The impact of the US’ latest interest rate hikes is now being reflected in global trade, as exporters said container shipping rates have fallen by 70 percent compared with a year earlier – indicating weaker consumer demand and dimmer global economic prospects amid a range of global uncertainties.
“The shipping cost to the US West Coast has slumped by more than 70 percent. Previously, we had to scramble to seek as many containers as possible,” an exporter in Yiwu, East China’s Zhejiang Province, who’s engaged in the leather business 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 week-on-week and about 60 percent lower than the beginning of the year.
The cost of a 40-foot equivalent unit container from Shanghai to the West Coast of North America dropped to $2,684, down nearly 70 percent from the beginning of the year. For a 20-foot container from Shanghai to Europe, the cost has fallen to $3,163, down about 60 percent from the beginning of the year, according to the report.
The Yiwu exporter said orders from Europe and the US are down by more than 50 percent so far, and the declining momentum may prolong to next year. “The Zhejiang provincial government is fully aware of the situation, and it has been launching more measures, including organizing chartered flights for businessmen from abroad, to help us secure more orders,” the exporter said.
Several other exporters told the Global Times that shipping rates started to fall in July as the market was hit by shrinking demand in the European and US markets due to skyrocketing inflation. The US’ latest rate hikes sent shockwaves through more countries globally. Much-reduced port congestion is driving rates down too, exporters said.
The US Federal Reserve on Wednesday raised the federal funds rate by 75 basis points for the third time in a row this year, in a desperate and reckless battle against runaway inflation.
The most aggressive rate-hiking cycle since 1981, compounded by the Fed’s signal of more rate increases in the coming months, is stoking fears of unbearable repercussions facing Washington.
Rising interest rates will deepen US recession risks and a stalling economy will affect demand, resulting in a loss of trade momentum, and this will further drag on the world economy. It’s the inevitable knock-on impact after the US central bank aggressively raised interest rates, Bai Ming, deputy director of the international market research institute at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times on Sunday.
The world has to prepare for slumping prices for commodities and finished products, Bai said, warning that export-oriented emerging market economies will be more vulnerable to the headwinds of a serious global recession.
“For China, we have to ‘improve technology content’ in our products and turn them into life necessities, rather than those that are easily replaced,” Bai said.
Wang Jinghua, the CEO of Babyshow, a Yiwu-based company that makes baby products for Europe and the US, told the Global Times that he is expecting a reshuffle of the industry between now and the end of next year, although the situation is expected to improve in 2024.
“We are now more cautious in making new investment,” said Wang.
Global growth is projected to remain subdued in the second half of 2022, before slowing further in 2023 to an annual growth rate of only 2.2 percent, the Organization for Economic Cooperation and Development (OECD) said on Monday, noting that “a key factor slowing global growth is the generalized tightening of monetary policy, driven by the greater-than-expected overshoot of inflation targets.”
However, OECD raised China’s economic growth outlook to 4.7 percent next year from 3.2 percent this year, signaling confidence in the world’s second-largest economy.
