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International Forwarding Association Blog » Sea freight in Europe » Decline in Consumer Demand Is Hurting the Maritime Industry

Decline in Consumer Demand Is Hurting the Maritime Industry

There is a significant decline in consumer demand, with logistics CEOs noting a 20 percent decrease in ocean freight orders for the last two months. The pullback is evident across a wide range of products, ranging from some types of apparel to industrial, housing, and machinery. The main reasons for the drop in orders are lack of clarity on demand, combined with excessive inventory. CEOs share the opinion that the number of waiting cargo ships is expected to drop. Outbound tender rejections are also signaling a decline in orders.

 

storage and distribution

 

Inventory Issues

Demand for expensive items is still strong, including time-sensitive cargo, ultrasound machines, integrated server racks, and smart parcel lockers. At the same time, experts point that there is no definitive trend in the footwear and apparel industries. Inventory issues can be a factor, however, as customers are increasingly turning to off-price. While a Bloomingdale’s fan is unlikely to buy last season’s handbags or shoes, customers of Ross Stores, Marshalls, or T.J. Maxx may find them attractive.

Booking forecasts are also down in 2022 because customers are concerned about inflation and rising energy and housing costs, cutting back on non-essential spending and leaving retailers overstocked. With gas prices soaring across Europe, companies and households are faced with high electricity bills. According to the Retail Economics-HyperJar Cost of Living Tracker, 80 percent of consumers are concerned about energy costs, prompting them to put money aside for bills.

Demand is expected to be flat in October. Weather-related disruptions, congestions in some European ports, and port and rail workers threatening strike may result in port omissions and cancelled sailings.

 

Cancelled Ships to Stop Further Price Declines

Ocean carriers are increasingly choosing to cancel sailings so that they can match orders with ship capacity. This is done to stop further price declines. Some carriers report a nearly 50 percent cut in capacity, and this trend is forecasted to continue in 2023. It is not until late January when demand is expected to grow before the Chinese New Year. Currently, freight prices are down by 5 percent along the Asia-US East Coast route, translating into an 82 percent decline compared to 2021. Shipping costs are also down 8 percent along the Asia-US West Coast route. This means rates are 63 percent lower compared to 2021.

At the same time, carriers and freight forwarders are faced with soaring operating costs. Maritime carriers increasingly report higher unit costs and transport expenses due to inflationary pressures. Costs have spiked across the supply chain, including operations like hinterland transport, storage and distribution, haulage, and handling.

Carriers with a large number of chartered vessels claim they enjoy more flexibility to match demand with capacity. However, there is a risk that charterers reduce or delay payments, resulting in commercial ships facing arrest.

Given the combination of factors, experts predict that carriers and freight forwarders will face significantly higher breakeven levels and less flexibility in adjusting freight rates.