IPC International Community magazine an association member publication
Issue link: https://iconnect007.uberflip.com/i/1497169
IPC COMMUNITY 18 SPRING 2023 decline since June 2020, in the early shadow of the pandemic. This drop in container throughput has brought containerized freight costs down sig- nificantly. The Shanghai Containerized Freight Index, which measures shipping freight costs from Shanghai, peaked at just under 5100 index points in January 2022, up more than 500% from pre-pandemic levels. The index has since declined to levels last seen in the early months of 2020. Similarly, the Freightos Baltic Index, which measures the price movements of FEUs (a 40-foot equivalent unit) across 12 major maritime lanes, peaked in November 2021 at $10,525. The index is expressed as an average price per FEU. The index fell below $2,000 in February 2023, a decline of over 81% from its peak. The index is back to lev- els last seen in August 2020. A.P. Moller - Maersk A/S, one of the world's largest ocean freight companies, said its earn- ings could fall nearly 80% this year as a result of weakening demand and declining shipping rates. Spot rates for containerized freight were the first to fall, but longer-term contract rates are also starting to decline. Xeneta data shows that the premium between long-term contracts and the spot market fell from over $5,000 per FEU to under $1,300 through the first two months of this year. Inventory corrections are adding down- ward pressure to container volume in the near term, and this will likely continue in the months ahead as companies work through excess inventory. Another force likely to keep shipping rates down is the number of new container ships expected to enter the market this year. A record 2.5 million TEUs of new container ship capacity is expected to be delivered in 2023. Carriers will likely attempt to defer some of this new capacity to 2024, and we could also see an increase in cancelled or blank sailings in order to reduce capacity. Though long-term contract rates will likely remain above spot market prices in 2022, many companies will still look to enter renegotiated lon- ger-term contracts that provide guaranteed pricing. After two volatile years, many compa- nies are looking for certainty even if it means slightly higher prices. AIR FREIGHT Global air freight demand fell 8% in 2022 and was down 1.6% from pre-pandemic (2019) levels. Capacity for the year was up 3% com- Chart 2: Measuring shipping freight costs.