SIMIC

Carriers have been executing on an active capacity management strategy by announcing more blank sailings and suspending services to balance supply with demand, reports CNBC.

"The unrelenting decline in container freight rates from Asia, caused by a collapse in demand, is compelling ocean carriers to blank more sailings than ever before as vessel utilization hits new lows," said Joe Monaghan, CEO of Worldwide Logistics Group.

US manufacturing orders in China are down 40 per cent, according to the latest CNBC Supply Chain Heat Map data. As a result of the decrease in orders, Worldwide Logistics tells CNBC it is expecting Chinese factories to shut down two weeks earlier than usual for the Chinese Lunar New Year - Chinese New Year's Eve falls on January 21 next year. The seven days after the holiday are considered a national holiday.

Supply chain research firm Project44 tells CNBC that after reaching record-breaking levels of trade during the pandemic lockdowns, vessel TEU volume from China to the US has significantly pulled back since the end of summer 2022 - including a decline of 21 per cent in total vessel container volume between August and November.

Asia-based global shipping firm HLS warned clients in a recent communication about the ocean transport business climate.

"It seems to be a very bad time for the shipping industry. We have the combination of declining demands and overcapacity as new tonnage enters the market," it wrote.

HLS analysts are predicting a further 2.5 per cent decline in container volumes and a nearly 5-6 per cent increase in capacity in 2023, which will continue to negatively impact freight rates in 2023.

OL USA CEO Alan Baer tells CNBC that there are some early signs of an inventory correction. Overall business volume and order flow out of Asia continue to be muted as carriers cancel more vessels, and there is little upside momentum leading into Chinese New Year.

However, Mr Baer said: "Space has already tightened, so while demand is soft, space may be at a premium in January and throughout Q1. On the plus side, inventory depletion and the need to restart the order and delivery cycle appears to be inching upward."

HLS cited trade data showing that US imports from Asia plunged in October to their lowest level in 20 months. The spot rate for a container from Asia to the US West Coast has crossed the breakeven point, "with little room for further reductions," it wrote.

The large West Coast ports of Los Angeles and Long Beach have experienced the largest drop in trade, according to Josh Brazil, vice president of supply chain insights at Project44, as shippers also rerouted some of their shipments to the East Coast to avoid the risk of a major union strike at West Coast ports.

The drop in manufacturing orders from the US and the EU is also impacting Vietnam, which has been booming as a manufacturing hub as more trade moved away from China.