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Today, I would like to talk about, “While shipping company profits are at record highs, the movement faces a cooling off!”
Daily Logistics Radio by IINO san in 20th June 2022
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Container Handling Volume Softens
The container shipping industry hit record revenues as carriers posted record earnings in the first quarter.
New trade forecasts show that global container handling volumes are softening and will continue to do so next year.
Some predict that global container traffic in 2022 will be 1.7% lower than the previous year.
Declining Trend in Overall World Trade
The slowdown in global shipping volumes is also evident in CTS, Container Trade Statistics, which show a 3.6% year-on-year decline in volumes handled through April of this year.
This is the story of container handling volumes worldwide, and signs of a decline in goods volumes seem to be becoming more pronounced, especially in Europe.
There are also reports that consumer confidence in economic trends in Europe and the Mediterranean region is the second lowest on record.
Imports from China to Northern Europe are on the decline, with China-Northern Europe route volumes down 3.8 percent in the first four months of the year.
This is believed to be due to the lockdown of the Corona pandemic in Shanghai.
Asia-to-North America Imports Rise
Despite an overall slowdown in container volumes, U.S. imports from Asia set a new monthly record in May.
Imports from Asia in May totaled about 1.74 million TEU, up 5.7% year on year, a significant jump of 25.1% from May 2019, before the pandemic.
Against this backdrop, the U.S. Fed raised interest rates by 0.75% last week in an attempt to curb inflation, which is expected to curb commodity movements.
Shipping Company Earnings
Container volumes are down, but there has been no slowdown in shipping company earnings.
Following the release of first-quarter results, the CEOs of several major carriers told analysts as follows.
“Profitability beyond 2022 is ensured by long-term contracts already signed at significant premiums, despite falling prices on trans-Pacific and Asia-Europe trade lanes. This means that spot rates are falling.”
In other words, spot rates are falling, but they are not affecting shipping companies’ profitability because we have to transport under higher-priced long-term contracts.
Asia-North America Rates
Spot rates on Asia-U.S. West Coast routes were below contract rates in early June, but were up 17% year over year at $7,517 per 40 feet.
Spot rates on North American routes remained high.
Meanwhile, spot rates on the Asia-North Europe route have declined 30% since January to $5,942 per TEU, which are slightly higher than the same month last year.
Contract rates for Asia-North Europe routes averaged $5,531/TEU, not that different from spot rates.
Container handling volumes have been declining this year and are expected to continue to do so next year and beyond.
However, shipping company earnings are at high long-term contracts’ freight rate levels and remain high even with the impact of the Shanghai lockdown.
High Long-Term Contracts Stabilize Shipping Companies
In North America, May was the highest container volume ever handled, even during the Shanghai lockdown.
The key point is how much demand will settle down with the Fed’s 0.75% rate hike and the possibility of continued rate hikes in the future.
Volumes to Northern Europe have fallen, but high levels of long-term contracts’ freight rates have kept shipping companies stable and profitable.
European countries are also raising rates one after another.
It is highly likely that containerized cargo volumes in Europe will continue to drop due to the economic slowdown.
I believe that a significant drop in volume will have an impact on even the highest freight rate contracts.
I have reported on recent global trade trends.
That’s all for today. Thank you.