The Global Container Cargo Index, which peaked at more than $9,700 in March, has since retreated, falling steadily to $7,031, close to its index level of $6,753 in the same period last year. According to Drewry and Xeneta, spot freight is now below contract freight. Spot freight rates are widely forecast to continue to go down in the second half of the year. But cargo volumes are likely to fall more than expected, and while shipping activity has resumed in Shanghai, the momentum and timing of the rebound is unclear.
High inflation in the United States and Europe has led to a slowdown in consumer spending, with consumers performing well below expectations directly leading to an imbalance between supply and demand in the market. Amid rising pressure from foreign ports, capacity constraints and labor problems, large inventories are already posing a serious threat to supply chains, citing the bullwhip effect in economics.
(Bullwhip effect: A scenario used to describe a temporary surge in retail demand amplified and exaggerated by upstream manufacturers and suppliers, who are rapidly ramping up production well beyond what consumers can support. Eventually, retailers find themselves with more inventory than they can sell, and what started out as a commodity shortage turns into a commodity glut.)
In North America, for example, the volumes of international freight are down 8% since May, while container bookings are down 36%. Problems with overstocking may have some impact on the freight market in the second half of the year. We foresee further price movement in the market over the next few months and further volume declines compared to the same period in 2021.