Container freight rates from Southeast Asian ports (with an emphasis on China) have gone down.
It would seem that everything could soon return to normal. But this will not happen and we can expect a number of long-term consequences. So, once again briefly about what was “in the previous episodes”:
– the pandemic hit all markets – the key market for China’s consumption was and remains the United States – first, the economy hit the market’s ability to handle cargo flows (job cuts for the expected reduced consumption of goods) – consumption resumed in the middle of the year in previous volumes against the reduced ability of transport (ports, cars) to process this – the US market absorbed significant volumes of containers (it is good to compare the situation with traffic jams on the roads during rain – a decrease in the speed of general traffic immediately leads to traffic jams), i.e. the slow turnover of the containers themselves with a renewed and even growing need for them created a situation where containers leave China and “settle” in the United States for a longer period than before.
This consistently led to a shortage of containers for shipment to all other destinations, including our region. Which, in turn, sea carriers did not fail to take advantage of. And then a self-organizing growth in freight arose. If “you” were not ready to pay 5,000 USD for a 40-foot container today instead of the previous 2,500 USD, then someone who was ready was found, since, let us recall, there were not enough containers. The early bird gets the worm. Tomorrow you are ready for 5,000, but sorry, other importers are ready too. Demand creates supply. And “tomorrow” the rate is already 6,000, 7,000, and so on. Fearing that “tomorrow” will be even more expensive than “today”, the market drove the rates to a previously unthinkable height – up to 11,000 for a 40-foot container. Rates from the summer to the end of the year have grown almost fourfold. This race could not but have consequences, and we can only guess at some of them now.
Firstly, those who could afford to include this difference, when the price of the goods, at a minimum, is not higher than the cost of transportation, continued to order transportation. But no matter what the margin of the sale of the goods, it will still be reflected in the price tag. The goods that went at these “premium” rates have just arrived or are arriving. The importer will have to “torn” between the desire to cover the difference at our expense when we come to the store, and the desire of competitors to tear off a part of the market by keeping prices as low as possible. Here, everyone has enough stock for how long from the old delivery, but most likely, this will not pass without a trace for the consumer. Secondly, some importers postponed or have postponed purchases for those items (raw materials, components, furniture, large-sized items), where the cost of transportation per unit of raw materials/goods is critical. As a result, someone’s production will sag, someone will have a problem with the supply of goods locally. It should be noted that many importers were forced to export goods with expensive freight even at a loss for the simple reason that Chinese suppliers could no longer store their orders in warehouses, waiting for possible stabilization of shipping rates. Today you did not support your supplier in China, and tomorrow he has already forgotten you, as a rule, everything is fine with his orders from the same USA without you.
The situation in Ukraine itself is not getting any easier during this time. The economy, as it were, is not taking off, but rolling. And we will get, as an option, the following snowball. Increased prices for some goods with declining purchasing power will lead to delays in the sale of goods, which, in turn, will negatively affect the solvency of importers to forwarders, and will also reduce the ability of importers to maintain purchases in the required volume. Here we are talking about those who continued to place orders despite the growth of freight. It would seem that this would lead to a rapid decline in freight. But here those who were able to stop placing orders and postponed shipments as long as they could will come “on stage”. And in this part of the market, the factor of deferred demand for transportation will work, which will balance the volume of transportation itself, and, consequently, will restrain the rate of decline in freight. Simply put, we are unlikely to see a return to last spring’s freight.
In any case, imports are already unbalanced in terms of volume, the volume is spread out over the period like a thin layer of oil. As a result, we already have a problem with planning shipments in export – the accumulation of empty containers for export lots already requires at least an additional two to three weeks. And this is a constant rescheduling of dates, blows to letters of credit and, as a result, a violation of plans for receiving export revenue. Here there will be the same effect of a traffic jam in rainy weather. Will we get off this carousel? Of course. But many will get seriously seasick during this time.