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Global Supply Chain News: Container Spot Rates Continue Rapid Fall, causing Some Shippers to Renegotiate Contact Rates

 

 

CMA CGM CEO Sees not a Strong Drop in Demand but Rather a Soft Landing

 

Aug. 30 , 2022
SCDigest Editorial Staff

After nearly two years of soaring spot rates for ocean container shipping, sending carrier profits soaring, the market is decidedly moving in the opposite direction.

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The World Trade Organization said last week that merchandise trade flows slowed last quarter and will likely stay weak in the second half.

 
 

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Last week, the Drewry’s World Container Index (WCI) fell to $6,127 per 40 foot container for sailings from Asia to the US West coast. That decline in spot market rates means costs are down 46% versus a year ago, after a 6% decline in just one week.

Rates from Asia to Europe have fallen by similar amounts, down 42% year-over-year,with further declines expected. For example, the forward projection for the Shifli spot rate index is that US West coast rates will fall to just $4,900 per 40-foot container next month, which would represents a 72% decline from the September 2021 high of $17,500, according to the Loadstar.com web site.

The decline in rates is less extreme in moving shipping containers from Asia to the US East coast, with costs next month set to fall an average of 54% lower than a year ago, from an amazing $19,500 per 40-foot container then to an average of $8,900.

“The pace of this continued decline points to the market returning to some semblance of normal,” said Shifl’s CEO and founder Shabsie Levy, told the Loadstar.

The spot market declines are also driving some shippers to seek to renegotiate long-term contract rates set at the previous much higher spot levels. Some contracts for Asia to US West coasts in fact had clauses pegging them to spot rates.

With apparently quickly declining demand, it is likely that most large ocean carriers will not hesitate to increasing the number of so-called voided or canceled, saiings, which proved so effective for carriers at the start of the pandemic in keeping rates high.

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French container line giant CMA CGM said last week that it is seeing an across-the-board drop in shipping rates and a loosening of logistics bottlenecks in some regions of the world as demand softens.

“What we’ve been seeing now for many weeks is a decrease of freight rates in almost all sectors,” CEO Rodolphe Saade said Friday in Algiers. “We expect that decrease to continue. I don’t think we’ll see a strong drop but rather a soft landing.”

However, the World Trade Organization said last week that merchandise trade flows slowed last quarter and will likely stay weak in the second half.


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