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Container Shipping Rates Plummet to New Lows: What’s Driving the Decline?

Container shipping rates have taken a nosedive, erasing the price hikes that container shipping companies managed to secure earlier in the summer. According to the British consultant Drewry, the average rate on the Shanghai-Rotterdam route fell by 10% last week, plummeting to $1299 per forty-foot container. This marks a new low for the year, with the previous low recorded at $1313 in late June.

At the peak of the pandemic years, container shipping companies could charge as much as $15,000 per container on the Shanghai-Rotterdam route. However, in August, due in part to a modest recovery in volumes, they managed to push the average spot rate above $1750 per forty-footer.

The current drop in prices reminds shipping companies of the pre-pandemic era when rates sometimes hovered around $1200. However, today’s shipping companies are facing even more challenging waters due to skyrocketing costs, resulting in them operating below cost. Hapag-Lloyd CEO Rolf Habben Jansen has repeatedly called the price levels unsustainable, arguing that prices will inevitably rise again. However, in practice, spot rates have continued to decline in recent weeks.

Danish shipping expert Lars Jensen predicts that unless container shipping companies make more drastic cuts to their sailing schedules, rates will continue to plummet in the coming weeks.

Capacity Reductions and Slow Steaming

To counter the declining rates, container shipping companies have already decided to cancel many sailings around the Golden Week, the Chinese holiday at the beginning of October, which marks the start of the low season for container shipping. According to the Danish data bureau Sea-Intelligence, on the Asia-Europe route, during Golden Week and the following three weeks, companies have already taken 19.9% of capacity out of service, a higher percentage than in the sluggish years of 2017-2019. They are also attempting to artificially reduce container capacity by adopting slower sailing speeds.

Despite the massive blank sailings, container shipping companies still have tens of thousands of extra TEUs (twenty-foot equivalent units) to fill compared to the pre-pandemic years. This is because they have built many new, larger container ships, some of which are already in service, while others will be delivered in the coming months.

Transport Intelligence (TI), a British research agency, also expects sustained pressure on container rates. The top three container shipping companies—MSC, Maersk, and CMA CGM—reportedly have strong enough financial positions to afford leaving a significant portion of their ship capacity unused and adopting a more aggressive pricing policy in negotiations with shippers. However, TI raises the rhetorical question of whether it is sustainable for these companies to mothball brand-new ships for an extended period.

According to TI, mid-sized shipping companies will attempt to seize market share from industry leaders by deploying their newbuild ships. It seems highly likely that the oversupply of ships will continue to exert downward pressure on rates in the market.

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