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Freight rates will drop by 20-30% in the second half of the year

Although inflation remains high, shipping prices have already started to fall as some U.S. importers reduce orders for goods amid concerns about rising inventory levels and uncertainty about the continued strength in consumer spending in recent months.

The Wall Street Journal recently reported that, according to the Freightos Baltic Index, the freight rate from China to the West Coast of the U.S. last week was $8,934 per container, down 38.5% from the beginning of the year and reduced by nearly 50% from the same period last year. But it is still quadruple the rate in June 2020. Industry watchers expect shipping prices to stay above pre-pandemic levels through at least 2023.

A source pointed out that the biggest change in the container shipping market this year is still on the demand side. In 2021, the demand in the United States reached the peak point due to the abnormal consumption brought by the pandemic, which is mainly related to the growth of home consumption. However, the demand has begun to weaken this year. It will gradually return to normal, mainly with service consumption. In addition, inflation in the United States has intensified this year. The prices of many daily necessities and food have risen by at least 30-40% compared with those before the pandemic. The impact of inflation on the demand side will be more obvious in the second half of the year.

The industry generally believes that the root cause of the super bull market in container shipping comes from the continued strong demand for imports from the United States that exceeded expectations under the pandemic. But mounting evidence points to weakening demand in the U.S., with some companies already cutting back on orders with suppliers and retailers such as Target and Walmart saying they are dealing with excess inventory due to over-ordering. Moreover, inflation is depressing consumption more broadly.

According to a new report from S&P Global Market Intelligence, container freight rates are expected to fall by 20-30% in the second half of the year. In the meantime, as high inflation, prevailing consumption patterns, and the pressure from the supply side of building new ships have slowed the trade growth, freight rates of dry bulk products are seeing a similar decline.

Source: Ocean Shipping

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