US-Western freight rates plummeted 21% this month, SCFI fell for two consecutive weeks, and the rush for shipments cooled down.

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The concentrated shipping market that lasted for several months is gradually ebbing, and the container shipping market has entered an adjustment cycle. The latest data shows that the Shanghai Export Container Freight Index (SCFI) fell for the second consecutive week, and the cumulative decline of the US-West Route this month has exceeded 20%. As new shipping capacity is gradually put into operation and demand for early rush shipments weakens, the market supply and demand relationship is shifting from tense to relatively balanced. However, due to the restrictions on the navigation of the Panama Canal, freight rates on the East-U.S. route remain relatively firm. For subsequent trends, we still need to pay attention to shipping companies' capacity control and changes in demand during the peak seasons in Europe and the United States.

On July 17, the Shanghai Shipping Exchange released the latest SCFI, which was reported at 3080.31 points, down 104.52 points or 3.28% from last week. This is the second week of correction for SCFI after rising for ten consecutive weeks, indicating that the early freight price increases driven by concentrated shipments are gradually cooling down.

Market participants said that since April, driven by rush for shipments and tight space, spot freight rates have increased by more than 70%. As shipping companies have successively increased shipping capacity and overtime ships have been put into operation, the tight market capacity has eased and freight rates have begun to return to rationality.

Among them, the adjustment of the US-Western route is the most obvious. Since this month, a large number of overtime ships have been put on the market, and the freight rate per 40-foot container has dropped by about US,600, a drop of 21.33%. Data from large freight forwarding companies show that the freight rate in the US-Western FAK market has been reduced from approximately US,500/FEU on July 1 to US,400 to US,600/FEU on July 9, and has further fallen back to the range of US,800 to US,000/FEU on July 17.

In contrast, the performance of the US East route is relatively stable, and the current market quotation remains at about US,900 to US,000 per FEU. Industry analysts believe that, mainly due to the continued tightening of navigation restrictions in the Panama Canal, some ships need to reduce their loading rates to pass, and the supply of shipping capacity is still tight, which provides certain support for freight rates.

European routes also experienced a correction. The current market quotation range is about US,800 to US,500 per FEU, which is down from about US,500 in early July, but the price difference between different shipping companies and different voyages is still large.

Industry analysts believe that as the 10% temporary import tariff in the United States expires on July 24, the rush for shipments caused by the early concentrated shipments has been basically released, the market booking enthusiasm has declined, and freight rates have entered an adjustment stage. However, the current overall freight rate level is still significantly higher than the level at the beginning of the year, and the market has not stalled significantly.

Although shipping companies still plan to try to promote a new round of freight rate increases in late July and early August, with the continued delivery of new ships and the gradual return of some of the shipping capacity previously adjusted due to the situation in the Middle East, the overall shipping capacity supply continues to improve. The market generally believes that the driving force for continued rapid increases in freight rates at this stage has weakened.

The U.S. East and Latin America routes will still face the impact of Panama Canal navigation restrictions in the future. According to the Panama Canal Authority plan, the maximum allowable draft will be reduced from 49.5 feet to 49 feet on July 24, and further reduced to 48.5 feet on August 15. As draft restrictions tighten, ships need to reduce their loading capacity to pass. The effective transport capacity of a single ship decreases, and transportation costs increase accordingly. In addition, some ship locks will be repaired from July 21 to 22, and navigation quotas will be reduced, which may further affect shipping schedules and increase the risk of port congestion. The market expects that shipping capacity via the Panama Canal to the East Coast of the United States may decrease by 20% to 40% in the fourth quarter, and the related impact may extend to Latin American routes.

In addition to SCFI, the Drewry World Container Freight Index also ended its previous ten consecutive weeks of rising trends this week, with the composite index reporting at US,547 per FEU, down 2% from the previous month. Drewry believes that the drop in freight rates reflects the weakening momentum of the peak season. However, the current WCI is still up 75% compared with the same period last year, the SCFI is up 87% year-on-year, and the overall market freight rate is still at a relatively high level in recent years.

The industry generally believes that as market demand weakens, this round of correction is more of a phased correction after a continuous rise. After entering the traditional peak season in the third quarter, the back-to-school season in Europe and the United States, the demand for stocking up for the year-end festivals, and the shipping companies’ subsequent capacity control measures will still be the key variables affecting future freight rates.