Shipping rates fall more than 70% as Federal Reserve rate hikes send shockwaves through global demand

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The impact of recent US interest rate hikes is now being reflected in global trade, as exporters said container shipping rates fell 70 per cent year-on-year – pointing to weaker consumer demand and a weaker global economic outlook amid a range of global uncertainties.

“Shipping costs to the US West Coast have collapsed by more than 70 percent. We used to have to struggle to find as many containers as possible,” an exporter involved in leather business in Yiwu, east China’s Zhejiang Province, told the Global Times on Sunday.

According to the China Securities Journal, the Shanghai Export Containerized Freight Index fell to 2,072.04 points on Friday, down 10.4 percent from the previous week and about 60 percent lower than at the start of the year.

The cost of a 40-foot container unit from Shanghai to the west coast of North America fell to US$2,684, down almost 70 percent from the start of the year. According to the report, the cost of a 20-foot container from Shanghai to Europe has fallen to US$3,163, down about 60 percent from earlier in the year.

The Yiwu exporter said orders from Europe and the United States have fallen more than 50 percent so far, and the slowing momentum may extend into next year. “The Zhejiang provincial government is fully aware of the situation and has taken further measures, including arranging charter flights for overseas businessmen, to help us win more orders,” the exporter said.

Several other exporters told the Global Times that shipping costs started falling in July as the market was hit by shrinking demand in the European and US markets due to skyrocketing inflation. Recent US interest rate hikes have sent shockwaves through more countries around the world. The greatly reduced port congestion is also driving rates down, exporters said.

The US Federal Reserve on Wednesday raised the federal funds rate by 75 basis points for the third consecutive year in a desperate and reckless fight against runaway inflation.

The most aggressive rate-hike cycle since 1981, compounded by the Fed’s signal of more rate hikes in the coming months, is fueling fears of an intolerable impact on Washington.

Rising interest rates will exacerbate US recessionary risks and a faltering economy will hurt demand, resulting in a loss of trade momentum that will further weigh on the global economy. It’s the inevitable fallout after the Federal Reserve aggressively hiked interest rates, Bai Ming, deputy director of the international market research institute of the Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Sunday.

The world must brace itself for falling prices for raw materials and finished goods, Bai said, warning that export-oriented emerging economies will be more vulnerable to the headwinds of a severe global recession.

“For China, we need to improve the technological content of our products and make them essential commodities instead of those that are easy to replace,” Bai said.

Wang Jinghua, the CEO of Babyshow, a Yiwu-based company that manufactures baby products for Europe and the United States, told the Global Times that he expects the industry to restructure by the end of next year, although the situation is expected to improve in 2024.

“We are now more cautious about new investments,” Wang said.

Global growth is expected to remain subdued in the second half of 2022, before decelerating further to an annual growth rate of just 2.2 percent in 2023, the Organization for Economic Co-operation and Development (OECD) said on Monday, noting that “A key factor behind the slowdown in global growth is the general tightening of monetary policy, fueled by the larger-than-expected inflation overshoot.”

However, the OECD raised the outlook for China’s economic growth to 4.7 percent next year from 3.2 percent this year, signaling confidence in the world’s second largest economy.
Source: Global Times

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