The decline in global shipping volume has really occurred. The volume in the second half is projected to be lower than the volume in the first half of this year. There will be no peak season in the remaining months of the year.
According to Peter Sand, a maritime analyst, this is really a nonpeak season because, for the first time ever, volumes moved in the second half are lower than those moved in the first half.
Exports dropping on weakening US Consumer demand remained a factor in the shipping volume decline. The top 4 (four) shipper categories for 70% of US container imports are retail, home improvement, furniture, and electronics. These four segments are all at risk of rising inventories and slower sales. And slower demand is already apparent with weak peak season volumes in 2022.
It has made Transpacific spot rates collapse rapidly. The decline in US consumption will drive market correction. Ocean shipping rates have dropped very sharply on almost routes. And its subsequently Shipping company’s EBIT erosion already started due to lowering ocean freight.
Ocean Shipping rates are shrinking during what’s typically the shipping’s peak season after cargo owners shipped the goods early and inflation dented consumer demand.
Currently, Ocean shipping rates from Jakarta to US-West Coast stand around US$ 4000/40’ and US$7900/40 for Jakarta/US-East Coast. This is down considerably compared to the pandemic period, which reached US$ 10,000/40 for JKT/USWC and US$ 15,000/40 for JKT/US-EC. It means Ocean Shipping Rates have plunged 60 %-70% this year.
During the Pandemic Covid 19 outbreak, the ocean freight rate rose very high because of supply chain disruptions, shortage of containers and lack of vessel space, port backlogs, and a surge of cargo that left importers scrambling for space on box ships. The unprecedented pandemic Covid -19 led boom in freight rate has peaked. Last week I met Gene Seroka, Executive Director of Los Angeles Port, and he told me there’s no congestion in his port.
However, we are not expecting the ocean shipping rate to surge next year. An analyst said that the ocean shipping rate is going to probably fall down towards pre-pandemic levels, maybe slightly higher for the additional levies that will be charged for cleaner shipping.
The freight market is completely driven by supply and demand drivers. Whilst new ship deliveries will be picking up significantly in 2023. Projected deliveries in 2022 reached 1,150,000 TEUs and will be up to 2, 360,000 TEUs in 2023 and 2,912,000 TEUs in 2024 (source: Linerlitica). It will make a surplus capacity due to there’s no capacity discipline from the shipping company. Subsequently, the price war will happen again among shipping companies, just like what happened prior pandemic, and they will be facing the same cycles as before, with more losses than gains in the year coming. And because of this reason, APL was sold to CMA-CGM in 2016.
The same thing happened in Tanjung Priok Port also experienced a decrease of more than 2% in international throughput in August when compared to throughput in July 2022. This makes sense because our exports to the US are reduced for furniture, electronics, and footwear commodities. There is also a decrease in exports/imports between Indonesia and China due to the Chinese economy due to Covid-19, which continues to be rampant. The Zero-Covid policy adopted by Xi Jinping’s government has made China’s economic activity, which is struggling to recover, sluggish again. Manufacturing in a number of regions had to put the brakes on production. People also returned to staying at home.
Inflation and rising fuel prices at the beginning of this month will add to logistics costs. Trucking entrepreneurs have increased their prices by around IDR 100,000 – IDR 150,000 for d20 and IDR 200,000- IDR 300,00 for transporting d40., and the cost of trucking in Tanjung Priok will increase by more than a half of a trillion a year. Therefore dual move for trucking has to be promoted by the trucking company to reduce the trucking cost within Tanjung Priok Port. Costs for diesel at terminals/ports will also increase. Not to mention the costs for other marine services.
The strengthening of the US$ against the rupiah will be good for our exporters ( regret the export demand is declining ), but it will be detrimental to importers because they have to pay more to buy raw materials and other imported goods.
The value of the international trade balance in August was also not as good as in previous months due to the reduction in export volumes and the decline in the price of our leading export commodities.
Meanwhile, political elites are again busy looking for coalition partners in this political year. Another problem has emerged from BJORKA hackers who are disrupting the peace of authority.
Will see how’s throughput in Tanjung Priok this September.
This article was written by Bambang Sabekti, a Professional in Maritime Industry.
