Low demand of China goods affect shipping

The cost of shipping goods from China has reached its lowest point in over two years as the global economy struggles, potentially impacting the profits of container carriers that saw record profits during the pandemic. According to Drewry, a 40-foot shipping container from Shanghai to Los Angeles sold for $3,779 last week, the first time the spot price was below $4,000 since September 2020, and half the level of three months ago. More declines are expected in the coming weeks.

The decrease in the cost of shipping can be attributed to a variety of factors such as rising inflation, a surging dollar, central bank interest rate hikes, and trade disruptions caused by Russia’s war in Ukraine. Additionally, global demand for Chinese goods is decreasing as consumers cut back spending due to inflation and a shift towards services. Factories in Europe and other parts of Asia are also scaling back production.

For shipping lines, the decrease in demand for Chinese goods is providing some relief to their schedules but also threatens to slow down their profitable run driven by stronger-than-normal consumer demand during the pandemic. The decline in spot container rates is putting pressure on carriers that have been pushing to sign more long-term contracts with customers as prices soared into early 2022. Companies like A.P. Moller-Maersk A/S, Hapag-Lloyd AG, Cosco Shipping Holdings Co., and Matson Inc. have seen their shares decline as a result.

US container imports, in particular, are slowing down to more normal levels seen before the pandemic. This is a stark contrast to two years ago, when US import demand began to surge, leading to a queue of cargo ships off the coast of Southern California that reached a high of 109 in January 2022. As of Friday, the line to enter the ports of Los Angeles and Long Beach had only eight vessels.