During what normally is the busiest time of year, ocean cargo lines are canceling sailings due to lack of demand as retailers cancel orders or place no new ones.
For the period from 3 to 17 October, 40 voyages from Asia to the U.S. west coast and 21 to the U.S. east coast have been canceled, according to research firms Xeneta and Sea Intelligence. Typically for the period, no more than four trips are scratched.
In September, shippers had 13 percent more capacity available than a year earlier, the equivalent of 21 idle ships, each able to tote 8,000 shipping containers at a time, the data firms reported.
The shipping industry’s relatively sudden slack is another signal of slowing international trade generally, which we detail in “WTO Slashes 2023 World Trade Outlook By 70 Percent” in this issue and that also is reflected in falling revenues in the package shipping business, as we reported in “Troubles for “Bellwether” FedEx Foreshadow Global Downturn” (20 Sep 2022).
As a result, the average cost to ship a full container across the Pacific has fallen 75 percent from last fall’s prices.
Trans-Pacific freight rates now average $3,900, compared to $14,500 as this year began and more than $19,000 last year, the Freightos Baltic Index said.
We tracked skyrocketing shipping costs in “Shipper Books Tenfold Increase in Net Profits” (17 Aug 2021) and “Maersk Reports Record Profits, Warns of Slowing Economy” (10 May 2022), among other articles.
Many shops already are overstocked with inventory ahead of a December holiday shopping season overshadowed by higher interest rates, persistent inflation, and a glum mood among consumers.
For example, on 6 October Nike revealed it is holding 65 percent more inventory than at the same time last year and will mark down goods to get rid of them.
“The global economy has thrown us a few curve balls and our outlook on future [shipping] demand is uncertain and tepid,” Jonathan Roach, an industry analyst at Braemar, told the WSJ.
“Overcapacity will likely become an issue from the middle of 2023 to 2024 and perhaps beyond,” he warned.
Overcapacity drives cargo companies to cut prices to draw customers. As margins fall, companies are pushed toward the brink of failure.
TREND FORECAST: The ocean shipping industry was beset by overcapacity and price-cutting for a decade following 2007 when the Great Recession began. Many shippers closed or were bought. As a result, six companies now control 70 percent of ocean shipping.
However, demand for trans-ocean shipping remains above pre-COVID levels and operators have stockpiled cash from the windfall profits they reaped during the COVID War, as we noted in the articles cited above.
Therefore, even though shipping rates are settling back to 2019 levels, the industry will not shrink much further, if at all.
Instead, shippers will use their windfall cash to diversify, following Moller-Maersk’s example of establishing a global beginning-to-end logistics network, which we reported in “Maersk Building End-to-End Logistics Service” (12 Oct 2021).