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Cost of shipping in Asia-US route drops lowest in last 2 years

The global supply chain has been disrupted since the pandemic started. Due to the Covid restrictions, the industries were facing closure for various periods and delay in product delivery. Two years of disruptions have pushed shipping costs to record highs.

supply chain
Figure: Due to high inflation, the purchase of non-essential goods has decreased significantly.

This has increased inflationary pressures around the world. However, the global economic uncertainty has weakened consumer demand in recent times. As a result, shipping costs from Asia have reduced. Shipping costs between Asia and the US has fallen to their lowest level last week in more than two years.

According to shipping industry research consultancy Drewry, the cost of transporting a 40-foot container from Shanghai, the world’s largest port, to Los Angeles fell to $3,779 last week. For the first time since September 2020, the cost has fallen below $4,000 in the spot market. Even three months ago, the amount of this expenditure has come down to half.

Simon Heaney, senior manager of Drewry’s container research division said, it is now clear that the forecast for trans-Pacific and container shipping demand is declining rapidly. However, the demand for the product increases massively during this time of the year, but this time there is an exception.

Due to high inflation, the purchase of non-essential goods has decreased significantly. In this situation, factories in Europe and Asia are also reducing production. As China’s economy slows down, demand for imports also falls. As a result, orders from Asian and European companies in China are experiencing weak growth or decline.

Share prices of shipping companies also fell due to drop in sea freight. Shares in Copenhagen-based AP Moller-Maersk fell to their lowest level since March 2021. Shares in Germany’s Hepag-Lloyd hit their lowest level since June last year. China’s biggest shipping company Cosco Shipping Holdings also fell to a 17-month low and shares of Honolulu-based Matson fell by half from March’s record high.

Recently, cargo owners have called on agents and freight forwarders in Asia to reduce shipping costs. Some exporters reported spending almost twice as much on long-term contracts as on the spot market. Shipping companies are calling on exporters to increase cargo shipments. But exporters are rejecting it due to weak economic outlook.

Peter Sand, chief analyst at Janet, a market research firm in the shipping sector, said, “We have collected customer feedback. 50 percent of them have successfully negotiated term contracts to reduce freight costs. Shipping costs are trending downwards, largely due to reduced global demand. Along with this, the congestion in the ports has also reduced. As a result, ships are able to transport goods more efficiently.

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