Following their September 20-21 conference last week, the Federal Reserve has announced that it will be raising interest rates by another 0.75% from 3.0 to 3.25%. Last week’s announcement is now being reflected in global trade, as exporters claim shipping rates have fallen by 70% compared to earlier this year.
The Slippery Slope
As discussed last week on More Than Shipping, both demand and shipping rates have been falling – particularly on the Asia to West Coast U.S. route. On the heels of the latest announcement from the Federal Reserve, however, many feel the continued trend sheds light on the bleak future of the global economy with a wide range of uncertainty. And this includes the already diminished East Asia to U.S. route.
“The shipping cost to the U.S. West Coast has slumped by more than 70 percent. Previously, we had to scramble to seek as many containers as possible,” an exporter in Yiwu, East China’s Zhejiang Province, told the Global Times on Sunday.
According to the Chine Securities Journal, the Shanghai Export Containerized Freight Index fell over 10% week-over-week, a mark that saw the index dip below 60% year to date. The price of shipping a container from Shanghai to Los Angeles has also dropped nearly $2,700 per container, a mark that is now down over 70% year to date and dropping.
Exporters have said since July that rates have been dropping, as the mrket was hit by shrinking demands in European and North American markets due to inflation. Yiwu went on to say that orders from the two regions are down by more than 50% so far this year, and declining momentum may be observed into next year. “The Zhejiang provincial government is fully aware of the situation, and it has been launching more measures, including organizing chartered flights for businessmen from abroad, to help us secure more orders,” the exporter said.
The latest announcement coming out of the U.S. Federal Reserve has already sent shockwaves through the economies of many countries global, raising interest rates in the third consecutive period this year. That, coupled with declining port congestion, are two significant factors continuing to deflate shipping rates.
Rising interest rates will likely further press the U.S. economy towards a recession, and the stalling economy will affect demand, resulting in a significant loss of trade demand. Projections currently point to a continued slowdown heading into 2023 with a growth rate of only 2.2% forecast for the year ahead. A significant drop-off from what has become normal throughout the course of the COVID-19 pandemic.