Tuesday , April 23 2024

Sea shipping costs dip amid sliding demand


Sea shipping costs have plunged by over 80% from the previous peak as consumption has dropped amid inflation concerns.

Tran Lam Son, CEO of wood and furniture exporter Thien Minh, said that shipping a container to Europe now costs around $1,700, down nearly 92% from the peak of $20,000 a couple of years ago.

The price drop poses opportunities for businesses like Thien Minh but is perceived as a negative sign for the logistics sector.

Logistics platform Phaata has data showing that shipping a 40-foot container from Ho Chi Minh City to Northern Europe now costs $1,700, down from $15,000 in January.

From HCMC to Los Angeles the average price is now $1,400, compared to $12,000 in September 2021. To New York, freight costs $2,900 against $15,000 two years ago.

From Asia to India costs have plunged by over 90%, said Le Thi Lan Anh, business director of logistics firm MH Great Sun.

Phaata CEO Nguyen Hoai Chung said that prices are now plunging because consumer demand in North America and Europe has plummeted due to inflation and forecasts of economic difficulties.

Inventory in these regions is still high and so importers do not need to buy more from Asian countries, including Vietnam, he added.

Slower manufacturing activity in China in recent years has reduced pressure in ports and congestion is no longer a problem, he said.

Weak demand is likely to persist throughout this year. The International Monetary Fund last month forecast that global trade growth will drop from 5.4% last year to 2.4% this year.

American spending on goods has dropped 5.4% from the peak in March 2021.

Logistics giant Maersk anticipates that container shipping demand will drop by 2.5% this year.

The supply of container ships, however, is expected to rise in this and next year and many ships are set to be completed.

Container ship capacity is set to increase by 7.8% this year while demand is expected to rise 3.5%. In 2024 the two figures are expected to be 8.3% and 3.5% respectively.

This shows that there will be an oversupply of container ships in 2023 and 2024, and competition in the logistics sector is set to be intense, Chung said.

SSI Securities Corp. analysts said in a report that demand for goods from Vietnam will likely resume in the second half of the year when the shopping season arrives and after unsold inventory has been liquidated in Europe and the United States.

Anh, however, has a more pessimistic forecast.

“There is no sign that the financial market will recover this year,” said Anh. “Deposit interest is still rising and a recovery in the logistics industry is not expected until the very end of 2023.”

Phaata CEO Chung said that container shipping prices to North America and Europe will continue to stay low until recovering in the fourth quarter as Christmas shopping rises.

Next year, prices will continue to fall as container supply outweighs demand.

“The logistics sector will see brighter signs in 2025 and prices will resume to pre-pandemic levels,” said Chung, “with a more balanced supply and demand relationship.”

Chung advises logistics firms to expand their markets to other Asian destinations such as China, Japan, South Korea and Southeast Asian countries.

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