Carriers continue to return to their original capacity levels in China after the easing of the lockdown in Shanghai but the lull in demand is pushing rates down, according to a new report from Flexport.

The freight forwarder said in demand is weak after the long holiday and isn’t expected to recover until mid-June.

"Carriers continue to return to their original capacity levels, however, given the weak demand in the market TPEB rates have decreased slightly while FEWB rates remain stable," it said.

"President [Joe] Biden's push to lift Chinese tariffs may also help to stimulate China exports as well as rally the overall market,"  help to stimulate China exports as well as rally the overall market.

In South China — which includes Hong Kong, Shenzhen, Guangzhou, and Dongguan — Flexport said the "market is gradually continuing to improve."

"TPEB demand is stable and rates are similar to last week, while FEWB demand is strong, particularly to the UK," the freight forwarder said.

Soft shipping demand, elevated rates

In terms of ocean freight, Flexport said the Asia-North America route continues to recover, although demand "remains soft."

"Shanghai has reopened after two months of Covid-19 related lockdowns and restrictions. As of June 1, manufacturing and shipping activity can resume per normal, although a ramp-up period is expected over the next few weeks," it said.

"In the meantime, demand is still soft on the transpacific eastbound (TPEB) route, as uncertainty remains surrounding whether a spike in shipments and a strong peak season are expected," the freight forwarder added, noting that the International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) labor negotiations remain underway.

Flexport said levels remain elevated relative to the pre-Covid market with softening in many major pockets, especially into U.S. west coast (USWC) ports.

For the Asia-Europe ocean freight, Flexport said "demand is picking up, but congestion is still having a widespread impact on capacity deployed on their route."

"With Shanghai reopening, the third quarter is expected to be strong with a summer peak. However, there are many uncertainties on a macro level such as the Ukraine conflict, high inflation across Europe, and low consumer confidence," the freight forwarder said.

It noted that despite these developments, rates are expected to increase in June due to tighter space.

"Overall space is starting to fill up again. Congestion in European ports is causing sailings to return to Asia late, resulting in additional delays and blank sailings," Flexport said.