CNBC: Drop in freight rates indicates global recession according to S&P

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According to CNBC, the drop in freight rates as global trade volumes slow as a result of reduced demand for goods, the latest data from S&P Global Market Intelligence showed.

  • While freight rates have also fallen due to easing supply chain disruptions that built up during the pandemic, much of the slowdown in container and vessel demand was due to weaker cargo movement.
  • The latest World Trade Organization Goods Trade Barometer shows that the volume of world merchandise trade has stagnated. Year-over-year growth in the first quarter of the year slowed to 3.2%, from 5.7% in the last quarter of 2021.
  • Freight rates have continued to fall as global trade volumes slow as a result of reduced demand for goods, the latest data from S&P Global Market Intelligence showed.

While freight rates have also declined due to less supply chain disruptions that have accumulated during the pandemic, much of the slowdown in container and vessel demand was due to weaker cargo movement, according to the research group.

“The greatly reduced level of port congestion, coupled with weaker cargo arrivals, was one of the main reasons behind the significant decline in freight rates,” S&P said in a note on Wednesday.

“Based on the expectation of weaker trade volume, we do not expect extremely high congestion again in the coming quarters.”

Freight rates for containers and dry bulk carriers, or vessels that carry raw materials and bulk products, have fallen in the past three months, S&P said, adding that rates peaked earlier than expected in the second quarter.

“Due to market seasonality, dry bulk freight rates typically peak in the third quarter; however, according to the latest dry bulk market outlook from S&P Global Market Intelligence, the second quarter would likely be peak 2022,” the firm said.

The company’s Freight Rate Forecast models have also forecast that the Baltic Dry Index, a barometer of the price of transporting major commodities by sea, is expected to fall between 20% and 30% over the year before recovering slightly. in 2024.

This underscores the growing risks of a global recession as consumer demand recedes amid rising cost of living and inflation.

A key sign of a global recession is stagnant global trade growth, as recently highlighted by the World Trade Organization’s latest Goods Trade Barometer, a benchmark that provides real-time information on the trajectory of world trade. goods.

The barometer report released in August showed that the volume of world merchandise trade has stagnated. Year-over-year growth in the first quarter of the year slowed to 3.2%, from 5.7% in the last quarter of 2021.

He attributes some of the slowdown to the conflict in Ukraine and the pandemic lockdowns in China.

While the WTO predicted that world trade would rise this year, uncertainty around that forecast has increased due to “the ongoing conflict in Ukraine, rising inflationary pressures, and the expected tightening of monetary policy in advanced economies,” according to the barometer report.

S&P Global Market Intelligence echoed those concerns.

“Although we expect some seasonal improvements in the dry bulk market in the coming months, a volatile path to lower rates is expected in the near term due to slower-than-expected economic growth with continued weakness in China’s real estate sector. continental, as well as the absence of high congestion,” said Daejin Lee, lead shipping analyst at S&P Global Market Intelligence.

Consequently, any changes to China’s Covid-zero policy or ceasefire agreements in the Russia-Ukraine war could raise bulk carrier cargo rates again, but any further slowdown in demand for goods and the consumption would push rates down, S&P said.

On a positive note, global supply chain pressures continue to ease, though remain at historically high levels, according to the latest Global Supply Chain Pressure Index from the Federal Reserve Bank of New York.

Source: Su-Lin Tan@SULIN_TAN

CNBC

Source CNBC

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