Demand is beginning to recover and production is starting to pick up in China after a months-long lockdown in Shanghai was lifted earlier this month according to a recent report by Flexport.

In its freight market update on June 14, Flexport said the surplus in the Asia-North America capacity causes rates to drop, while rates between Asia-Europe rates remain stable.

In South China — Shenzhen, Guangzhou, Dongguan, and Hong Kong — the freight forwarder and customs brokerage company said the overall market is "soft" and "demand weak with rate levels decreasing."

"Demand is beginning to recover and production picking up, however, there is a surplus of Transpacific Eastbound (TPEB) capacity causing rates to drop, while far east westbound (FEWB) rates remain stable," Flexport noted in its report.

Demand seen to pick-up

Moving forward, it added that demand is "expected to pick up" in July as more Chinese factories ramp up production.

"TPEB demand ex-HAN is continuing to pick up as we approach the quarter end. Space is also getting tighter especially due to congestion at transit hubs. TPEB rate levels are expected to increase next week, while FEWB rates are trending downwards due to weak demand," Flexport added.

In terms of shipping, the freight forwarder said for Asia-North America, rates continue to fall on TPEB as demand remains soft relative to the capacity available, especially to Pacific Southwest ports.

It added that shipping activity has resumed in Shanghai, although the strength and timing of the volumes rebounding after two months of Covid-19-related lockdowns remain unclear.

"International Longshore and Warehouse Union (ILWU) and Pacific Maritime Association (PMA) labor negotiations continue as July 1st, when existing contracts expire, rapidly approaches," Flexport said, noting that intermodal bottlenecks, chassis shortages, and high fuel prices continue to pose additional challenges despite the improved balance between supply and demand.

"Levels remain elevated relative to the pre-Covid market with softening in many major pockets," it further said.

Meanwhile, for Asia-Europe shipping, Flexport noted that following the Shanghai reopening, volumes are picking up again but recovery has "not translated into a big surge thus far."

Asia-Europe volumes to be "stronger" in Q3

"The third quarter is the traditional peak so volumes are expected to be stronger," the freight forwarder said.

"Uncertainties on a macro level such as the Ukraine conflict, high inflation across Europe, and low consumer confidence are playing a role in actual demand levels," it added.

Flexport said general rate extensions are seen from carriers for 2H of June with some indicating increases for July.

"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 some blank sailings," it further said.