Global shipping executives are concerned about the falling demand, decreasing freight rates, and a possible price war in the industry. Traffic from China’s ports has slowed down, with empty containers stacked six high and trucks with no cargo on highways leading to major terminals. The world’s largest box-ship operator plans to return dozens of chartered vessels to their owners.

China’s exports fell by nearly 10% in December from a year ago, which is the biggest drop since Beijing locked down the port city of Wuhan in early 2020. This falling volume has pushed global ship freight rates into a downward spiral, with the cost of sending a box from China to Los Angeles dropping to $1,238 this week from $15,600 last year, according to the Freightos Baltic Index.

The global shipping industry boomed during the pandemic when there was a soaring demand for goods that led to lines of over 100 vessels off the Southern California coast. However, rising inflation has led to a decrease in demand for many products as Americans shifted their spending to food, fuel, and services, leaving retailers with excess inventory.

Giant liners such as A.P. Moller-Maersk A/S and Mediterranean Shipping Co., which made record profits earlier in the pandemic, have held back up to a third of scheduled capacity from Asia to the U.S. and 20% from Asia to Europe over the past three months, canceling the sailings of dozens of ships. The industry has also idled around 7% of global vessel capacity, according to box-ship operators. Those ships are either parked at shipyards undergoing extended maintenance or anchored in the waters outside Malaysia and other locations in Southeast Asia with only a few crew members onboard.

The shipping industry now faces the same uncertainty that surrounds its biggest customers such as Inc., Target Corp., and Home Depot Inc. If American consumers keep spending, bloated inventories will be drawn down, and demand for imports will resume. But if the economy contracts, freight rates are expected to fall below break-even levels and kick off a new series of price wars among carriers that in the past led to multiyear losses.

As carriers face intense competition for customers, analysts believe they will likely start undercutting each other in the coming weeks on pricing to attract new customers or retain existing ones. This may lead to price wars that the industry wants to avoid.

Overall, the industry is optimistic about the future, with manufacturing activity in China increasing in February at the fastest pace in more than a decade, and export orders increasing for the first time in nearly two years. While some believe that the turnaround will take longer, others believe that globalization is here to stay, and global trade will grow with more modest figures, which is good enough.

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