However, the decline is expected to be gradual and keep figures above 2019 levels

 

After Russia’s invasion of Ukraine and the first forecasts of global economic recession and incipient inflation, it was logically anticipated that demand for goods would be affected, which would obviously lead to a decrease in maritime volumes and, as a consequence, also to rates for container shipping.

Well, if one wants to verify to some extent that this possible development has materialized so much, one must first analyze whether the slowdown of the world economy has become effective. By focusing on the US, the main engine of the world economy, the reality until last week was rather mixed, with encouraging data showing great resilience of the economy in the face of high inflation, but with signs of future problems.

In sum, according to a Bloomberg analysis, consumers continue to spend (albeit with less momentum and more focused on essential goods due to rising inflation), but families are expected to tighten their belts once school children return to school in September. On the other hand, applications for unemployment benefits remain historically low, which speaks to the strength of the labour market, a key fact.

On the other hand, key retail players like Walmart and Target expect a healthy shopping season for the northern autumn. Although it should be noted that this expectation occurs only after – considering the predominant inventory excesses- decided to drastically reduce prices on items such as clothing and kitchen appliances in recent months.

This is not enough to dissolve the clouds on the horizon. The housing market is deteriorating rapidly, while the manufacturing sector is losing momentum, but not as fast as feared. The Conference Board economic index, which includes metrics such as the S&P 500 index of share prices and building permits, fell for the fifth consecutive month in July, suggesting greater short-term recession risks.

Across the Pacific Ocean, Larry Hu, head of China’s economy at Macquarie Group, anticipated in mid-August that in the Asian country “the general direction is that export growth will slow down in the coming months and may reach negative territory by the end of the year”.

While Chinese exporters have learned from previous disruptions and advanced their delivery schedule by a month or more in anticipation of uncertainties, the effort seems not to be enough and sales of Christmas-related businesses may not exceed the level of 2021, when they were between 20 and 30% lower than in the period before the pandemic.

Impact on the transport of cargo

In accordance with the above aspects, the weekly report of Freightos Baltic Index stated that volumes of maritime imports in containers in the U.S. They will gradually begin to decline until the end of the year, although they are expected to remain well above 2019 levels.

This is beginning to be reflected in the July data indicating that volumes, as well as tariffs in road freight transport, have begun to normalize. The decrease is also evident in the remarkable improvement of the congestion in the ports of Los Angeles and Long Beach in the USA, but that it is still insufficient to decisively influence the rates of marine freight spot compared to the levels observed before the pandemic. So, last week, spot values for the Asia-USWC route fell 3%, to US$5,738/FEU, (a figure that quadruples the rate of August 2019).

The fall in air cargo volumes is also leading to lower fares on many routes. The rate of the Freightos China-USWC air index was US$6.58/kg last week, which is 38% less than a year ago, but more than 3 times the pre-pandemic standards for this time of year.

Situation in Europe

Meanwhile, the decrease in volumes in the period from February to April, due to inflation, caused tariffs between Asia and northern Europe to fall by 28%, from a record high of more than US$15,000/FEU to about US$10,500.

However, beyond the factors that predict the global recession and the consequences of inflation at the global level, Europe is suffering several junctures that shape the course of the maritime and port sector. As a result, severe congestion has contributed to tariffs remaining more than 7 times higher than observed in 2019.

Furthermore, congestion in Europe may be aggravated by a number of problems such as the low water level on the Rhine, which disrupts barge service in Germany, and labour disputes and the planned strike by port workers from the port of Felixstowe in England, factors that together can sustain tariffs to and from Europe for longer.

 

SOURCE: MUNDOMARITIMO.CL