Shipping Freight Rates Pause... "Outlook Still Bright"

[Image source=Yonhap News]

[Asia Economy Reporter Yoo Hyun-seok] Ocean freight rates, which had been soaring until last year, have stalled. However, this is expected to be temporary.

According to the Korea Customs and Logistics Association on the 1st, the Shanghai Containerized Freight Index (SCFI) recorded 5053.12 on the 21st of last month. This marks a decline for two consecutive weeks after reaching 5106.6 on the 7th of last month.

However, recent declines are analyzed as temporary. Choi Go-woon, a researcher at Korea Investment & Securities, said, "The shipping market is expected to take a breather as it enters the off-season starting with the Chinese Lunar New Year holiday and continuing until the Beijing Olympics this month," adding, "Last year, the SCFI also slowed down from the third week of January." He further explained, "Considering this year's supply-demand improvement and ongoing logistics bottlenecks, the adjustment is expected to be short-lived."

There are even forecasts that the upward trend in ocean freight rates may continue. This is due to ongoing supply-demand improvements and persistent logistics bottlenecks this year. Additionally, Clarkson, a global shipping research firm, predicted that cargo volume will increase by 4% this year, while vessel capacity will only grow by 2%.

Kim Young-ho, a researcher at Samsung Securities, said, "Due to the delayed resolution of the pandemic in 2022 and limited supply increases, freight rates are expected to remain strong," adding, "With the rapid spread of the Omicron variant recently delaying the end of the pandemic, robust freight rates are expected to continue this year as well."

Alongside this, variables such as the possibility of port workers' strikes are also a concern. In July, the labor agreement between the International Longshore and Warehouse Union (ILWU), representing West Coast workers in the U.S., and the Pacific Maritime Association (PMA), the port operators, will expire. The current contract was first signed in 2015 and extended for three years in 2017.

[Image source=Yonhap News]

Researcher Choi Go-woon said, "It is important to note that during the 2014 negotiations, the union's strike caused a sharp rise in U.S. West Coast freight rates," adding, "Ahead of this year's new wage negotiations, the union's power has grown extremely strong, while the PMA faces the difficult task of persuading them regarding port automation investments that threaten jobs in relation to the infrastructure bill." He continued, "If a strike materializes, ocean freight rates are not expected to decline in the second half of the year."

Especially from a short-term perspective, demand exceeds supply, and due to the continued pandemic impact caused by the spread of the Omicron variant of COVID-19, robust freight rates are expected to continue in 2022. Researcher Kim Young-ho explained, "From a mid- to long-term perspective, stricter environmental regulations are expected to limit actual supply increases and drive replacement demand and increased scrapping," adding, "The congestion within the maritime logistics network, which has driven strong freight rates until recently, is also expected to be difficult to fully resolve in the short term."