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The global ocean freight market may be considered in a recovery phase as of November, according to the latest DHL Global Forwarding Ocean Freight Market Update
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Freight rates have dropped for the past three months from their peak in July but are now picking up again post-Golden Week (Oct 1-7)
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Carriers plan to implement rate hikes in November, but the sustainability of higher rates is uncertain
The global ocean freight market may be considered in a recovery phase, as of November, according to the latest DHL Global Forwarding Ocean Freight Market Update.
Freight rates have dropped for the past three months from their peak in July but are now picking up again post-Golden Week and are significantly higher than the same time last year. (Chinese Golden Week is an October holiday – from 1 to 7 — that sees most of China’s industries grind to a halt.)
Carriers plan to implement rate hikes in November, but the sustainability of higher rates is uncertain as carriers have not adjusted capacity for the winter season to match lower demand during the slack season, the DHL update said. It must be noted that the schedule of the new alliances begins in December and will last through the first quarter, it added.
Rates though are not expected to return to pre-pandemic levels because of “an uncomfortable large range of uncertainties” such as the risk of strikes in the US and Gulf coasts; new tariffs looming as a result of the US presidential election; and anticipation of service disruptions during the transition to the new alliances.
Most of all, the Red Sea crisis has lasted longer than expected, effectively squeezing available capacity. Even if the crisis ends soon, port and hinterland infrastructure may face bottlenecks.
Then there are weather-related disruptions that add to the uncertainties.
Despite all these, “strong demand” is still expected by DHL despite cautious consumer sentiment.
The update said the global container market was recovering in the first semester of this year, particularly on the Asia-AMLA (Latin America), intra-Asia, and AMNO (North America) import lanes.
Still, there are red flags especially the deteriorating prospects for the manufacturing sector.
While all seems well in the short-term, the mid-term outlook is “more uncertain than the current market conditions suggest.”
Global economic outlook
For now, “the global economic outlook focuses on decreasing inflation, easing monetary policies, and achieving a soft landing,” said the update.
Up until two months ago, the output, new orders, and employment indexes remained in contraction, all signs of a decline in economic activity.
The new export orders index showed weaker worldwide trade dynamics in the second semester of the year.
Still, DHL expects strong demand post-Golden Week Holiday.
Also on the plus side, capacity outlook at this time of year remains positive, with record-high new containership deliveries. No less than 2.5 million twenty-equivalent units (TEU) have been delivered thus far, with another 0.5 million TEU scheduled for delivery.
Some of the big carriers have been renewing their fleets.
The Golden Week Holiday saw a slight rise in idling, with idle fleet “unusually low” for this time of year.
Scrap sales, meanwhile, remain low at the present time, but the update notes that 683 ships of the top 10 carriers are already 20 years old.
The scrapping of old ships is expected to gather steam with the top ten ocean carriers having 431 container ships on order, with over 5.9 million TEU capacity.
Some ships older than 20 years have not been scrapped yet because of the present capacity situation, said the DHL update.
It noted that “some carriers need new tonnage to rejuvenate their fleets, not to grow it.”
Replacement tonnage varies among carriers, with MSC having 60% of its orderbook for replacing aging vessels.
READ: High freight rates put pressure on supply chains, vulnerable economies – UNCTAD
