The freight industry held out hope that peak season would provide a much-needed turning point after a year full of weak demand and volume. This year, however, the peak season looks different from what we are used to in the pandemic years.
Shipping volumes are uncharacteristically low, and with high uncertainty in the market, we have seen minimal impact from this freight peak season. Already in September, many in the industry questioned if peak season had come and gone already. Not even China’s Golden Week seems to have managed to turn the trend around.
Let’s look at the factors involved, as well as the market outlook going forward.
No typical peak season
The typical pattern we have come to expect from freight peak season is increased shipping activity from about August to November, even December. This is normally explained by purchase heavy events occurring in the fall and winter seasons. The new school year market and holiday season retail, especially, drive a significant rise in shipping activity. During this period, we are used to seeing hikes in spot rates and demand far surpassing capacity.
However, this year we observed a minor boost in July and August, but rate movements have been irregular and demand has been tepid. Already in early September, the market was cooling down. It would appear that peak shipping season 2023 came and went, without making much, or any, noise.
Some experts argue that we are actually witnessing the market returning to its more normal state. According to these voices, freight shipping volumes in 2019 and prior years display a similar pattern to this year.
Shipping capacity has though massively increased since 2019, so the market situation today is still very different. In this climate, we are also expecting a higher number of blank sailings, which should tell businesses to stay on top of the situation beyond Golden Week.
Low consumer demand means low volume
Volume is down across the board. Consumers have less demand for material items, which naturally impacts the entire supply chain.
The 2 main reasons why:
- Out of lockdown mindset shift
Now that we are out of lockdown, people are not purchasing physical products to the same extent. They are rather spending their money on experiences such as travel, concerts, and restaurants. Additionally, with the overstock from over-ordering still available from when the market was booming, there seems to be little need for shipping.
- Inflation and high interest rates
No-one has missed the impact of the inflation spike we have been seeing across the globe. With inflation keeping prices high, consumers are significantly more careful with their spending. On top, interest rates are high, making items bought on credit more expensive for households and businesses alike.
Additionally, the Ukraine-Russia war continues to have profound impact on trade flows as well as push inflation. Russia was the Port of Hamburg’s fourth-largest trading partner prior to sanctions on Russian businesses. Looking at this year, volumes for the northern ports, including Hamburg, have been declining since the first half of the year.
The Port of Hamburg reported an 11.7 % decline in TEUs in the first half year of 2023. Respectively, Rotterdam reported a decrease of 8.2 % and Antwerp was down 5.2 %. Though we expect some stabilization, it is not looking likely for a recovery in the second half of the year.
Lower volumes are bound to have profound effects on available capacity and freight rates.
Capacity and freight rates
In a supply and demand economy, when one is up, the other tends to go down. So it goes also with capacity availability and shipping rates. When capacity is abundant, shipping rates tend to go down, especially when volumes are also low. In times of limited capacity and high demand, freight rates tend to soar.
Giant container ships, ordered during the pandemic boom, are now being delivered, leading to record-breaking capacity growth. At the moment, there are also plenty of containers and trucks available, but there is not enough volume to fill them. As a consequence, we have been seeing a downwards trend for shipping rates across all modes of transport throughout the year.
At the same time, there is a higher frequency of blank sailings than usual. We also expect carriers to continue to reduce capacity to stabilize rates.
Therefore, we suggest speaking to your regular customers about capacity planning. Customers may think that without the usual surge during this time of year, one can simply source capacity as one pleases. But, there is still room for possible seasonal fluctuations and the higher frequency of blank sailings is certain to cause disruptions.
Beyond peak shipping season: freight market outlook
Generally, freight rates, demand, and capacity are stabilizing. However, blank sailings are expected to remain prevalent well into 2024 as a way for carriers to ensure that rates are kept above costs.
It could be tempting to try to negotiate contract rates at this point, but we are advised that carriers and operators do not want to agree to long-term rates based on today’s prices. Xeneta’s CEO Patrik Berglund even warns that the extremely low prices that are locked in contracts now will make carriers to avoid transporting these containers when prices eventually rise.
The International Road Transport Union have been quoted to say that they also do not expect demand to pick back up until 2024.
Without a specific catalyst to drive the freight market forward, it is hard to predict when we will be able to see a positive shift in the market. There are still difficult geopolitical situations to account for, and disruptions caused by natural disasters are seemingly more frequent and with greater intensity.
What can you do as a freight forwarder?
Freight forwarders are constantly faced with changing market conditions. With the economic factors of inflation and high interest rates remaining, consumer demand is less likely to grow in the imminent future. But no matter the current state of shipping, your business needs to keep going and attempt to push forward.
Instead of focusing on decreasing prices and declining demand, downturn markets can be a time for skill development, adopting new technology, or setting up new strategic partnerships. It is always a good time to evaluate what could add growth and value to your forwarding business.
Unfortunately, there is no silver bullet solution and these are challenging times. We have earlier discussed the need for cost reduction and diversification in a downturn market. Read our interview with rouvia’s CEO Benjamin Noyan for his thoughts on how to maintain profitability as a freight forwarder right now.