Since last year we have seen a significant drop in ocean freight rates, which is considered by many experts as a sign of an impending global recession. The decrease in freight rates, which is expected to be between 55% and 85% this year compared to 2022, has been described as “historic” and is affecting multiple sectors that depend on ship charter and container transport. .

Despite these falls, charter rates are twice as high as at the start of the coronavirus pandemic and to see a similar price we have to go back to 2008. And this is an important indicator, since these prices tend to depend on the volumes of merchandise, its weight and the distance between origin and destination. Therefore, it gives us an idea of the general state of international maritime trade.

Although we are still in a delicate scenario, we are also finding some timid signs of recovery that, despite everything, could normalize the situation in the coming months.

 The collapse of maritime freight since last year

The drop in freight rates has been attributed to various factors, affecting the revenue of shipping companies and slowing down international trade. Without a doubt, the Covid-19 pandemic has had a very significant impact on the current scenario. During it, a large part of world economic activity came to a halt, and later, with the reactivation after the health emergency, we have experienced a change in the purchasing trend throughout the world, where durable material goods have been the main protagonists.

The difference in activity between the worst moments of the pandemic and the reactivation caused congestion in ports around the world. The loads accumulated and the ships could not enter the port, sometimes generating long lines of ships and trucks around the port infrastructures. All this caused a colossal increase in freight rates.

We are currently witnessing a change in the commercial trend: the global economic slowdown, inflation and the fall in consumption. In the United States, for example, February imports marked a minimum since June 2020 with a 26% drop compared to February 2022 and 14% compared to January 2023, being the lowest than in any month of the year. 2019, including those affected by the pandemic.

In this scenario, we find ourselves in a scenario in which less is purchased and, therefore, less is imported. With this reduction, the ships no longer arrive full and the shipping companies look for more loads to optimize their efforts.

The answer has been to put fewer ships and make fewer calls to make the most of the space on the ships. This decision has also been influenced by some challenges of environmental policies, such as the need to adapt means of transport to new regulations such as IMO 2020 (reduction of sulfur in fuels), something that is very expensive in the present scenario, so the companies choose to leave a good part of their ships in port.

What can we expect in the coming months?

Regarding international trade, we will continue to see how many companies go through relocation processes. According to S&P Global’s second quarter report, 2023 is expected to be the year of supply chain normalization after fluctuations stemming from the pandemic; but we have not reached that point yet. Uncertainties, mainly in terms of consumer goods inventory levels, hinder this normalization and we will have to wait until the end of the year to verify it.

In any case, the charging pressure revisions are being made to the downside, but we are already seeing some cases where the trend appears to be changing. This is the case of the Asia – East Coast of the United States trade, where we have been able to observe price maintenance in the first week of May (85% less than the same week last year), the same as Asia – the West Coast of the United States, although with a rate 94% lower than in 2022. Prices from Asia to Northern Europe, for their part, decreased by only 1% (with prices 87% lower than in 2022), remaining at similar levels since December in operations from Asian countries to Mediterranean Europe.

Thus, although transatlantic fares continued to decline at the beginning of May, routes from Asia remain stable and we have even seen a price increase in some trades in April. However, it does not look like it will be widespread in the coming months and we anticipate lower freight rates. At this time there is a general feeling that the market will not return to levels as low as those at the beginning of 2023, given better capacity management and a certain recovery in demand; but we cannot say that we have hit bottom in this recession in cargo transportation.

It remains to be seen if the carriers’ strategies to compensate for the new market capacity are successful, but in any case, at Erhardt we use this knowledge, the value of our experience and the latest technology to design and implement global logistics solutions with local knowledge: Contact us to be your trusted partner in all your Import & Export operations.