost fivefold; both rate levels on Asia-North Europe are following a similar trend.

But analysts believe deteriorating economic conditions in the major markets of North America and Europe, combined with excess levels of inventory held in the US and Europe as business compensated for extended transit times, have dampened demand for container shipping.

Lars Jensen, CEO of Vespucci Maritime and a JOC analyst, noted in a recent LinkedIn post that the declining spot rates appeared to signal a weakening market. “It is still too early to conclude with certainty, but the data from last week and this week begin to shift the odds to favor a weaker market in the coming months,” he wrote.

“Unless the market tightens quickly in the next week or two, we will begin to see shippers pushing back on contracts in terms of renegotiations and/or shifting volumes to the spot market and not delivering the full contracted volumes to the carriers,” Jensen added.

Andrew Lee, transportation analyst at investment bank Jefferies, noted in a market update Monday that the “strong pricing power” of container lines was being eroded as rate increases on the trans-Pacific were constantly delayed, and spot rates declined despite higher oil prices and continued port congestion.

“Key will be the upcoming peak season but our discussions with industry contacts note that new orders have yet to pick up and remain weak,” he noted. “Hence, we maintain a bearish container shipping view as weak demand will lead to port congestion improving, but we are not estimating a collapse in freight rates.”

The likelihood of a collapse in rate levels was also dismissed by Peter Sand, chief analyst at Xeneta, who told JOC.com he expected contract rates on the trade lanes out of Asia to both the US and Europe to follow the spot market on a gradual decline, with spikes in prices along the way.

In a market update of its own, Drewry said last week that even though inflation and recessionary trends were taking hold of European economies, the analyst did not expect a collapse in the spot rates as carriers adjusted their capacity to insulate against downward rate swings.