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The Drill: The Party Seems Over In Freight Rates

Last week marked the largest week-over-week drop in freight rates since late 2022, as key factors driving previous rate increases are slowing down. With China facing ongoing economic malaise and global growth weakening, the future outlook for freight rates remains uncertain.
2024-09-17

Last week, we experienced the first week-over-week drop in freight rates since late 2022, when we were coming off the pandemic highs. We find that the factors which significantly contributed to the rise in rates are now starting to slow down. Firstly, it appears the inventory buildup in the US has halted, as firms have already stocked up in anticipation of more Trump-era China tariffs. China’s malaise, driven by a fairly typical debt deleveraging, is expected to persist until policymakers shift their focus from politically driven efforts to manage “sentiment” to substantive policies addressing bad debts and supporting domestic demand. Therefore, a Chinese recovery is unlikely before such a shift occurs. Secondly, global growth impulses have weakened, darkening the future outlook for freight rates. China looks especially weak, with M1 indicating that the PPI will drop sharply. The US is also beginning to show signs of softness, and it remains unclear if underlying data, known only to the Fed, has prompted Jay Powell and his team to consider a 50 bps rate cut. Nonetheless, based on the real-time data we track, we see no cause for major concern, as shown in chart 1.c.

Chart 1.a: Largest w/w drop in freight rates since late 2022

Last week marked the largest week-over-week drop in freight rates since late 2022, as key factors driving previous rate increases are slowing down. With China facing ongoing economic malaise and global growth weakening, the future outlook for freight rates remains uncertain.

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