What is likely to happen to Asia ocean import rates in 2022?

By Paul Gallagher

The most frequent question that the KM team and I are being asked at the moment is “What is likely to happen to Asia ocean import rates in 2022?”

Unfortunately, and frustratingly, the answer is we just do not know with any certainty. There are so many current factors, on both sides of supply and demand, that are having an impact, which makes it impossible, and perhaps irresponsible, for us to predict.

What is widely accepted is the current rate levels are not commercially sustainable for shippers and traders to operate efficient supply chains. It is hoped that, with a more prolonged Chinese New Year break, there may be some respite and by the end of Quarter 1, or into Quarter 2, we may see some easing of freight rates.

The ongoing Covid pandemic is obviously going to have an impact. However, that aside, below is a summary of what we believe are the key factors that will impact this year’s rates in both supply and demand.

Supply – Port Congestion

We’re witnessing port congestion throughout the UK, Europe, USA and Asia. China is regionally managing port restrictions which ties up large amounts of tonnage, and hundreds of thousands of containers are getting stuck globally. Without some improvement here, this will continue to have a negative effect on availability. The CNY downturn in activity might provide some ports with a firebreak to help realign their operations.

Supply – Schedule Disruption

Most schedule disruption follows on from the congestion. The time it takes for a full vessel rotation can be double what it would usually have taken and there is a knock-on effect for subsequent scheduled port calls. Carriers often introduce blanked sailings to help realign vessels back to schedule, but in truth this practice also enables them to reduce the space available, which helps to maintain higher rate levels.

Supply – Equipment Turnaround

Taking account of the above, with container equipment being held much longer in ports and on vessels that are taking longer to return with empties, we have witnessed shortages. Carriers have introduced considerable numbers of newly purchased containers, but this issue is continuing to impact availability – particularly in outports.

Supply – Charter Rates

Importantly, rates for chartering vessels are incredibly high right now. Chartered vessels are a useful means of adding temporary capacity to routes, but even with container pricing so high this has become an unviable option. Any downward movement in charter rates could assist freight reductions this year, as long as it doesn’t signal an increase in scrapping older tonnage.

Demand – Low Value Products

Asia has been a major supplier of low value products, such as giftware and furniture etc, and it has become economically unviable to move these products at the extreme rate levels of recent times. This demand will not be there unless rates fall considerably, as the cost to ship with taxes and margins exceeds shelf price.

Demand – Alternative Sourcing

Rates have risen to such extreme levels during the past couple of years that many supply chain teams have had to find alternative locations to source products from. While this has often been as a contingency, it may be some time before some of these can afford to ‘trust’ the volatility of the Asian market again. This could have a major bearing on reduced demand as and when the supply issues start to get resolved.

Demand – Fixed Contract Expiries

Another factor that could result in a reduction in demand is major companies coming to the end of fixed sales contracts with binding terms which compelled them to accept the increases. Free of these shackles, they are simply unable to re-sign with supply chain costs so high.

Demand – Inflation Versus Assignment Of Value

Rising inflation and an increased cost of living, which we are now witnessing, leads to a more considered approach to consumer purchasing. Prices have become much more relevant to the average consumer, as disposal income is reduced, which in turn should lead to less discretionary or impulse purchasing. Demand for shipping should also fall as sales decline.

We have been used to riding the supply and demand swing of the Asia market over many years, which would previously settle into a fairly predictable annual cycle of ‘off’ and ‘peak’ seasons.

However, as far as I can remember, we have never witnessed so many major factors contributing to supply and demand, many of which could have a significant bearing on where rates end up in the months ahead.

Written by Paul Gallagher, Managing Director