All eyes on container shipping where ‘maybe’s abound
By Barry Parker (gCaptain) –
As the “R” word, “recession” is increasingly used by economic forecasters, questions abound regarding the impact of potential economic downturns on the container shipping industry. The jury is still out on the impacts and on the choices of shipping data economists might input into their models.
A just released report Windward ship visibility trackers, in conjunction with Freightos cargo analysts, who produce indices on containerized cargo in conjunction with the Baltic Exchange in London, is titled “Lower demand for China-US ocean freight has yet to impact container movement.”
In it, the authors suggest that: “A year-over-year comparison from March to June 2022 vs. [the same period in 2021] shows a drop in the number of ships and, even more so, in TEU capacity from China to US ports in June 2022 compared to the previous month and the previous year.
This observation is the subject of a long disclaimer, highlighting the uncertainties associated with vessels bound for the United States still on the water (and therefore with uncertain counts of TEUs to be unloaded in American ports), as well as the uncertainties when ships have not formally declared a US destination. Indeed, the report suggests that, given various assumptions about freight that could be bound for the United States, there is potential “for a 5% increase in June compared to May, and an increase of 2 % year over year for the entire period”. Talk about a definitive maybe!
Looking back is probably easier than the perilous job of forecasting, and the report notes that: “Data from the Freightos Baltic Index shows that the current spot rate of $7,326 per 40ft container on the Asia- US West Coast is less than half the rate in the last week of April. The authors add that: “But as rates continued to fall in June and July – even as Shanghai reopened and capacity may decline – a drop in underlying demand was likely also a cause of lower prices. rate in May and is most likely. guilty of keeping rates down since early June. They also point to a huge contrast between the present time and the situation a year ago in July 2021 which marked the beginning of a meteoric rise.
Analyst John McCown, a leading voice on container dynamics, just published a new article titled: “Container Shipping Spot Rate: Impact on Inflation and Other Adverse Consequences”.
In its analyses, it examines data from two providers. Container trade stats show market still tweaking to the top in May 2022 based on a metric including contract rates, which would be lower, in absolute dollars/box, than spot in today’s lagging markets). It also takes data from Drewry whose spot measuring the global container index, reflecting high absolute rates in $/box, shows a market trend lower since a peak in Q3 2021 (this seems in line with the Freightos Baltic metric).
In his article, McCown writes that: “Sharp container shipping price increases during the pandemic have contributed to headline inflation in the United States in recognizable ways. While only a relatively small percentage of total loads actually move below spot rates, spot rates play a significant role in the level and trend of rates in contract renewals moving the vast majority of overall loads. All of this presents another set of ‘maybe’s.
Going further in his analysis, he opines that: “We have developed a view that the prevalence and credibility of spot rates is widely misunderstood. As a result, we see this leading to confusion and ill-informed decisions at best and manipulation and bad decisions at worst.
Before a discussion in his article on how big freight interests have misused data on container rate increases, he warns market participants, analysts and outsiders (including government regulators) that: “[spot rates] do not reflect the level and trend of the larger group of contractual rates that determine both the overall impact of inflation and the profitability of the container shipping industry. Spot rates may well be the three cards of container shipping.
In its detailed economic analysis, it focuses on “10% of total container loads worldwide moving at spot rates, with the remaining 90% moving at contract rates”. More on card sharks in a minute.
McCown goes on to suggest that: “The impact of container shipping can therefore only be measured by looking at all loads and not just the relatively small group that moves at spot rates. The best overall measure for this is the World Price Index published monthly by Container Trades Statistics (CTS),” he said.
Back to the card players: Where freight interests point to rates rising over 400% (the one-off measure) in press releases and urgings later picked up by the Biden administration, should they instead look at contract rates, which have seen a more gradual rise?
Questions of this type are highly relevant because of the provisions of the recently enacted Marine Navigation Reform Act 2022 (OSRA 2022), which, as John McCown and others have pointed out, requires more disclosures of on the part of the carriers, while considerably increasing the liability of the Federal Maritime Commission. ability to take enforcement action against carriers in response to complaints about their business practices.
Definitely not a place for “maybe”.