Shippers to feel end of the pandemic boom in early 2023

The fortunes of shippers have quickly gone from great to gloomy, with international freight rates falling precipitously in world where trade on major routes is declining.

A container vessel sails from Busan Port [YONHAP]

The fortunes of shippers have quickly gone from great to gloomy, with international freight rates falling precipitously in world where trade on major routes is declining.

The Shanghai Containerized Freight Index (SCFI), a benchmark index for container shipping rates, was down 58.3 percent on year to 1,922.95 on Sept. 30. The index hit a record 5,109.60 in January.

The Baltic Dry Index (BDI), the benchmark index for dry cargo shipments, was 1,760.00 as of Sept. 30, down 65.94 percent on year.

“If the SCFI continues to fall, it is possible that it could reach the 1,000-level in the fourth quarter,” said Yang Ji-hwan, and analyst from Daishin Securities. “It's hard to hope for the index to rise and cargo volume to recover considering inflation, rate increases and falling consumption.”

During the pandemic, demand for ocean freight increased. E-commerce orders were a major factor. Congestion at ports, due to container terminals temporarily closing during Covid-19 lockdowns, also drove up freight rates as companies scrambled to find ships to transport their products.

HMM's net profit rose 4,200 percent to 5.33 trillion won ($3.7 billion) in 2021, with revenue jumping 115 percent to 13.8 trillion won. It is still reporting profits, with its second quarter net rising 1,293 percent on year to 2.9 trillion, but growth has been slowing.

The pace of trade growth in Korea is slow, falling from above 30 percent year on year in 2020 to below 10 percent in recent months.

“Container shipping indices are falling even though it should be the peak season,” said Kim Young-ho, analyst at Samsung Securities, referring to the pre-holiday rush. “This mostly has to do with freight rates falling due to congestion at ports easing and increasing supply, and less demand for shipping due to growing worries about economic recession in the future.”

China is also a factor.

“One of the biggest reasons for the fall of the BDI is China’s slowing growth and less demand for coal and iron ore imports and shipping,” said Choi Go-woon, an analyst at Korea Investment & Securities. “There is hope that shipping demand for dry cargo could go up in the winter as Ukraine resumes exports of grain and needs more small- to mid-sized vessels and demand for coal increases in Europe due to the energy crisis.”

According to China’s General Administration of Customs, the country imported 115 million tons of coal in the first half, down 17.5 percent on year and a six-year low. Iron ore imports fell 4.4 percent on year to 535.8 million tons.

Falling freight rates won't significantly affect shippers in third and fourth quarters, but they could start to feel weak pricing next year as companies tend to renew annual shipping contracts at the beginning of the year.

To overcome falling freight rates, HMM announced in its second quarter conference call that its goal is to ink more contracts for frozen and refrigerated cargo, which are more profitable than normal container or dry bulk shipments.

Hyundai Glovis might be less affected as it is a shipper of vehicles.

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]