"All Indicators Decline"... Shipping Industry After Boom Ends

[Asia Economy Reporter Hyunseok Yoo] The global shipping freight index is experiencing a relentless decline. This is interpreted as reflecting the easing of port congestion and concerns over a global economic downturn, despite the peak season in the third quarter.

According to the shipping industry on the 10th, the Shanghai Containerized Freight Index (SCFI), a container ship freight rate indicator, recorded 2847.62 on the 2nd, down 306.65 points from the previous week.

The SCFI began to rise in 2020. After recording 857.63 in May 2020, it continued to increase, reaching 2783.03 by the end of the year. It then rose to 5046.66 at the end of last year and jumped to 5109.60 in January.

The freight rates were driven up by port congestion caused by COVID-19. However, since January, the SCFI has been unable to escape a daily downward trend. Recently, it has fallen for 12 consecutive weeks, dropping below 3000 points for the first time in 17 months since April last year.

The decline in shipping freight indices is not limited to the SCFI. The Baltic Dry Index (BDI) for dry bulk carriers shows a similar trend. The BDI, which soared to 5647.0 on October 6 last year, fell to 1133.00 on the 5th of this month. Notably, on the 31st of last month, the BDI dropped to 965, falling into triple digits for the first time in 27 months since June 12, 2020.

The biggest reason for the decline in global shipping freight is concern over an economic recession. The Russia-Ukraine war caused raw material prices to surge temporarily, reducing industrial demand. In particular, the tightening policies of countries worldwide have increased concerns about the global economy. The International Monetary Fund (IMF) revised its global GDP growth forecast downward from 4.4% in January to 3.6% in April and 3.2% in July this year.

Another factor contributing to the freight rate decline is the expectation of a large supply of ships in the future. Last year, global ship orders reached 46.64 million CGT (Compensated Gross Tonnage), a 259% increase compared to the previous year. Although cumulative orders from January to August this year decreased by 30% year-on-year to 27.68 million CGT, the backlog of orders remains substantial. As ships are expected to be delivered sequentially, there are concerns about oversupply.

Professor Kyohun Koo of the Department of International Trade and Logistics at Baewha Women’s University explained, "The simultaneous plunge of the SCFI and BDI means that the global economy has already entered stagflation," adding, "It implies that the shipping market is likely entering a recession and stagnation phase."

However, there is also an opinion that the current decline is part of a normalization process. Freight rates had been abnormally high for some time. A shipping industry official said, "Now, ocean freight rates are normalizing from an abnormal state, so in a way, this is natural," and added, "If all shipping companies had good performance until now, differentiation will emerge from now on."

This content was produced with the assistance of AI translation services.