The latest data from S&P Global Market Intelligence shows that freight rates continue to fall as global trade volumes slow due to shrinking commodity demand.
While freight rates have also fallen due to eased supply chain disruptions caused by the pandemic, much of the container and vessel demand slowdown is due to weaker freight, according to the team.
“The dramatic reduction in port congestion, coupled with weaker cargo volumes, is one of the main reasons for the significant drop in freight rates,” S&P said in a note on Wednesday.
“Based on expectations of weaker trade volumes, we do not expect extreme congestion again in the coming quarters.”
An aerial photo taken on August 7, 2022 shows the loading and unloading of import and export goods at the container terminal of Lianyungang port in Jiangsu province, Eastern China. China’s exports rose 7.1% in August year-on-year, while imports rose only 0.3%, both falling short of expectations, customs data showed on Wednesday.
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Rates for shipping containers and dry goods – or ships carrying raw materials and bulk cargo – have fallen over the past three months, S&P said, adding that rates peaked earlier than expected in the second quarter.
“Due to market seasonality, bulk freight rates will typically peak in the third quarter; however, according to S&P Global Market Intelligence’s latest dry goods market outlook, the second quarter could be will be the peak of 2022,” the company said.
The company’s Freight Forecasting models have also predicted the Baltic Dry Index – a barometer for shipping prices of key raw materials by sea – to be expected to fall by around 20% to 30% for the year before recovering slightly in 2024.
This highlights the growing risks of a global recession as consumer demand falters in the context of high cost of living and inflation.
A key sign of the global slowdown is slowing global trade growth, as recently highlighted by the latest World Trade Organization Commodity Trade Barometer, a benchmark that provides real-time information on the trajectory of commodity trading.
The barometer report published in August shows that the volume of world merchandise trade has grown steadily. Year-on-year growth in the first quarter of the year slowed to 3.2%, down from 5.7% in the final quarter of 2021.
It attributes part of the slowdown to the conflict in Ukraine and the containment of the pandemic in China.
While the WTO predicts that global trade will increase this year, uncertainty around that forecast has increased due to “ongoing conflict in Ukraine, rising inflationary pressures and expected tightening of tight monetary policy in advanced economies,” the barometer report said.
S&P Global Market Intelligence echoed those concerns.
“While we expect some seasonal improvement in the dry bulk market in the coming months, the volatile path to lower-than-expected rates in the near term due to slower economic growth expected with continued weakness in mainland China’s property sector as well as the absence of Daejin Lee, said lead shipping analyst at S&P Global Market Intelligence.
Therefore, any change in China’s Covid-zero policy or the truce in the Russia-Ukraine war could increase dry freight rates again, but any slowdown in commodity and consumer demand will push rates lower, S&P said.
On a positive note, global supply chain pressures continue to ease although they remain at historic highs, according to The Federal Reserve Bank of New York’s latest Global Supply Chain Pressures Index.
