Bottlenecks and the global supply problem persist to this day. An environment that has been rocking since the recovery began after the coronavirus pandemic, which has caused the delay in the delivery of goods and has hampered maritime traffic: the main route of commerce today. But fears of a global recession have changed the picture.
The congestion of the large commercial ports would tend to normalize naturally after the rapid recovery of activity after the pandemic, since the demand was enormous in a short time. Now, falling shipment prospects due to the slowing economy have accelerated the process of price reduction. Since the central banks undertook to reduce inflation in the world, based on increases in interest rates that make the growth of the economy languish, the prices of cargo containers have suffered due to the fall in orders.
Thus, if congestion and bottlenecks led to record prices with the recovery after the Covid break, the year 2022 has sunk these levels by leaps and bounds. The index that collects the price for moving a container of a size of 40 feet, the Bloomberg Global Freightos Index , falls from August 2021 highs by 66.5% . A fall that leads this indicator to fall below 3,700 points for the first time since January of last year.
However, freight prices are still far from being considered ‘normal’. If the average price of moving one of these containers from 2017 to 2020 is taken, freight costs should fall another 60% to return to a normalized price, discounting the pandemic and its subsequent effects.
However, the Freightos Global index takes into account a weighted average of the 12 largest trade routes in the world, which in turn are represented by their largest commercial ports. In other words, depending on which port and region is taken by origin and which by destination, the costs have changed with greater intensity . And it is that the shipping companies have been adjusting and even canceling departures with the aim of avoiding an excessive fluctuation in prices or half-empty ships leaving while trying to correct the traffic jams in the ports.
As an example, the prices for chartering a container between China and the west coast of the United States is the one that has fallen the most since its maximum: almost 90%. Although the route between the ports on both sides of this route was also one of those that registered the greatest increase in prices, which rose ten times from mid-June 2020 to September 2021.
If the decongestion of ports such as Shanghai -one of the most important in the world- continues its course, or if world demand for goods depresses even more due to the possibility of a global recession, prices on the route from China to the United States The United States is an additional 25% drop away from reaching the average of the years prior to the outbreak of the coronavirus.
On the other hand, the connection between China and Europe has a longer way to go to normalize since they still triple the usual pre-Covid values. In other words, the prices of containers arriving in Europe from Chinese ports have fallen by more than 50% in just twelve months , but they have to fall another 70% from current levels to return to normal.
There are other routes in which it is also possible to evaluate how the prices of moving a container in one of these cargo ships have fallen, even though they are routes with less transported tonnage or that connect with smaller ports. For example, the prices of freight leaving Europe to the east coast of the United States have barely fallen by 20%, so they still have a long way to go before normalizing (they almost quadruple the average price of the last five years ) . . On the other hand, those that follow the opposite route are still at high levels, almost on a par with last year’s maximum after the rise in prices in recent weeks.
The above indices are based on the transport of goods through containers that can carry manufactured products, for example. But if you want to see how the costs of bulk transport of raw materials evolve, the Baltic Index is more accurate. This indicator, which exclusively registers the large dry bulk cargo ships , the bulk carriers, registers a drop of 67% since September of last year, when it hit maximums not seen since 2008.
However, the prices of this type of ship have already normalized if we take into account that the index moves in the area of 1,800 points. A level in line with the average of the index that collects data since 1985.
Low ‘reliability’ in shipments
Investors have been anticipating the removal of supply chain blockades and high freight rates since the summer of 2021. But the disruption and the price of freight have remained “extremely high” , as Berenberg points out, due to events. such as the war in Ukraine, the energy crisis or the ‘Covid Zero’ policy that they applied in China before the summer. Such was the need to transport materials through containers that commercial air transport skyrocketed to record levels.
But as indicated above, the drop in prices has also been caused by weaker demand. The congestion of ships in the ports has been easing to the point that half of the bottlenecks that began in 2021 have been corrected . According to the Danish agency Sea-Intelligence, (specializing in container shipping ) the correction of improvement in recent months is similar in percentage terms to that seen with the bottlenecks seen in 2015. And if you look at this ‘return to normality’ regarding how freight prices escalated, everything indicates that levels similar to those marked before the pandemic would be reached in March 2023, according to the latest report from the Danish agency.
Despite the fact that prices have fallen, the operators that use container transport to move goods from one side of the world to the other do not have everything they have in terms of reliability. Shipping companies are still far from ‘complying’ with the delivery times that existed and with which they committed in 2018 or 2019, above 70% reliability average.
Thus, if the 2021 average was below 40%, in August 2022 it was close to 50%. Obviously, there are differences between the different operators in the market, either because of their elasticity to adapt to the moment or because the routes on which they operate have lower levels of congestion. Maersk, CMA CGM or MSC are among the shipping companies with the highest reliability ratios in August -the last date collected by Sea-Intelligence- while the Asian companies Yank Ming and Wai Hai were at the bottom of the table.
If measured by days, the delay is less than six days on average in the congestion of the freight ports for the first time since April last year compared to the more than 8 that existed at the beginning of the year (the worst data of the last years). However, this gap still has to be closed for another two days (33% less delay) to fall to the figure of 4 days of delay that existed before 2020.
In terms of capacity, container ships in September operated with a 16% cut compared to last year’s levels. Shipping companies have canceled freight rates in order to avoid a more pronounced drop in prices than seen, according to Citi analyst Sathish B Sivakumar. According to the expert, the average earnings of shipping companies reached their highest point in March 2022, when they exceeded $80,000 per day . “We see canceled trips as a short-term capacity management mechanism by carriers to negate congestion and fare pressure,” Citi expert Sivakumar said.
Shipping companies could continue to cancel freight to stop the bleeding of prices, but this could cause a rebound in port congestion and increase delays and problems in the supply chain again. Sea-Intelligence analyst and founder Alan Murphy reckons we’re already seeing capacity cut in the 15-30% range. “Carriers are already within the last range and a 50% reduction in deployed capacity will not only create many more problems in the supply chain, but will also likely cause cargo owners to take up arms,” he said. the expert.