China Shipping Prices Plummet Due To Worsening Economic Conditions

The pendulum appears to be swinging all the way in the other direction for the global supply chain.

The cost of a 40-foot shipping container from China has dropped to below $4K for the first time since September 2020, a 50% drop over a period of three months, according to data from UK-based supply chain consulting firm Drewry reported by Bloomberg.

Though a changing approach to seasonal business could be a factor, stock prices have dropped precipitously for sea freight giants such as China-based Cosco Shipping, which recorded a 17-month-low share price on Friday.

In its Sept. 22 report, Drewry projected prices will continue to drop for at least the next few months, as inflation has impacted consumer spending, compounded by a decrease in output from factories in Europe and Asia, Bloomberg reports. Though container volumes and prices are in line with pre-pandemic trends, the nearly two years that retailers and other major supply chain users spent scrambling to ship goods across oceans resulted in long-term planning decisions that could worsen the problem.

For the next month, nearly 16% of ocean trips in major trade lanes have been canceled, with 68% of cancellations applying to trans-Pacific routes, according to Drewry data. New ships and routes have been planned and are set to be added worldwide in the next 12 months, bolstering capacity along a similar timeline to retreating demand, Bloomberg reports. 

There could be a cyclical element to the retreat, as two years of shipping delays caused U.S. retailers to adapt by bringing their holiday inventory stateside in the summer months as opposed to early fall, as had been the pre-pandemic standard. If the holiday shopping season suffers the effects of prolonged elevated inflation, all that early inventory could significantly weigh down the bottom lines of retailers that have grown their logistics footprint to house excess product.

FedEx and Amazon have responded to disappointing earnings by pulling back on their logistics footprints in the past few months. As with shipping routes, concern is growing that U.S. industrial real estate's race to meet persistently high demand could leave the sector overbuilt if current economic conditions persist or worsen.