Signs of Global Economic Downturn... Decline in Chinese Maritime Freight Rates

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[Asia Economy Senior Reporter Cho Young-shin] The export container freight index from China has declined.

[Image source=Yonhap News]

Chinese media outlets such as state-run China Central Television (CCTV) and Dongfang Caifu Network cited statistics from the China Federation of Logistics & Purchasing (CFLP), reporting on the 8th that the export container freight index in August recorded 3033.60, down 6.4 percentage points from the previous month. The road logistics (land) freight index for the same month also fell by 0.16 percentage points to 103 compared to the previous month.

He Liming, chairman of CFLP, said, "Due to previously insufficient transportation capacity, major logistics freight rates in China were excessively high, but since the third quarter, freight rates have been falling," adding, "The decline in logistics freight rates helps enhance the competitiveness of Chinese companies, especially Chinese export companies." The drop in freight rates means that Chinese export companies can have price competitiveness as it lowers the prices of Chinese export products.

The problem is that container freight indices worldwide are falling together. This indicates a lack of demand, and a decrease in demand signals an economic recession. In fact, as of the 30th of last month, the Shanghai Containerized Freight Index (SCFI) recorded 1922.95, down 149.09 points from the previous week. The SCFI falling below the 2000 mark is the first time since November 2020. The figure of 1922.95 also represents a sharp 39% plunge compared to August, the previous month.

The decline in freight indices is also confirmed by prices. Just before the Chinese National Day holiday (October 1?7), the freight rate for a 40-foot container from eastern China to the U.S. West Coast fell below $2,000. The UK-based Drewry World Container Index, released on the 6th, also plunged, with the 40-foot container freight rate recorded at $3,688.75. This is an 8% drop from the previous week and a 64% plunge compared to a year ago ($10,377).

Concerns are also emerging within China regarding the sharp drop in maritime freight rates. There are worries that the decline in maritime freight is closely related to global demand.

A representative from a Chinese logistics company said, "Usually, the end of September before the National Day holiday is the busiest period," adding, "In previous years, it took about two weeks to fulfill order volumes, but this year it only took two days."

The U.S. Federal Reserve (Fed), focused on curbing inflation, has implemented three consecutive giant steps (0.75 percentage point interest rate hikes) and is signaling further rate increases. The global currency market is also fluctuating due to U.S. interest rate hikes. The dominant analysis is that fears of an economic recession are reducing global demand, which is affecting container maritime freight rates, a barometer of the real economy. The sharp drop in maritime freight rates can also be interpreted as a prelude to a global economic downturn.

The sharp decline in maritime freight rates is expected to negatively impact the shipping industry as well. Since the second half of last year, as maritime freight rates soared, the shipping industry rushed to sign long-term transport contracts. The sharp drop in maritime freight rates could deal a fatal blow to export companies, logistics companies, and shipping companies (charter and re-charter shipping companies).

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