AFTER more than two years of exceptionally high freight rates in a tight capacity market, shippers are finally getting some relief. In the latter half of the year, shipping rates for both dry bulk carriers and container ships have come off the highest levels triggered when the Covid-19 pandemic disrupted the supply chain, causing port congestion, shortage of shipping containers and increased blank sailings by carriers.
Heading into 2023, shipping players and analysts are expecting global freight rates to fall further due to the greater availability of freight capacity globally and weaker freight volumes as the global economy deteriorates.
According to Tasco Bhd deputy group CEO Tan Kim Yong, container rates for certain routes have come down by more than 80% from their pandemic peak. For example, rates to ship a 40ft container from Asia to the US West Coast were as high as US$40,000 (RM176,000), but now they are closer to US$6,000.
“The rates are still 50% higher than the 2019 level of about US$4,000 per FEU (40-foot equivalent unit),” he tells The Edge. “People say rates are normalising. However, it depends on the trade lanes. For example, freight costs from here to Australia are now more expensive than to the US West Coast.
“There is a reason for this. Big US retailers like Target and Walmart that overstocked during the pandemic due to the uncertainty in shipping, are working through an unexpected glut of inventory. The surge in inventories has resulted in the current excess supply of goods. With a recession on the horizon, consumers in the US are also more cautious and spending less.”
While container freight rates are expected to continue to normalise in 2023, Tan is of the view that the drop will not be as big as this year given that they have fallen to near their 2019 levels.
“The rates might drop a little bit more or they might stabilise. But I don’t expect the rates to go up in the foreseeable future, especially next year when people are worried about a recession coming,” he points out.
The Drewry World Container Index, which measures the cost of shipping an FEU container in eight major routes to/from the US, Europe and Asia, had dropped 79% from the peak of US$10,377 reached in September 2021 to US$2,139 on Dec 8. The composite index is 77% down from a year ago.
On the local front, the Bursa Malaysia transportation and logistics index has fallen about 3.5% year to date (YTD), while the benchmark FBM KLCI has lost about 5% over the same period.
The air cargo market, which has been a bright spot in a pandemic-battered airline industry, has also seen rates out of Asia fall as air cargo volumes decrease. The Freightos Air Index showed that rates from China to North America and Europe had dropped more than 40% as at Dec 8 compared with the end of November a year ago.
Tan says with about half of the world’s air cargo carried in the belly of passenger aircraft, the sharp reduction in flights due to grounded passenger aircraft during the pandemic led to air cargo prices rising at a historic pace. “Since then, the situation has reversed on the back of increased capacity as passenger airlines restored more flights since the pandemic, although it remains below that of pre-pandemic level. Also, as ocean carrier capacity increases and rates fall, shippers are switching modes back to the cheaper sea freight,” he adds.
In a Nov 29 statement, Association of Asia Pacific Airlines director-general Subhas Menon said declining business confidence, against a backdrop of rising risks to the global economy, led to a slowing in orders for manufactured goods, which in turn led to a 5.5% year-on-year (y-o-y) decline in air cargo demand for the first 10 months of the year.
Mark Jason Thomas, the newly appointed CEO of MAB Kargo Sdn Bhd (MASkargo), says the company has been seeing a shift in popular trade lanes. “In terms of demand, there is a sharp decline in emerging markets, which ultimately is putting pressure on our yield. In a nutshell, there are higher capacity, lower load and softer yield,” he says in an email response to questions from The Edge.
Notwithstanding a bearish air cargo market, Thomas says MASkargo’s volumes remain strong due to the agility in its network planning, as its focus has always been on capitalising on high demand sectors.
MASkargo saw net profit grow 29.6% to RM454.98 million in the financial year ended Dec 31, 2021 (FY2021), from RM351.12 million in FY2020, while revenue increased 52.1% to RM3.01 billion from RM1.98 billion in that period.
“Capacity has increased by 20% y-o-y with the main driver being the resumption of passenger flights, with the average load factor standing at about 70%. As we see gradual recovery in air passenger traffic, belly cargo capacity is expected to further improve, which will result in a decline in yields for the overall freighter business as more capacity is put back online,” Thomas notes.
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