Shipping rates are still falling, another sign of the possibility of a global recession

The latest data from S&P Global Market Intelligence showed that freight rates continued to decline as global trade volumes slowed as a result of shrinking demand for goods.

While freight rates have also fallen due to an easing of supply chain disruptions that have built up due to the pandemic, much of the slowdown in demand for containers and ships has been due to poor cargo movement, according to the research group.

“The level of severe congestion at ports, along with poor cargo access, was one of the main reasons behind the significant drop in freight rates,” Standard & Poor’s said in a note on Wednesday.

“Based on the outlook for weak trade volumes, we do not expect very severe congestion to occur again in the coming quarters.”

An aerial photo taken on August 7, 2022 shows the loading and unloading of import and export goods at the container terminal at Lianyungang Port in east China’s Jiangsu Province. Customs data showed that China’s exports grew 7.1% in August year-on-year, while imports rose only 0.3%, both against expectations.

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Standard & Poor’s said freight rates for containers and dry bulk — or ships carrying raw materials and bulk goods — have fallen over the past three months, adding that rates peaked earlier than expected in the second quarter.

“Due to market seasonality, dry bulk freight rates will typically peak in the third quarter; however, according to recent S&P Global Market Intelligence dry freight market forecasts, the second quarter is likely to be the peak in 2022,” he said.

The company’s freight rate forecast models also projected that the Baltic Dry Index – a measure of the price of transporting key raw materials by sea – is expected to decline by about 20% to 30% for the year before recovering slightly in 2024.

This underscores the increasing risks of a global recession as consumer demand declines Amid the rising cost of living and inflation.

One of the main signs of the global downturn is the stagnation of world trade growth, As recently explained by the WTO Merchandise Trade Barometer, A standard that provides real-time information on the trade route of goods.

The barometer report released in August showed that the volume of global merchandise trade has stabilized. Annual growth for the first quarter of the year slowed to 3.2%, down from 5.7% in the fourth quarter of 2021.

He attributes part of the slowdown to the conflict in Ukraine and epidemic lockdowns in China.

While the World Trade Organization has forecasts that global trade will rise this year, the uncertainty surrounding those forecasts has increased due to “the ongoing conflict in Ukraine, increased inflationary pressures, and expected monetary policy tightening in advanced economies,” the Barometer report says.

Goldman Sachs says it is not surprising that China sees weaker import numbers

S&P Global Market Intelligence echoed those concerns.

“Although we expect some seasonal improvements in the dry bulk market in the coming months, a choppy path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in China’s real estate sector as well as absenteeism,” said Daijin Lee. , Senior Shipping Analyst at S&P Global Market Intelligence, ”

Thus, any changes in China’s Covid-zero policy or ceasefire agreements in the Russo-Ukrainian war could raise dry freight rates again, Standard & Poor’s said any further slowdown in demand for goods and consumption would lead to lower prices.

On the positive side, global supply chain stresses continue to ease although they remain at historically high levels, according to New York Fed’s latest global supply chain stress indicator.

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