Shipping rates between Asia and North America are dropping to new lows with consumer demand sliding and major US retailers indicating inventory overstocking which could see them cutting down their imports to improve inventory turnaround times.
In a new analysis, Shifl said with demand cooling from both the consumer and retailer segments, it is little surprise that ocean freight spot rates between China and North America are seeing "new lows this year."
Ocean container spot rates continue to decline
"Ocean freight spot rates are continuing to drop fast. The SHIFEX index shows China to the US West Coast has gone below US$7,000 per FEU while China to the US East Coast is moving downwards to below US$9,000 per FEU," said Shabsie Levy, the CEO, and founder of Shifl.
"Consumer retail expenditure seems to be at a tipping point, inevitably reducing total volumes getting ashore. We expect this to push prices further down in the future," Levy added.
In the statement, Shifl noted that the ocean freight rates are intrinsically connected to the retail industry as it makes up over half of all imports into the country.
It said that while global container lines have tried measures like blanking sails and removing capacity from the market, falling retail demand has pulled down ocean spot freight rates and continues to do so.
"This drop in freight rates will go a long way in helping combat the rising inflation. The issue of increased freight rates will go a long way in helping combat the rising inflation," Levy added.
This aside, the growth of new import orders has also slowed down, which points to an extended period of volumes staying lower than expected.
Shifl noted that while it was anticipated that order numbers into China would pour in at high volumes with the loosening of restrictions in Shanghai, it was not to be, as it received a lukewarm response from shippers.
Lower import volumes to the US
It added that with orders taking about a couple of months to be serviced from order to delivery, a fall in the number of orders indicates lower import volumes making their way into the US in the short term.
"While long-term ocean freight prices remain higher than spot ocean freight prices, the situation may not last long. When shippers realize spot prices continue to cascade, they could look to renegotiate their contracts with container lines. With import orders not staying strong in the middle of June -- a regular high season and the Chinese adamance to hold on to COVID-zero measures can result in uncertainty in import flows, negatively impacting freight prices over the course of this year," Levy said.
Shifl also said that vessel queues have drastically fallen across the ports of Los Angeles and Long Beach, with ship numbers dropping to 25 — a far cry from the historical high of 109 ships in January 2022 while the queues have been increasing on the East Coast.
While the ports of LA and LB have been reporting historically high volumes, rapidly falling vessel queue numbers reflect cooling retail import demand, Shifl added.
"The sheer number of disruptions to production in China due to the country's strict COVID zero restrictions is another cause for a fall in Chinese volumes reaching the US. Restrictions saw Chinese production epicentres Shenzhen and Shanghai suffer for several months, lowering output that led to fewer import volumes," the digital freight forwarding platform added.
Increasing lead times on the US East Coast
Shifl noted that the increased traffic to the East Coast inevitably led to increasing cargo lead times as vessel queues increased across the port of New York. The cargo lead times have risen from roughly 51 days in January 2022 to 56 days in May 2022.
"Our data indicate that the hike in interest rates by the Fed is another blow to consumerism, as other industries, including services and real estate, see a hit in fortunes. Mortgage rates going up significantly from last year can result in slowing house construction starts, further reducing related retail spending," Levy said.
"The US distribution system is stuffed with stuff. Business inventories in April were up nearly 18% from a year ago. Inventories at non-auto retailers were up 20%. One merchant after another — Target, Walmart, Costco, even mighty Amazon — has reported disappointing earnings and is marking down excess merchandise like crazy. Merchant wholesalers — a category that includes companies that import everything from washing machines to smartphones for sale in the United States — show much the same trend," Economist Marc Levinson wrote on his Linkedin.
"The reason for the excess inventory? Simply enough, consumers have stopped spending with abandon. As shopping habits revert to pre-pandemic norms, inflation decimates buying power, and home sales stall, the demand for consumer goods is stalling as well," Levinson added, echoing what Shifl has been saying previously in support of the dropping ocean spot freight rates.
