With shipping prices falling at record rates, the number of container ships waiting off the Port of Los Angeles-Long Beach fell to less than 10 from more than 100 in January. The risk of a global recession is increasing, according to expert analysis.

According to the Nomura Research Institute, in the first week of September, shipping a container from Shanghai, China to the West Coast of the United States cost $3,959, down 23% from the previous week. That’s a drop of more than $1,000, the largest since 2009.

Freight rates on the US-China route are the international benchmark for the shipping industry. Prices on other routes are also falling. Freight traffic from Shanghai to Rotterdam and elsewhere in Europe has fallen by 45% since the start of 2022.

According to the Freightos Baltic Index, the cost of shipping a 40ft container from China to the West Coast of the United States is now around $3,441 per container, down around 75% from to January 2022. The cost of shipping a container from Asia to Europe is around $7,278, down around 40% since the start of the year.

Additionally, FedEx Corp., seen as an indicator of U.S. economic vitality, surprised markets Sept. 15 by withdrawing its fiscal 2023 earnings forecast after earnings fell well short of expectations.

FedEx CEO Raj Subramaniam said he was “very disappointed” with the company’s fiscal first quarter results, citing a drop in global freight volumes as the main reason.

Analysis by S&P Global Market Intelligence shows that shrinking demand for goods has led to slower global trade volumes and lower shipping costs, while Nikkei Asian Review analyzed that easing maritime congestion is linked to the Fed’s interest rate hike.

Rise in rates Fixed housing and consumer spending

The Federal Reserve announced a rate hike of 75 basis points on September 21, bringing the target range for the federal funds rate to between 3.00% and 3.25%. It was the Fed’s fifth rate hike so far this year and the third consecutive 75 basis point hike, the largest and most intensive since 1981.

Since March, the Fed has raised interest rates by 300 basis points in response to soaring prices, but inflation has yet to come down significantly. The U.S. consumer price index (CPI) rose 0.1% in August from the previous month and 8.3% from a year earlier, according to data released by the Bureau of Labor on September 13. The year-over-year increase remains historically high.

The Fed’s rate hike led to higher mortgage rates, which led to a decline in the housing market. Housing starts fell 9.6% in July from the previous month, according to the Commerce Department. Sales of existing homes reported by the National Association of Realtors also fell for the sixth straight month in July. Lower home sales will result in lower related property sales.

Rising inventories herald economic slowdown

Container ships are mainly used to transport furniture, electrical appliances and other goods. Furniture and appliances account for about 25% of goods shipped from Asia to the United States, according to Takuma Matsuda, a professor specializing in shipping at Takushoku University in Japan.

“Inventories of furniture and other items are increasing in the United States. Shipping logistics are entering a new phase,” Matsuda told Nikkei Asia.

Costco, for example, had inventory of $17.623 billion as of May 8, up 26% from a year ago, while inventory at global retail giant Walmart was up 25% from last year. ‘last year.

Retailers say they are canceling some orders to balance inventory levels. In August, John Rainey, Walmart’s chief financial officer, said the company had set aside billions of dollars to “help bring inventory levels in line with projected demand.” Target, the second-largest department store group in the United States, also said it canceled more than $1.5 billion in orders to reduce its inventory of non-essential goods.

In the last two weeks of May, inventories of S&P Consumer Index companies with a market value of more than $1 billion rose by $44.8 billion, up 26% from year-over-year, according to Bloomberg data. Citi Research analyzed the first quarter results of 18 major retailers as of May 22. Of those 18 retailers, 11 had inventory rising 10 percentage points faster than sales.

A buildup of retailer inventory usually signals a lack of momentum in consumption, heralding an economic slowdown or even a recession.

Growing risk of global recession

Another key sign of the global recession is stagnant growth in world trade.

The latest report from the World Trade Organization’s World Merchandise Trade Barometer, released in August, showed that the volume of world merchandise trade slowed to 3.2% year-on-year in the first quarter of this year, from 5 .7% in Q4 2021. consistent with falling volumes and falling shipping prices.

The World Bank also released a report on September 15 highlighting the growing risk of a global recession. According to the report, the world could be heading for a global recession in 2023 as central banks around the world simultaneously raise interest rates to fight inflation. A series of financial crises may appear in emerging markets and developing economies.

Central banks have raised interest rates “with a degree of synchronicity” not seen in the past 50 years, and this trend is expected to continue into next year, according to the report. Investors expect central banks to raise global policy rates to nearly 4% by 2023, more than 2 percentage points higher than the 2021 average.

“Unless supply disruptions and labor market pressures ease, these interest rate increases could leave the global underlying inflation rate (excluding energy) at around 5% in 2023, nearly double the five-year average before the pandemic,” the report said.

According to the report, central banks may need to raise interest rates by another 2 percentage points to bring inflation back to a level consistent with their targets. This could cause global GDP growth to slow to 0.5% in 2023 and GDP per capita to contract by 0.4%, meeting the technical definition of a global recession.

Economist: possibility “100%”

According to a September CNBC survey of economists, fund managers and strategists, there was a 52% chance that the United States would fall into recession within the next 12 months. Steve Hanke, a professor of applied economics at Johns Hopkins University, told CNBC he thinks the risk of a recession in the United States is 80%.

Hanke blames the US central bank for rising inflation.

“The reason is that the Fed has been blowing up the money supply, starting in early 2020 at an unprecedented rate,” he said. “They really looked for inflation and the causes of inflation in the wrong places. They look at everything under the sun except the money supply.

American economist Davy Jun Huang estimates that the probability of a recession in the United States in the next 12 months is more than 55% and that in the next 24 months the probability of a recession in the United States is 100%.

“Combined with the Russia-Ukraine war and strained U.S.-China trade relations, the possibility of a U.S. economic recession is fundamentally certain,” Huang told The Epoch Times.

“The economic community has argued since the beginning of this year that the Fed’s unlimited easing in response to the pandemic has been too strong and too long, and has come on top of the massive economic support and fiscal incentives that the Treasury Department American set up. market.”

Huang added, “Fed actions are now tied to ‘making one mistake to correct another mistake,’ ultimately leading to a downward spiral and recession.”


Jenny Li has contributed to The Epoch Times since 2010. She has reported on Chinese politics, economics, human rights issues, and US-China relations. She has extensively interviewed Chinese scholars, economists, lawyers and rights activists in China and abroad.