Container Demand in Asia Muted Ahead of Peak Season, Despite US-EU Retailers’ Destocking Efforts
- Feeble container demand outlook for H2 2023 in Asia to hit shipping industry’s profitability
- Asian ports rank amongst bottom 5 for 40 HC Cargo worthy container prices last 7 days
- Continuous drop in container prices observed in significant Asian markets (China, Singapore, Vietnam, and Malaysia) since 2023
- Shipping industry enters Q3 with continued rate corrosion, as negative market sentiment persists ahead of the ‘invisible peak season”
Amidst global concerns, US EU retailers’ confidence in efficient inventory destocking is not translating into container demand revival in Asia as observed by Container xChange, an online container logistics company.
This could be corroborated by the stagnancy of the Container Availability Index (CAx) at the ports of China as indicated in Fig 1 below. Chinese ports are witnessing a steady influx of inbound containers meaning that export activity is not getting reflected in container outbounds. According to our CAx, major ports in China are experiencing a higher proportion of incoming containers compared to outgoing ones continually. A higher CAx value signifies a larger number of inbound containers in relation to outbound containers.
Fig 1: Container Availability Index of 40HC containers at ports of Shanghai and Ningbo
As the world looks to America for consumer demand, there are problems with rising prices, inflation, and wage disputes. The average container prices show no signs of improvement. This suggests that there is less urgency for cargo demand or returning empty containers back to Asia in that region.
Dialling it back to inventory destocking, US companies are increasingly confident that their efforts to reduce inventory are effective in reducing the excess goods accumulated in 2022. However, research conducted by Armada Corporate Intelligence suggests that this destocking process is not happening rapidly enough. According to their estimates, 61.5% of US businesses still have excessive stock, with only 23.7% maintaining a well-balanced inventory, and 11.3% facing understocked situations.
At present, retailers find themselves grappling with fully stocked warehouses. According to the St. Louis Fed, inventory levels in US warehouses have soared to over USD 770 billion, a considerable increase compared to previous years. This surplus in inventory poses a unique challenge for businesses as they navigate the complexities of managing and utilizing their stocked goods.
Fig 2: US Shipper Inventory Sentiment Index by BlueGrace Logistics
China, the most important destination for the westbound trade also provides no clear signal of demand revival for containers. The figure 3 below shows the price trend for average container prices since 2021 in the month of June.
Fig 3: June on June Comparison 2021-23, China ports
Asian ports rank among the five regions with the lowest average container prices in the last seven days for 40 HC Cargo worthy containers as shown in below figure 4.
Fig 4: Container Price Spot Rates in the last seven days for 40 HC Cargo worthy containers
Further, the industry forecasts suggest that the traditional 3rd quarter peak in Asia-US trade might not materialize this year. The reason behind this apprehension lies in two factors: the lingering effects of weak demand and the problem of excess capacity. During the first half of the year, container exports from Asia to the United States witnessed a staggering 21.8% decrease compared to the previous year, amounting to a total of 8,171,160 TEUs.
“This sharp decline casts doubt on the efficacy of any potential container rate reinstation that container liners may have in mind for the upcoming Q3, as it seems that a meaningful rebound is now only expected in Q4.
The unexpected twists and turns in the trade dynamics between Asia and the US underscore the intricacies of the global economy. While some nations are grappling with substantial losses in exports, others are cautiously rejoicing at their modest gains. All eyes are now on the rest of the year, hoping for a reversal of fortunes in the wake of these uncertain times.” remarked Christian Roeloffs, CEO and co-founder of Container xChange.
Freight Forwarders Witness Alarming Drop in Container Prices Globally
A recent survey by Container xChange reveals that freight forwarders are feeling cautious. Container prices in key markets like China, Europe, and the US hit their lowest average in June 2023, compared to the same month in 2022 and 2021. This drop in prices could put more pressure on shipping companies’ profits.
A study of how average container prices have developed for standard containers (new and cargo worthy) in the second quarter of 2023 (April-June), shows that most of the regions witnessed continued price slides or marginal price rises for standard containers. Q2 witnessed no significant uptick of average container prices, for both new and cargo worthy containers.
A lookback from the Q2 2023 of average container price development (referred to as delta in the chart below) on key routes shows that only the Northern Europe and Middle east and ISC region saw marginal increase in these prices, rest being negative for standard containers.
Fig 5: 90 days delta of region-wise average container prices for standard containers
In Singapore’s ports, the average container prices for 40 HC Cargo worthy containers have been sliding gradually from $1913 in January 2023 to $1614 in July 2023 seeing an average dip of 15%.
Fig 6: Average Container Prices in Singapore for 40 HC Cargo worthy containers
From January 2023 to July 2023, the average container prices for 40 HC Cargo worthy containers in Malaysian ports have steadily declined, dropping from $1925 to $1642, representing an average decrease of 14%.
Fig 7: Average Container Prices in Malaysia for 40 HC Cargo worthy containers
Between January 2023 and July 2023, the average prices for 40 HC Cargo worthy containers in Vietnam ports have consistently decreased, falling from $1962 to $1492, marking an average decline of 23%.
Fig 8: Average Container Prices in Vietnam for 40 HC Cargo worthy containers
The findings signal challenging times ahead for the shipping industry. Freight forwarders are worried about the declining container prices, which pose complex challenges.
“The year 2023 started with significant oversupply of containers and high uncertainty in the market—which led to substantial rate erosion. The average container prices have been freefalling and there are no signs of revival as we approach the busiest period in the shipping industry. It is quite evident that the peak season is almost invisible.” added Roeloffs.
This month’s container logistics report, ‘Where are all the containers’ covers data and information in length and can be downloaded from here
