[Skybird]

As soon as things start to improve, the politicians make sure that things get worse again. Deutsche Welle (German edition)writes:

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Container prices plummet in maritime trade

Freight rates had reached record highs during the crisis years - this trend has been broken. At the same time, congestion at major ports is easing. But this is no reason for boundless jubilation.

The global economy is still suffering from the consequences of the Corona pandemic and the war in Ukraine. As much as this has thrown world trade out of sync, blown up many supply chains and challenged economic interaction around the globe, there are increasing signs that the situation is partially easing again.

Ninety percent of global trade passes through the oceans. And anyone who lives on the coast or in a city with a large port has seen it for themselves: The traffic jams of container ships lying in the roads, waiting to be cleared in the ports. These traffic jams are now noticeably easing.

This has also been observed by the German Shipowners' Association (VDR). Its CEO Martin Kröger sees several reasons for this, such as the end of port workers' strikes in Germany. The situation has eased overall and even normalized: "We therefore see the traffic jams off the European coast as having been permanently overcome," he told DW.

Shipping space, i.e. the available freight capacity, is also no longer as scarce as it was a year ago. This, he said, is reflected in freight rates, i.e. the costs incurred for transporting containers - they are once again falling significantly. Martin Kröger: "Shipping is now operating again at conditions at the level before the pandemic."

Handelsblatt has calculated that freight rates are in some cases "hardly more expensive" than before the pandemic. For example, transporting a 20-foot container from China to northern Europe would cost an average of $1479; at the beginning of this year, the price was still around $10,000. It goes on to say that shipments from Shanghai to the U.S. West Coast would be even cheaper than in 2019.

Vincent Stamer of the Kiel Institute for the World Economy (Ifw) explains why. "During the pandemic, Europeans and North Americans in particular had increased demand for goods such as consumer electronics, furniture and sports equipment. Companies had simultaneously tried to solve supply bottlenecks by filling their warehouses," Stamer told DW. The decisive factor for the current development of freight rates is now "the decreased demand for physical goods."

The current unfavorable economic conditions in Europe and the U.S. are causing demand to fall. "Inflation, fears of recession and a rotation to services are depressing demand for goods," Stamer said. Less demand, he said, then leads to a resurgence in the supply of shipping space, which translates into falling freight rates.

Shouldn't that also be felt in consumer markets? Yes, says Ifw economist Stamer; "Falling freight rates are positive news. Companies have to spend around one in ten euros on logistics and transport. Therefore, the recovery in freight rates should reduce costs for companies and ultimately have an impact on consumer prices."

No, say the shipowners, on the other hand. For Germany, they say, the development is indeed positive for the time being. But consumers would hardly notice the falling transport costs. According to the VDR, these costs only account for "a very small proportion of the end consumer price of the goods transported.

Martin Kröger says that freight costs are not expected to fall any further. New environmental regulations cost "a lot of money." A possible expansion of European emissions trading would put a strain on shipping companies: "A strict EU CO2 reduction regime would successively make the use of emission-free fuels mandatory, which are much more expensive to purchase and use than conventional fossil fuels."

As early as next year, the VDR said, new requirements from the International Maritime Organization (IMO) to reduce emissions would come into force. Observers therefore "anticipate increased tonnage demand, as many shipping companies will reduce the speed of ships to cut emissions."

In the medium term, new ships will enter service, many of which have already been ordered. The main reason for the investments is not to have more tonnage available, but to be able to meet stricter environmental regulations. "All of this," says Kröger, "costs a lot of money." And that will also affect the level of freight rates, he adds.

Since the 1920s, economists have been talking about so-called hog cycles. This term describes recurring fluctuations in the relationship between supply and demand. The example of pig farming was used to show how one phenomenon cyclically lags behind the other. "Shipowners are now experiencing the start of a new hog cycle," Vincent Stamer is certain. The question, he says, is how the supply of shipping tonnage on the one hand and the demand for shipping space on the other will develop. At the moment, it seems to amount to an oversupply of cargo space.

In any case, German shipowners believe they are on the right track when they adapt their ships to new environmental standards. Vincent Stamer sees this as an economic threat to the industry: the new cargo ships will "increase the supply of transport options and put further pressure on freight rates. The industry should not rely on the profits of the past years continuing to bubble up in the future."

Nor does Martin Kröger of VDR expect this: "The high profit margins of the past year and a half are no longer to be expected. Nevertheless, we continue to expect profitable business." And that is also necessary in order to be able to afford "investments in climate-friendly technologies to meet the CO2 reduction targets.
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