Freight and Container Rates Continue Falling
Freight rates are falling as demand from China and Europe slows and the dollar strengthens. Containers are becoming cheaper too as a result of excess capacity in the shipping industry.
Freight rates have continued to fall as global trade volumes slow down as a result of shrinking demand for goods, the latest data from S&P Global Market Intelligence showed.
Freight Rates Fall Due to Weak Cargo Movement
According to the research group, while freight rates have also fallen due to the easing in supply chain disruptions that were built up over the pandemic, a lot of the slowdown in container and vessel demand was due to weaker cargo movement.
Freight rates for containers and dry bulkers - or vessels carrying raw materials and bulk goods - have fallen over the past three months, S&P said, adding that rates peaked earlier than expected in the second quarter.
Due to the seasonality of the market, dry bulk freight rates would typically peak in the third quarter; however, according to S&P Global Market Intelligence’s latest Dry Bulk Freight Market Outlook, the second quarter would likely be the peak of 2023.
Global Trade Stagnating Due to Global Recession
The firm’s Freight Rate Forecast models have also predicted that the Baltic Dry Index - a barometer for the price of moving major raw materials by sea - is expected to fall about 20 to 30% for the year before recovering slightly in 2024.
This underscores the increasing risks of a global recession as consumer demand retreats amid rising cost of living and inflation.
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A key sign of a global downturn is stagnating global trade growth, as highlighted recently by the World Trade Organization latest Goods Trade Barometer, a benchmark which provides real-time information on the trajectory of merchandise trade.
While the WTO had predictions that global trade would rise this year, uncertainty surrounding that forecast has increased due “to the ongoing conflict in Ukraine, rising inflationary pressures, and expected monetary policy tightening in advanced economies,” the barometer report said.
Freight Rates Market to Remain Volatile in the Next Months
S&P Global Market Intelligence echoed those concerns, by stating that although some seasonal improvements in the dry bulk market are expected in coming months, volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in mainland China’s real estate sector as well as the absence of high congestion.
Consequently, any changes in China’s Covid-zero policy or ceasefire agreements in the Russia-Ukraine war could lift dry bulk freight rates again, but any further slowing in the demand for goods and consumption would push rates lower, S&P said.
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