Global supply chain is under ongoing pressure! Can freight rates be normalized in later this year with strong shipping capacity growth?

     Recently, Germany's largest container carrier Hapag-Lloyd announced its financial report. The financial report showed that their revenue and profit in the first quarter increased significantly, and the capacity did not change much compared with the same period last year, and it expects strong performance in the second quarter. But they also said that while the current global supply chain is still under enormous pressure, "this situation is expected to improve in the second half of the year". Hapag-Lloyd said in its quarterly financial report that a weakening global economy and ongoing supply chain disruptions will slow industry growth this year.

Shipping consultancy Seabury also forecasts that global container throughput will grow 2.6% year-on-year this year, compared with 6.6% growth last year. According to the Freightos Baltic Index launched by the Baltic Shipping Exchange and Freightos, as of this week, the shipping price from China to the west coast of North America was $12,512/FEU, down more than 22% from four weeks ago. But that price is still more than double what it was at the end of April 2021 ($5,939/FEU).

To maintain profitability and offset weak demand, Hapag-Lloyd and other major carriers have collectively cancelled a certain number of sailings on three major trade routes over the past month. According to data provider Xeneta, sailings from Asia to West America were canceled the most, with 63 in total, accounting for about 25% of the capacity; the sailings from Asia to the East of the United States were the least reduced, accounting for about 10% of the capacity; In 2018, about 13% of capacity was cancelled, and spot freight rates fell the most.

The International Monetary Fund (IMF) said in a recent research report that "unstable" global shipping costs are an important driver of global inflation. When freight rates double, inflation rises by about 0.7 percentage points. “Most importantly, the impact is fairly long-lasting. It peaked a year later (increase in freight rates) and lasted as long as 18 months. This means that the increase in shipping costs observed in 2021 could make a difference in 2022. Annual inflation has increased by about 1.5 percentage points."

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