The fourth quarter of 2022 is shaping up to be a challenging time for both carriers and shippers. This same time last year, shippers were faced with record high rate levels and lack of space on containerships. Carriers were flush with cash and able to choose the cargo they wanted to manage. As we enter Q4 2022, the Asia to U.S. market has taken a 180-degree turn.
Container freight rates from Asia to the U.S. have collapsed over the last few months. Rate actions for cargo moving to U.S. West Coast ports continue to trend downward. Unless the carriers step on the brakes, U.S. West Coast rates will be at pre-pandemic levels before the end of the year. U.S. East Coast rates have also seen significant decreases since May 1 but remain well above pre-pandemic rate levels.
The drastic reduction in freight rates could not come at a better time for shippers. While the reductions will help tremendously with overall landed costs, not all the news is rosy for shippers. There is a reason why carriers are discounting rates. Inflation is having an impact on consumer demand. Many shippers are having purchase orders reduced or cancelled altogether.
In addition to inflation, Q4 2022 container volume is down because retailers shipped cargo early. Retailers did not want another repeat of 2021 where supply chain issues caused product to miss the lucrative holiday season. Carriers rely heavily on U.S. retailers to ramp up their volume during the fourth quarter. Retailers are reporting full warehouses with no room for additional product. The spike in demand the carriers rely on this time of year is not going to happen. This will make it even more challenging for the carriers to stabilize rates.
Some carriers have publicly stated that unless volume picks up, they will be forced to withdraw vessels from the trade. They will do this as a last ditch effort to increase their Asia to U.S. vessel utilization rates. Shippers need to recognize that there is a big difference between cancelling sailings and withdrawing vessels from the trade. Once vessels are removed from the trade, that capacity is gone for the foreseeable future. If a carrier cancels a sailing for a particular week, that capacity is made available to shippers the following week.
The carriers have controlled 100% of the leverage since the pandemic began. They have been able to dictate contract terms, space allocations and more importantly rate levels for the past 30 months. The pendulum in the Asia to U.S. market has finally swung in the shippers’ favor. Shippers should experience lower rates through the end of the year.
It is too early to predict what is going to happen to rates moving forward in 2023. Shippers should take advantage of the lower rates while they exist. As this year has shown, the shipping industry can change very quickly. When the current contracts were finalized in May, not a single industry expert predicted that Q4 2022 ocean rates would be approaching pre-pandemic levels.