Container lines are preparing for a slowdown in growth as freight rates decrease

Recently, we have witnessed the most profitable period in the history of container shipping. However, our industry is accustomed to cycles of booms and downturns, so the situation can always change.

Last week, the World Trade Organization stated that trade flows slowed in the last quarter and are likely to remain weak in the second half of the year. This still aligns with the WTO's forecast of a 3% growth in global goods trade in 2022.

However, the organization expressed less confidence in this forecast, considering that geopolitical tensions persist, inflationary pressure remains, and interest rates are rising.

The good news is that some supply chain issues are easing, and fuel prices are dropping, alleviating some of the logistical cost challenges that affected company balances. But it also means that the unexpected profitability surge caused by the pandemic is fading.

Last week, Citi analysts lowered their ratings forecasts for Maersk, Hapag-Lloyd, and Zim, expecting a deeper slowdown in global demand, citing several reasons: reduced consumption, declining home sales in the United States, and inflationary growth. All of these are negative omens for an industry that facilitates about 80% of global trade.

Now carriers, who just a few months ago had zero idle capacity, are offering enough space on ships that they deploy on key trade routes, leading to a decline in short-term container shipping rates for six consecutive months.

Last Wednesday, Drewry reported that the spot rate on the benchmark route from Asia to the U.S. fell to $4949 for a 40-foot container, dropping below $5000 for the first time since December 2020.

Clarksons Research expects container shipping capacity to outpace demand by 300 basis points in 2022, which could lead to further reductions in container rates.

Spot rates for container shipping are expected to continue to decline but will remain "significantly higher" than their pre-pandemic levels until the end of 2022 due to the continued fragility of global supply chains.