Container volumes and freight rates ex China have been falling lately. But don’t expect the lull to continue! There could be a sharp reversal after the Shanghai lockdown, warns Silke Fischer, head of ocean freight (product management) at German freight forwarder Leschaco.[ds_preview]
The war in Ukraine and inflation are dampening global growth. Do you feel the impact on ocean freight business?
Silke Fischer: We feel that despite congestion and fleet inefficiencies, there is more space than demand available in trades worldwide. Incoming transport orders in ocean forwarding are trending down as well. We think this is a signal of reducing demand, compounded by supply shortages and cost inflation in manufacturing. For sure, the outbreak of war on European ground is a huge human tragedy and a shock to many economies. Ukraine and Russia are not important for global liner trades, however their supplies of oil/gas, steel, heavy equipment and intermediate products for chemical and automotive are essential for Europe’s industry. The resulting shortages and inflation have an enormous impact. This comes on top of a slowdown in China, first due to restrictions around the Olympic games and now due to the lockdown in Shanghai.
How are you coping with the Shanghai lockdown? Will there be a »whiplash« effect due to a cargo backlog once restrictions are lifted?
Fischer: We thought we had learnt to deal with lockdowns in 2 years of pandemic. However, the complete lockdown of Shanghai is a calamity for logistics operators. Unlike before we are not even able to deploy a minimum number of colleagues in our offices to handle daily business like courier or bank matters. The city is sealed off. The ports are still open, however trucks are severely restricted, warehouses and factories are closed. As a result, import cargo is piling up in the ports while urgently needed export cargoes cannot get to the pier. Initially, it was possible to re-route containers via Ningbo, but not anymore due to congestion. For exports from the neighbouring Jiangsu province we now ship via Qingdao further up north.
Overall export volumes came down due to the lockdown, as a result there is now plenty of shipping capacity for Far East westbound. Rates have also dropped. This is just temporary, though. Once the lockdown is lifted, ports will get swamped with cargoes. Shipping capacity will then dry up and especially spot rates surge again.
So, what’s the medium-term outlook for freight rates if the global economy slows while congestion lingers on for some time?
Fischer: Rates won’t come down to pre-pandemic levels even if transport demand subsides because of all the cost drivers for carriers: sky-high charter rates and carbon reduction/IMO 2023 to name but a few. Also, container lines are better at capacity management in order to support freight levels than they were in the past. Short-term we expect a rebound in spot rates ex Far East when Chinese exports ramp up again after the lockdowns. In some trades such as the transpacific we wouldn’t be surprised to see rates rise to the peaks we saw in the spot market last year. As far as long-term contracted rates are concerned, carriers are prepared to fix at levels that are acceptable to shippers, but increasingly at special contract terms similar to slot charter agreements: customers pay for their space even if they can’t present all the cargo.
Interview: Michael Hollmann
