Analysis from some international shipping research institutions have presented that the high freight rates will continue for the next three to six months, as demand remains high and the supply chain logjams have still to be cleared. For logistics companies, forwarders, and cargo owners, this is should be anticipated in setting up strategies.
With the traditional container shipping peak season approaching, freight rates will continue to be strong, although they may not stay at current record-high levels, according to BIMCO. As we saw before the blockage of the Suez Canal, spot freight rates had slowly started to soften on major routes, though remained at historically high levels.
We can foresee one potential disruption to continued strong demand through this year’s traditional peak season. If the high volumes we are currently seeing reflect importers’ frontloading their goods, then rates could soften significantly.
Further down the line, demand looks set to ease as pandemic-related stimulus packages start to dwindle or spending shifts away from securing consumer income and towards longer-term economic projects such as infrastructure investment. These will no doubt help the economy recover, by supporting consumer demand, but not to the same extent as has been the case with spending up to now.
The most obvious example of this, according to BIMCO, is in the US where a third round of stimulus cheques arriving (USD 1,400) immediately led to record-high retail sales. In fact, in the first three months of the year, US container imports to the East Coast are up by 22.6%, and imports by the West Coast are up by 40.3% in the first four months – the driving influence behind record-high volumes globally.
However, as the focus now turns towards infrastructure and investment, US consumers will no longer have a direct cash injection with which to buy imported goods. Furthermore, as the economy opens up, the proportion of spending on services is already increasing and domestic manufacturing is picking up, all of which will contribute to an easing in demand for imported containerized goods.
The high contracting that has fuelled this market boom could lead to a repeat of the overcapacity problems the market has faced for many years once these ships are delivered. Issues of overcapacity have been forgotten in recent months but, once more normal market conditions return, carriers will again have to find the right balance between supply and demand.
Another looming threat is the high charter rates into which carriers have locked themselves, in some cases for several years. Though fine now, a future fall in the freight market would leave carriers paying for today’s high-price ship while freight income falls, hurting their bottom lines.
Read ISG Cover Story June 2021: https://theshippinggazette.com/automotive-industry-recovers-faster-than-expected/
