If the current decline in freight rates is due to inventory correction, then there could be a recovery in cargo volumes in 2023 as retailers strive to restock.
Writing in a Baltic Exchange commentary, Lars Jensen, CEO of container shipping consultancy Vespucci Maritime, stated that figures from Container Trade Statistics showed a dramatic downturn in September.
Looking purely at the amount of TEU lifted globally, this was a nearly 9% drop compared to last year. In terms of TEU miles, which better reflects the need for vessel capacity, demand had declined by 13%.
Jensen said, “This is a decline almost similar to the drop seen when the worst parts of the pandemic struck the market in 2020. That the market is suffering from a collapse in demand can be even more clearly seen compared to pre-pandemic levels. In this case, demand measured in TEU has declined 2.6%, and demand measured in TEU miles is now 7.6% lower than the level in 2019.”
This rapid decline in demand is caused by the onset of an inventory correction, mainly by North American and European importers.
Jensen elaborated, “Inventory corrections always have a severe impact on container volumes. If the situation was only one of an inventory correction, then this process is likely completed in early 2023. Following an inventory correction, there is always a subsequent surge in demand as importers then strive to return to normal operations. This is, for example, what we saw in the surge of demand in 2010 following the financial crisis or in the summer of 2002 following the inventory-driven recession in the US in 2001.”
However, if inflation and geopolitics extend the recession, 2023 will not offer any improvement, and a surge in cargo volumes could only appear in the lead-up to the Chinese New Year 2024.
As of now, with the weakness in cargo demand, liner operators will continue to blank large amounts of sailings in an effort to halt the slide in spot rates.
Martina Li
Asia Correspondent
