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Category: Global Supply Chain

Global Supply Chain News: Just How Low Can Container Shipping Rates Go?


Rates have Hit Rock Bottom, even as Lots of New Ships are on Order


Nov. 22, 2022
SCDigest Editorial Staff

Can it really be about a year ago that it cost about $20,000 to ship a 40-foot container from China to the US West Coast?

Supply Chain Digest Says...

Not only have spot rates tumbled, but they have also forced carrier to offer shippers reductions on contract rates.  

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That seems likely to be greatest anomaly not only in the history of ocean shipping but for years or decades to come.

It’s hard to even fathom now, as spot rates have plunged to rock bottom levels, with carriers said to be “in panic mode” at the utter collapse in the market for moving boxes.

For example, data from Xeneta’s latest XSI spot index found rates to the US West Coast, while flat versus the previous week had reached $1,941 per 40-foot container, down 20% so far this month and less than 90% of that $20,000 level.

Things are worse from China to ports in Europe, where rates for shipping 40-foot container have fallen to around $1,800.

The Loadstar reported this week that “some carriers are said to be prepared to reduce rates further for volume, and relax or even waive demurrage and detention conditions.”

And the playbook that worked during the pandemic of carriers voiding sailings to reduce capacity no longer is having an impact. Recent blank sailings have reduced weekly capacity by more than a third, yet rates continue to head lower.

The speed of the fall is happening so fast that various spot market indices can’t keep up, the Loadstar reports.

A very weak peak season is certainly the key factor here, as global trade slows in the face of a generally sagging economy, while Western retailers are stuck with too much existing inventory and greatly scaling back their flow of orders.

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Not only have spot rates tumbled, but they have also forced carrier to offer shippers reductions on contract rates, positioned by the carriers as temporary discounts – or so they hope.

And as was common in the years before the recession, supply once again seems likely to well exceed demand, keeping pressure on rates.

The current book of orders for new container ships stands at 7.4 million TEU, representing a significant 30% of the current active fleet – orders placed when demand and profits were booming in 2020 and 2021.

“The order book is so large that, despite the various capacity reduction measures, the market will not be able to avoid oversupply for a few years,” Drewry’s head of container shipping research, Simon Heaney, told the Loadstar.

What are your thoughts on the state of the container shipping sector?
How long will rates stay low? Let us know your thoughts at the Feedback section below.

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