Container shipping: Normality postponed for 18 to 30 months

Date Added: 22 November 2021

As a provider of global ocean freight forwarding services, Davies Turner has noted an economist’s views on the composite China Containerized Freight Index (CCFI) to suggest how quickly freight rates will return to normal post-pandemic.
 
It is the opinion of Alan Murphy, CEO, Sea-Intelligence that, having studied five periods of sustained decline in rates and five periods of sustained increases going back to April 1998 and for the next 21 years to 2019, the return to pre-pandemic rates will likely take between 18 and 30 months.

Statisticians defined the time periods of increases and decreases, and analysed each separately. They measured the rate of decline in terms of the average percentage point drop per week, over the full period of each of the five decline periods. This ranged between -0.4% and -0.9% per week. If these time periods are to reflect the inherent pricing mechanisms in the industry, they can be used to calculate a reversal back to normality. This, however, presents the next question: what is a normal rate level?

Based on historical CCFI data, this is represented by rate levels around index level 1000. This represents a decline of -69% from the current rate level. During the global financial crisis of 2008-2009, rates declined at the fastest rate of a weekly decline of -0.9%, and if is applied to this speed of decline to the current rate levels it would take 18 months to get back to “normal”. If, however, the rate of decline matches the average seen over the five rate decline periods, then normalisation would take as much as 26 months. However, it can be argued that the current increase is much stronger than before, and that should be accounted for.

To do this, the statistician calculated the average weekly rate increases for the five periods with rate increases. On average, over the five periods of decline, the rates dropped -0.6 percentage points per week, on average. Over the five periods of increase, rates grew up by 1.1 percentage points over the period. This implies a factor of 1.8 between increases and decreases, meaning that rate increases tend to be 80% stronger, on a weekly basis, than decreases.

As the current rate level comes after a 17-month period of sustained rate increases, the result becomes 30 months before a reversal back to index 1000.

For more information about Davies Turner’s ocean freight forwarding and logistics services, please contact [email protected] or visit www.daviesturner.com/ocean

 

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