Freight rates decreased significantly in the first quarter of 2023, is there potential for the market in the second quarter?

I. Transportation rates in the first quarter of 2023

According to Freightos, the cost to transport a container from East Asia/China to the United States peaked in September 2021 at over $20,000 for a 40ft container. Currently (prices taken in January/February 2023), prices have dropped by over 80% for these journeys.
The global container index prices by Freightos and Drewry are currently at $1485 (31/03/23) and $1717 (30/03/23) respectively. These indices are calculated based on the average prices of international routes over time, providing an overview of the global maritime transport market. The price trend is decreasing significantly, approaching levels seen at the end of 2020 and nearing pre-COVID-19 pandemic levels in 2019. However, current prices are still about 30% higher than pre-pandemic levels, and most experts believe prices will not return to 2019 levels. The reasons for the rapid price decline and future trends in maritime transportation rates will be discussed later.

The maritime transport market is heavily influenced by consumer demand, with large inventories in European and Chinese countries leading to oversupply, resulting in a sluggish market and increased competition. Experts predict that it will take time to process the inventory, and at least by the fourth quarter of 2023, the market will begin to pick up again.

According to a study by the International Monetary Fund (IMF) based on 30 years of data from 143 countries, transportation costs are a significant factor leading to high inflation worldwide. When transportation costs double, inflation increases by 0.7%. Many countries around the world are experiencing high inflation affecting the economy, which is one of the reasons for the current downward pressure on transportation prices.

Is there any opportunity for Vietnam in 2023 - a year filled with instability and difficulties?
At the beginning of 2023, Vietnam ranked 10th in the list of the 50 most attractive emerging logistics markets in the world for 2023, and 4th in Southeast Asia after Malaysia, Indonesia, and Thailand. The Agility ranking is based on four criteria: "domestic logistics opportunities, international logistics opportunities, technology readiness index, business principles." Vietnam is highly rated in the international logistics opportunities criterion, currently leading Southeast Asia and ranking 4th globally. However, to climb higher in the rankings, Vietnam needs to provide investors with a comprehensive production ecosystem to improve the current logistics costs, which are currently at 20% of GDP.

II. How Will Freight Rates in the Second Quarter of 2023 Change?

In the second quarter of 2023, it is predicted that the volume of goods transportation by sea will continue to decrease, leading to not very optimistic freight rates for Vietnamese maritime transport enterprises. The global maritime transport industry in general, and Vietnam in particular, still face many difficulties due to economic recession and oversupply.

The main causes come from the sharp decline in people's purchasing power due to severe inflation, slow economic recovery after the Covid-19 pandemic, and the increase in container ships. Large corporations have used the "huge" profits from 2020 to "acquire" more "ocean-crossing steeds," increasing capacity by an additional 20%. However, it takes 2-3 years to complete the construction of ships, meaning that when the ships are officially put into operation, it may coincide with a difficult period for business operations. Some enterprises are having to seek additional niche markets to maximize resources, although the effectiveness is not comparable to larger markets.

The Secretary-General of the Vietnam Shipowners' Association, Mr. Bui Van Trung, stated: "Previously, many shipping companies used the sudden profits to accelerate investment and diversify business activities, with Maersk Line being a prime example, having carried out many acquisitions, including the purchase of the LF Logistics warehouse business segment."

Furthermore, domestic transportation rates also appear "shrouded in a gray hue," not very promising in the next 3 months of 2023. The difficult economic situation has made enterprises more cautious in placing orders, purchasing just enough volume and not stockpiling goods, significantly affecting domestic transportation.