China’s outbound container volumes take another step down

Daily sea container departures from China to all ports around the world continued to decline, falling to down 22% from a year earlier on Wednesday, according to data in FreightWaves SONAR Container Atlas.

Sea container departures from China rebounded after Golden Week – the first week of October this year – but then declined as weak overseas demand and renewed COVID-19 lockdowns in Guangzhou impacted economic activity.

(Sea container bookings by departure day from all China ports to all global ports. Chart: FreightWaves SONAR Container Atlas. To learn more about FreightWaves SONAR, click here.)

The chart above sorts the daily container booking data by the departure date listed in the booking. It represents the volume that actually departs from container terminals and not the amount of booking activity that takes place on any given day. Daily container departures are volatile, so year-on-year (Y/Y) comparisons based on a single day can be misleading. But the larger trend is clear: volume pressure is significantly lower than last year.

The weaker container bookings appear to be fairly well distributed and not just limited to ports in the same region as Guangzhou like Yantian. Bookings from Shanghai and Ningbo also look weak.

There is reason to believe that sea container volumes from China will continue to deteriorate before they improve. Recent bookings of sea containers from China – for example sorting sea container shipments by the day they were booked rather than the scheduled departure date – suggest that fewer shipments have been booked in recent weeks, which means fewer departures in the future becomes.

(Ocean container bookings by day of booking from all China ports to all global ports. Chart: FreightWaves SONAR Container Atlas. To learn more about FreightWaves SONAR, click here.)

Sea container bookings sorted by booking day reflect daily demand pressures from shippers and their suppliers and tend to be more volatile than actual departures, which are inevitably tied to the physical capacity of the departing vessels. A sudden surge of bookings on any given day is likely to leave over several days. The timetables of the steamship lines tend to compensate for the short-term volatility in booking demand.

However, the benefit of sorting sea container volumes by booking date is that it can serve as a leading indicator of departures, albeit as a ‘raw’ directional indicator near the longwall.

Significantly decreasing demand pressures in the form of container volumes have already been implied by steamship line capacity reductions on key trade routes such as the Eastern Transpacific, which have so far been unable to restore shipping companies’ pricing power. But these data confirm a bearish outlook going forward.

Mario Cordero, executive director of the Port of Long Beach, California, told CNBC he forecast empty sailings equal to 15% of inbound ship capacity in the fourth quarter. Meanwhile, Sea-Intelligence counted 50 announced empty runs from China to North American ports for the last 10 weeks of 2022.

Capacity reductions on the transpacific appear to be slowing, but not entirely halting, the decline in spot rates on the trade route.

(Chart: FreightWave’s SONAR Container Atlas. Eastbound transpacific spot indices still look weak, but the rate of decline has slowed. To learn more about FreightWave’s SONAR, click here.)

The Drewry World Container Index (WCI) from Shanghai to Los Angeles (yellow line) fell to $2,130 per 40-foot unit (FEU), down 14.7% month-on-month (m/m). The Freightos Baltic Index Daily, China to North America West Coast (green line), which tends to be more volatile than and slightly ahead of the Drewry WCI, has stabilized, rising to $2,707 per FEU and up 6.9% mom .

The demand picture for the future remains somewhat unclear.

For some transportation industry observers, weak volumes and rates in September and October were merely symptoms of a peak season that came earlier than usual in the year and not a sign that overall freight demand was weakening significantly. According to this understanding of the market, the high season for sea containers in 2022 was soft because it was “brought forward”.

On the other hand, freight demand was unusually high for a period of nearly two years and now appears to be slowing due to slower economic growth – the United States posted two consecutive quarters of negative GDP growth in the first half of 2022 – and high commodity inflation while normalize consumers due to consumer return to services and experiences. Rather than an “early peak,” according to this narrative, increased container imports in the summer of 2022 were the latest gasp of the COVID-19 economy’s unusually high commodity consumption.

A more fundamental question revolves around how much of the movement in a spot rate for sea containers can be attributed to domestic market dynamics compared to broader macroeconomic trends.

Some cycles are clearly driven by internal market dynamics, such as over-development and capacity glut. Other cycles appear to be more closely related to shippers’ urgency to move freight in response to consumer demand signals. Often these cycles do not overlap and cancel each other out, similar to negative interference.

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