[Freightos Weekly Update] Freight rates and congestion levels point to normalizing supply chain

Key insights:

1. The increase in Covid cases in China is reportedly having some impact on manufacturing and logistics operations. But as demand for exports is easing in any case, resulting delays may not be felt very widely, for now.

2. Normalizing supply chains may be reflected in transpacific ocean rates that are now about even with rates in January 2020 for both coasts. Asia - N. Europe rates are still more than 40% higher than in early 2020, possibly due to some lingering congestion and increases in blank sailings.

3. Freightos Air Index rates ex-China to N. America and Europe remained stable compared to November to close out the year but at $6.76/kg and $4.43/kg, respectively, were about 40% lower than a year ago.

Ocean rates:

• Asia-US West Coast prices (FBX01 Weekly) were unchanged at $1,382/FEU. This rate is 89% lower than the same time last year.

• Asia-US East Coast prices (FBX03 Weekly) dipped 1% to $2,898/FEU, and are 82% lower than rates for this week last year.

• Asia-N. Europe prices (FBX11 Weekly) increased 14% to $2,741/FEU, and are 81% lower than rates for this week last year.

Analysis

The recent easing of Covid restrictions in China has led to reductions in available labor as people call in sick, and together with inclement weather in some areas has started to impact ocean logistics in the form of growing delays at some key hubs.

The extent and duration of China’s Covid surge will determine how disruptive it will prove to manufacturing and international trade. In the meantime though, as demand for freight continues to decrease, some additional congestion may not be felt very widely.

The latest economic data from the US show a slowdown in consumer spending on goods. This pullback, alongside inventory recoveries for many retailers, is causing pain for some logistics providers like FedEx. But the easing of supply chain disruptions – including falling freight rates and more stable inventory levels as congestion eases and delays decrease – is one factor that has returned negotiating power to big retailers and could result in lower prices for consumers.

Normalizing supply chains may be reflected in transpacific ocean rates that were stable this week, and are about even with rates in January 2020, for both coasts. Asia - N. Europe rates rebounded somewhat to $2,741/FEU, still more than 40% higher than in early 2020, possibly due to some lingering congestion and increases in blank sailings.

Freightos Air Index rates ex-China to N. America and Europe remained stable compared to November to close out the year but at $6.76/kg and $4.43/kg, respectively, were about 40% lower than a year ago. Carriers are hoping that – if key economies can avoid serious recessions – demand will recover to more typical levels and seasonality will return at some point in 2023 as inventories normalize.