Global News Softening ocean indicators clash with pending post-lockdown surge

Key indicators measuring the health of container shipping are signaling a possible market slowdown, with global volumes continuing to decline through March, spot rates falling out of Asia, and the idle fleet at its highest level in two years.

Still, those indicators could be overrun by a potential surge in export volumes overwhelming US and North European ports as soon as COVID-19 lockdowns in China’s manufacturing centers are lifted.

“There are pointers to weakening market conditions and dropping spot rates — but at the same time, there is a substantial likelihood of tightening conditions upon Shanghai reopening and the beginning of peak season,” Alan Murphy, CEO and founder of Sea Intelligence Maritime Analysis, said in his latest Sunday Spotlight newsletter.

Global container volume in March of 15.11 million TEU was down 2.9 percent year over year, according to the latest available data from Container Trades Statistics (CTS). Volume from Asia to North Europe was down 5 percent at 859,900 TEU.

However, the trans-Pacific is continuing its growth trend. Although April volumes on the trade lane are not yet available from CTS, Asia imports to the US this year through Apr. 23 were up 7.6 percent from a year ago at 2.24 million TEU, according to data through March and preliminary readings in April from PIERS, a sister product of JOC.com within IHS Markit, now part of S&P Global.

Spot rates on the Asia-US West Coast corridor are likewise holding up, down slightly since Jan. 1 at $8,813 per FEU, while Asia-North Europe spot rates at $6,135 per TEU are down 26 percent since Jan. 1, data from rate benchmarking platform Xeneta show.

As rate levels and overall global volume weaken, the idle fleet has risen to 208 ships with a combined capacity of 848,511 TEU, 3.4 percent of the world’s fleet, according to maritime analyst Alphaliner. While the analyst noted in its newsletter last week that the number was “still low in the broader context,” it marked a new peak since late 2020. Downgrading growth outlook The falling volume and rising idle capacity, combined with disruption from China’s ongoing COVID-19 lockdowns, the war in Ukraine, and soaring energy costs are unsettling carrier and forwarder executives even as they report record profitability.

“There is a war in Europe, inflation, COVID-19 policy in China, a drop in consumer and business confidence around the world, and those are the reasons we think demand growth on ocean this year will be around zero,” Soren Skou, CEO of A.P. Moller-Maersk, told analysts on a first-quarter earnings call last week.

"It is a relatively unique situation with low visibility,” he added. “Consumer confidence in Europe and the US has come down in the last few months, and while it hasn't yet spilled over into the way consumers consume, it is likely we will see less growth in the second half.”

Detlef Trefzger, CEO of Kuehne + Nagel, said during his group’s first-quarter earnings call that the market was too uncertain at the moment to provide an outlook for the remainder of the year.

“We see that inflationary pressures are clearly triggered by the war in Ukraine, mainly driven by the energy prices — the huge increase in energy prices,” he said. “We have seen a continuation of inefficient supply chains, which have led to network disruption and congestion, mainly centered around ports and airports, and capacity availability not only in vessels, but also in trailers and truck drivers in certain markets.” Gloomy indicators from China A further tightening of COVID-19 restrictions in China through April led to notably quicker declines in both factory output and new business at the start of the second quarter, according to data from the Caixin China Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global.

The PMI survey found total new business fell at the second-fastest rate on record in April as efforts to prevent the spread of COVID-19 weighed on client demand. Some companies also noted that clients had canceled orders due to difficulties in producing and shipping items. Logistical challenges also weighed on foreign demand, with new export orders falling at the quickest rate since May 2020.

In his analysis of the April PMI data, Wang Zhe, senior economist at Caixin Insight Group, painted a grim picture of the impact of China’s COVID-19 policy.

“Overall, in April, local COVID-19 outbreaks continued and activity in the manufacturing sector weakened,” he said. “Supply shrank, demand was under pressure, external demand deteriorated, supply chains were disrupted, delivery times were prolonged, backlogs of work grew, workers found it difficult to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average.”