The Drewry World Container Index (WCI), which has been experiencing substantial weekly increases, saw a modest rise of just 1% over the previous week as of July 11, bringing the rate to $5,901 per forty-foot equivalent unit (FEU). Similarly, the Shanghai Containerized Freight Index (SCFI) decreased by 1% to 3674.86 points on July 12 compared to its levels on July 5. This raises the question of whether these movements represent a temporary pause or a leveling off of container spot rates.
Despite these fluctuations, container spot freight rates remain significantly elevated, though still below the peak levels witnessed during the pandemic. Drewry’s WCI, for instance, is approximately 43% lower than its high of $10,377 per FEU in September 2021. Most analysts believe it is unlikely that rates will return to those pandemic highs. This week’s market sentiment was not particularly positive, with severe storms off the coast of South Africa halting container ships transiting via the Cape of Good Hope to avoid Houthi attacks in the Red Sea. Notably, the 18,000 TEU CMA CGM Benjamin Franklin lost 44 containers overboard on July 9 while off the coast of South Africa.
Looking forward, Drewry anticipates that freight rates will remain high until the end of the peak season, which typically extends into late summer and early autumn. This projection aligns with the central bank reserve managers’ growing concerns about “unsustainable” levels of government debt, which could impact borrowing costs in a year marked by numerous elections.
A global survey by UBS revealed that 37% of central bank managers consider the risks from global sovereign debt levels to be among their primary concerns for the global economy this year, up from 14% last year. This heightened concern coincides with global government debt reaching a record $91.4 trillion in 2024, according to the Institute of International Finance. Global debt as a proportion of GDP is on the verge of surpassing 100% for the first time since the depths of the coronavirus pandemic.
Industry Analysts Debate Whether This Pause Is Temporary
“The level of debt has been rising for a while now but so far we haven’t seen any real worry. It’s only really in the past six months that reserve manager concern has picked up, probably because we’re in an election year and the IMF has become more vocal,” said Max Castelli, head of global sovereign markets at UBS Asset Management.
Higher debt levels are associated with increased borrowing costs and the risk of crowding out private investment, which could weigh on economic growth. UBS surveyed 40 central bank reserve managers overseeing trillions of dollars in assets.
Last month, the International Monetary Fund (IMF) urged the US to urgently address its mounting government deficit. The IMF criticized the tax plans of both presidential candidates ahead of November’s election, warning of higher financing costs and a growing risk to the smooth rollover of maturing debt.
Nearly three-quarters of the central banks surveyed by UBS cited persistent inflation and rising long-term yields as significant concerns for the global economy. A quarter of those surveyed predicted that the US annual inflation rate would be between 3% and 4% by June next year, significantly higher than the Federal Reserve’s 2% target. US inflation was at 3.3% in May, down from a peak of 9.1% in June 2022, with traders in swaps markets betting that the Fed will start lowering interest rates in September or November.
“There isn’t yet any willingness among politicians to start dealing with the sustainability of public debt,” said Castelli. “On one end we’ve had monetary policy focused on bringing down inflation and tightening, but on the other end, fiscal policy has remained loose, making it harder to bring inflation to target.”
When asked about the economic impact of the upcoming US presidential election, three-quarters of reserve managers indicated that the country would likely have higher public deficit levels under Donald Trump than under President Joe Biden or another Democratic party member.
The survey also found that 83% of respondents believed a Trump presidency would be more inflationary due to promises of tax cuts and high tariffs on imports from China. This would add more pressure to the US budget deficit, which is expected to hit $1.9 trillion this year, or about 7% of GDP, according to the Congressional Budget Office.
The proportion of reserve managers worried about the “weaponization” of foreign exchange reserves has also risen sharply this year following the decision to use profits on Russia’s frozen assets to finance Ukraine, weakening the haven status of foreign exchange reserves for central banks.
“There is quite a lot of concern about the move from freezing assets to confiscating assets,” said Castelli. “Do we see any sign of a weakening of the dollar in the global financial architecture? The answer is no. But we see a slowdown of allocation to the renminbi.”
As the container freight industry grapples with current challenges, the broader economic landscape remains fraught with uncertainties, with global debt levels and inflationary pressures continuing to be at the forefront of economic concerns.
