Is the container shipping market cooling down? 11 consecutive weeks of decline mark the largest drop since the pandemic.

The downward trend in the shipping market is unstoppable. The Shanghai Containerized Freight Index (SCFI) has fallen for 11 consecutive weeks, with the decline widening to 8%, marking the largest weekly drop since the pandemic.

According to the latest data released by the Shanghai Shipping Exchange on August 26, the SCFI index fell another 275.57 points last week to 3154.26 points, reaching a new low since early May last year. Freight rates on major routes to Europe and the US have fallen across the board, with the US West Coast route falling by as much as 11% in a single week, and near-ocean routes falling by as much as 21%.

Among the three major routes, the freight rate for each FEU on the US West Coast route fell by US\$191 to US\$8801, a decrease of 2.12%. Although this is a new low since mid-June last year, the decline is relatively smaller than other long-haul routes. The freight rate for each FEU on the US West Coast route fell by US\$648 to US\$5134, reaching a new low since mid-July last year. The decline expanded from 6% the previous week to 11.2%, marking the first time a double-digit decline has been seen in a single week.

Meanwhile, the European route also continued its downward trend, with the freight rate per TEU falling by US\$347 to US\$4441, a decrease of 7.25%, reaching a new low since late April last year.

Industry insiders point out that judging from current freight rates, the shipping market has confirmed that the peak season in the third quarter will not be strong. Due to inflation in the European and American markets, weak demand, and inventory buildup, as cargo volume decreases, the pressure on shipping companies to fill containers has led to price wars, and falling freight rates have become a trend. Strikes and congestion at major ports in Europe and the US will determine the downward trend of freight rates.

As the traditional peak season in the third quarter fails to materialize, the market is starting to focus on the speed and bottom of the freight rate decline. Shipping companies continue to adjust the supply of cabin space to support freight rates, and the Europe and US routes still enjoy excess profits; however, if the decline continues to widen, each time a key level is broken, it could affect the market ecosystem; and against the backdrop of rapidly falling freight rates, it is possible that cargo owners will renegotiate long-term contract prices with shipping companies.

Statistics show that the SCFI index has fallen by more than 38% from its historical high, with the European route experiencing the largest decline of 43%, the US West Coast route falling by more than 36%, and the US East Coast route falling by 26%, which is related to the recent severe port congestion on the US East Coast. In addition, freight rates on near-ocean routes in Southeast Asia have recently fallen sharply, mainly due to the large volume of cargo on routes to Vietnam and Thailand attracting many shipping companies to compete for cargo.

Previously, the industry estimated that as long as freight rates fell by no more than 50% from their high, shipping companies could still maintain considerable profits, but if the current SCFI index trend continues, the profitability of shipping companies may face a test.

Last week, the spot freight rate for each FEU on the US West Coast route fell below the US\$5,000 mark, significantly squeezing the profits of many small ships that chartered ships at high prices. Large ships also face pressure to fill containers and need to cut prices to compete for cargo. Generally speaking, if the freight rate on the US West Coast route falls below US\$3,500-4,000, small ships that lack cost advantages may be the first to exit the market.

Analysts point out that the factors that can currently prevent freight rates from falling are primarily port congestion, which reduces ship turnover rates and naturally reduces the supply of cabin space. There are land and port strikes in both Europe and the US, including Felixstowe Port in the UK and Hamburg Port in Germany. In September, it was reported that nearly half of the flights on the European route were planned to be canceled, and the industry observes that the downward trend of freight rates on the European route seems to be slowing down.

The future trend of freight rates will depend on the speed at which inventories are cleared and inflation is eased. The industry predicts that after two quarters of inventory clearance in Europe and the US, seasonal demand and replenishment of general merchandise are expected to be seen in the fourth quarter, and it is hoped that the off-season will not be weak to support freight rates.