Economic uncertainty and weakening consumer demand for goods mean a steep drop in shipping volumes for 2022’s peak season. Companies are bracing for slower-than-anticipated third and fourth quarters brought on by rising inflation, rebounding energy costs, and growing retailer inventories.
Since the start of the year, consumer demand has been showing signs of returning to pre-pandemic levels. But inflationary pressures throughout the summer have accelerated the trend, causing a nosedive in shipping volumes and spot rates that caught many companies off-guard.
While few expected the market to remain at the levels observed in the past two years, the downturn in shipping volumes has been especially painful as it coincided with the busiest and most profitable time of the year for shippers.
Shipping firms are looking at shifting trade winds with mixed feelings. They see softening spot rates, improved carrier capacity, and more manageable demand—but also canceled shipments, decreased warehouse space, and bruised bottom lines in their horizons.
Reduced carrier capacity and sliding spot rates
Carriers still wrestle with increased operating costs spurred by high fuel prices, labor costs, and investments to expand capacity during the pandemic. Many have started cutting capacity to accommodate sagging rates and lower cargo volumes in response to softening demand.
With demand softening, ocean container rates have fallen significantly from their 2021 peaks. According to the Freightos Baltic Index, Pacific daily freight rates average $3,900—down from $14,500 at the start of 2022. Ocean carriers, overwhelmed with congested ports and a shipping container shortage just a year ago, have resorted to canceled sailings to match vessel capacity with orders and keep spot rates from tumbling further.
Air freight is experiencing similar problems. The cost of shipping by air is down more than 20%, from a year ago, and volume rates have fallen by more than 10% in that same time. In addition, air cargo is quickly losing the appeal it caught during the pandemic when massive delays and high prices for sea freight made air transport rates look more competitive in comparison.
Air carriers are responding by trimming routes and reducing service. FedEx, the world’s largest air cargo operator, has announced cuts in routes across the globe. Amazon, which operates Prime Air, has dialed back service in the US and Europe and put the brakes on a plan to expand its cargo fleet.
There are regional differences to these changes. Carriers are seeing the most significant slides in rates and shipping volumes on Asia-Pacific and Asia-Europe trade lanes. Transatlantic routes have remained more stable and overtaken transpacific markets as the most profitable for carriers—primarily due to the route’s characteristic limited vessel capacity, which typically works in carriers’ favor.
Lower shipping volumes represent an opportunity for shippers
Lower shipping volumes spell good news for shippers—at least in the short term. While spot rates are still nowhere near pre-pandemic levels, they’re more manageable than they were for 2021’s peak season. Companies choked by high shipping costs now see the market turn much faster than anticipated.
Lower shipping volumes moving through ports and carriers’ networks could help supply chains unscramble from the pandemic’s jams. Shippers should take advantage of fewer artificial pressures on supply and demand to regroup, rebalance their operations, and prepare to weather continued inflation and a looming global recession.
Having the right technology will be essential to handle upcoming supply chain headwinds. CTSI-Global’s suite of software tools helps shippers manage every aspect of their logistics network—from billing and parcel management to business intelligence tools that enable end-to-end supply chain visibility.
Contact us to learn how our software can help you navigate any supply chain challenge.