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Shipping rates fall back from pandemic peak

China lockdowns and a reduction in US spending on durable goods has pushed shipping rates down in the last month, although a spike is also on the way
April 20, 2022
  • Global rates fall over 10 per cent in the last month
  • Backlog of ships outside Shanghai has almost trebled

There is a rare bright spot for costs in this high-inflation world: prices of containers are heading downwards. The Covid-19 lockdown in Shanghai has cut demand for containers out of China, and changing consumer behaviour in the US means the clamour for imported goods is relenting after two years of heavy spending.

Since the end of February, the price of a 40 ft container has fallen 16 per cent to $7,945 (£6,108), according to the Drewry World Container Index. It hit its peak in September of last year at $10,377. A large part of this has been driven by falling prices of containers coming out of Shanghai, which is a result of the Omicron-shutdown that has obliged the industry to slam on the brakes. 

Drewry noted that “pricing developments in China determine pricing developments on the trans-Atlantic lane”, so this will have a positive impact for UK company costs as well. 

The war in Ukraine and Russia, while disruptive, is not as impactful on container prices, according to Ami Daniel, CEO of shipping analytics company Windward (WNWD). “I don’t think the war has a material impact on container rates, neither Ukraine of Russia are big players. The thing impacting them big time though is the lockdown in China”.

But there could be a sting in the tail from the China situation. 

Data from Windward show that the number of container vessels waiting outside port in China on 5 April was 195 per cent higher than in February. It represented 27.7 per cent of all vessels waiting outside ports around the world.

In the short-term this has reduced rates as demand from containers from China has declined. However, Daniel thinks the large backlog of goods in China that will need to be moved when lockdowns end will create a spike in prices. “The last time there was a lockdown it took 10 weeks to clear it,” he explained.

Lockdowns in China, which contributes around 15 per cent of global trade, are creating price volatility. However, shifts from US consumer spending away from goods could be causing steady movements downwards – which had already started before the Chinese lockdowns came into effect.

In 2021, US consumers spent 34 per cent more on durable goods than in 2019, according to data from FRED. This consumption boom was driven by stimulus checks and a relative reduction in spending on services. However, in February durable goods expenditure fell 2.5 per cent while service spend rose 1 per cent.

Despite recent movements, freight rates are still around four times higher than before the pandemic. This is why the US Department of Justice and Federal Maritime Commission have announced they will work to bring down prices in what they believe is now a monopolistic industry.

In a statement published by the White House it was estimated that shipping cost increases are estimated to contribute “approximately a 1 per cent increase in consumer prices over the next year”. The release cited the seven-fold increase in profits as evidence of monopolistic power.

The US consumes more than any nation in the world. Softening demand from their consumers over the year could bring some relief to UK retail companies like ASOS (ASOS) and Unilever (ULVR) that have been struggling with rising container rates. Prices won't return to pre-pandemic levels anytime soon but at least it seems the worst is now behind them.