Logistics Market Update for 2022 - Q3

The market from July to September saw significant changes to pricing for ocean and general market demand. The global market continues to be disrupted by a variety of factors, including inflation, China's covid zero policy, climate challenges and uncertainty in the USA. 

Global Markets are Crashing 

The world has been in turmoil for the last few months following many events impacting productivity and pricing. The logistics industry is evolving quickly and dramatically, and global shipping has taken a downward turn in terms of demand. Consequently, this has significantly affected pricing, especially when shipping out of China. Ships are also sailing below capacity because there is minimal influx of goods to keep the vessels full. Some of the main reasons for such a dramatic change include:

Global Inflation

The global economy continues to experience a downfall and is predicted to continue dropping into the near future. Higher food and energy prices are impacting incomes; with the global cost-of-living crisis increasing significantly, consumer confidence is decreasing. 

As monetary policies tighten, uncertainties from the war in Ukraine and the lingering pandemic continue to significantly affect the global economy. The Russia vs Ukraine is one of the bigger risks contributing to higher inflation levels in 2022, the interruption in the commodity supply chain has created bottlenecks that also contribute to the higher inflation levels. 

High energy prices are also among the key risks; prices are predicted to accelerate in Q4 and beyond. Industries, such as road transport, chemical products, and the electricity sector, would be the most impacted by any increase in energy prices. Although new monetary policies are likely to add to the global economic slowdown, central banks around the world are being forced to tighten these policies in order to combat inflation. 

The world may be leading toward a global recession in 2023 and a string of financial crisis in emerging markets and developing economies that would do them lasting harm, according to a comprehensive new study by the World Bank. While it's difficult to forecast for 2023, most indicators suggest a further slowdown in global growth. Inflation rates are predicted to increase further by the end of 2022 and will remain elevated for longer than anticipated. 

Unstable China Market 

China produces just under 30% of the global manufacturing output; however, with demand dropping, many industries are suffering and, in turn, impacting the amount of output they produce for the rest of the world. Ocean freight rates have continued to fall along with the shrinking demand for goods. While rates have been dropping on a global scale, Prices out of China are not only dropping but are crashing on a daily basis. Along with the dropping freight rates, China is also combating climate challenges. Due to the country's population and production levels, China has been the largest source of greenhouse gas emissions in recent years. Carbon-intensive industries have also caused water scarcity and mass energy consumption. Climate issues in China are set to push the country's enormous energy consumption even higher in the next few years. 

These energy crises and climate challenges can also lead to power outages, further affecting China's production and the global supply chain. Most recently, China's biggest lake dried up from much of the water supply. Water levels in the Poyang Lake have fallen from 19.43 metres to 7.1 metres over the last three months. Due to excessive droughts, the government has prioritised water and electricity supply for households over industries. Yet another issue China continues to face is the covid zero policies; many cities have been locked down throughout the year, resulting in additional issues regarding production output.

Crashing USA Market 

While there were initially insights of easing supply chain disruption in early 2022, additional global factors and geopolitics are causing new risks. Specifically for the U.S., the dire state of their economy continues to drop; inflation has caused the price of consumer goods to rise at a record pace. Interruptions have increased as consumer demand falls and retailers are sitting on excess inventory. Spot ocean freight rates between China and major U.S. and European markets are falling. Imports from the U.S. have slowed, and some major companies have halved their planned inventory over the 3rd quarter; experts believe that a slowdown in trade in the USA will lead to a lack of global growth.

Rail and port labour strikes continue to be an issue in the USA; one of the critical problems is recruitment for the rail transport sector. The growing concerns of the labour market aren't just affecting railroads; studies show that these issues are prevalent across the entire supply chain. According to U.S. reports, more than half of third-party logistics firms and nearly 80% of shippers say labour shortages are damaging global operations. 

Final Thoughts

The 3rd quarter of 2022 was severely impacted by several geopolitical issues. Pricing for ocean freight dropped and the overall market shifted negatively. Shipping containers are empty, inflation is on the rise and China is experiencing water supply issues. The state of the US economy is dire, unemployment rates are rising and the rising cost of living has had devastating effects. 

 

  

 

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