The container shipping industry has boomed to record profits throughout the past seven quarters, but that run may be about to end with freight rates plunging. Not only are trade flows in and out of key economies like China and the US slowing down, the orderbook for new container ships has expanded significantly and will be gradually releasing new ships into global waters throughout the next couple of years.
At the same time, inventory to sales ratios in the US are rising quickly, indicating a potential slowdown for new goods orders in the coming months. The WTO’s Goods Trade Barometer shows the volume of world merchandise trade has likely plateaued.
Related ETF & Stocks: SonicShares Global Shipping ETF (BOAT), Danaos Corporation (DAC), A.P. Møller – Mærsk A/S (AMKBY), COSCO SHIPPING Holdings ADR (CICOY)
The second quarter of 2022 yielded another round of massive financial gains for container shipping, marking a seventh consecutive quarter of record high income for the industry. The quarter’s $63.7 billion was up $35.1 billion, equivalent to 123%, from the same period last year. The sustainability of that trend is now coming into question, however, as shipping rates are beginning to slide amid weakening trade flows in and out of key markets like the US and China.
As The Wall Street Journal notes, the cost to ship a 40-foot container from China to the US West Coast stands around $5,400 per box, down 60% from January, according to the Freightos Baltic Index (FBX). A container shipped from Asia to Europe costs $9,000, 42% less than at the start of the year.
Freightos’s website shows its Global Container Freight Index peaked around $11,100 in September 2021, but has now dipped to below $5,300. The boom in rates through 2020-2021, along with the spate of record profits, spurred a shipbuilding splurge by container shippers. That is likely to play a role in tamping down on those rates.
Container fleets are growing more quickly than they have in some time, expanding the scarce space available aboard ships. In June, the order book for container ships became larger than both the tanker and bulker orderbooks in deadweight tonnage (DWT) for the first time ever, notes Clarksons Research. Additionally, The Maritime Executive reports shippers like MSC, Hapag-Lloyd, and ONE are going bigger than ever with their new orders, now planning…
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