International shipping giants Dafei and Herbert have recently announced the cessation of the increase in spot freight rates. According to data, as of September 10th, the Baltic Dry Bulk Freight Index reached 3864 points, an increase of over 200% since the beginning of this year, and some container ship rental prices reached $200000 per day.
Industry insiders point out that factors such as port congestion and low operational efficiency are exacerbating the imbalance between maritime supply and demand. The current high freezing of freight rates by shipping companies may appear to be a short-term loss, but in reality, it benefits long-term interests. It can effectively avoid the risk of a significant decline in high prices in the later stage, while also providing bargaining chips for the upcoming long-term agreement negotiations.
High freight rate freeze
CMA CGM, the world’s third-largest and major North American shipping company, recently announced that it will stop raising all spot rates. This measure will take effect from September 9, 2021, and will remain in effect until February 1, 2022.
Daniel Maffei, Chairman of the Federal Maritime Commission in the United States, stated that the abnormally high prices of ocean freight and container shipping have attracted widespread attention from global regulatory agencies, legislators, and the public.
German shipping company Hapag Lloyd has stated that carriers are facing increasing pressure from shippers and regulatory agencies, and the company has actually frozen spot rates for several weeks. The immediate freight rate has reached its peak and will not be further increased.
Huo Jianguo, Vice President of the China World Trade Organization Research Association, said that the above statement by shipping companies means that global sea freight prices will tend to be relatively stable.
John Butler, President and CEO of the World Shipping Council Carrier Representative, believes that shipping companies are not the only pricing parties in the market, and freight forwarding companies are also involved.
Zhang Qian, a freight forwarder from a certain shipping company, told a reporter from China Securities Journal: “The price received by the freight forwarder is mainly based on the pricing of the shipping company, and may also include some additional service fees, but it will not be as significant as the increase in freight rates
Zhang Qian stated that freezing freight rates is a strategy for shipping companies to lock in recent profits; On the other hand, many shipping companies will soon begin a new round of long-term agreement negotiations, with prices frozen at high levels, which will become bargaining chips for shipping companies to negotiate prices.
Due to the recent surge in freight rates, some retailers have cancelled nearly 30% of their orders, which has made shipping companies realize the seriousness of sustained price increases. The long-term development of the industry requires a positive cycle, and a development model with excessive downstream pressure is unsustainable, “said Zhang Qian.
CITIC Securities pointed out that the recent continuous increase in spot freight rates has led to customers rushing to ship, and locking in spot prices will compress the profit margin of intermediaries, improve customers’ booking experience, and facilitate the achievement of long-term cooperative relationships.
Severe port congestion
China CITIC Securities stated that the upgrading of control over docked vessels at various ports during the epidemic has exacerbated delays in schedules and supply-demand conflicts, with container ships anchored at locations such as the Los Angeles anchorage reaching a new historical high.
He Jie, Director of the Container Center of Ningbo Zhoushan Port Business Department, introduced that the container congestion situation in Ningbo Port has been very serious since the beginning of this year. The port throughput from January to July increased by 11% compared to the same period last year. However, due to the impact of the epidemic, the efficiency of port operations has decreased, and shipping schedules are irregular, which has brought great pressure to port work. Currently, the average waiting time for each ship is 4 days, which is twice as long as normal.
The situation is similar in other major ports around the world. As of the evening of August 27th, 44 container ships were anchored outside the ports of Los Angeles and Long Beach, California, breaking the record of 40 ships set in early February this year. At present, the average waiting time for ships has increased from 6.2 days in mid August to 7.6 days. Port congestion caused by low operational efficiency of ports and related supporting facilities, limited storage space, and slow customer pick-up and return of containers has become a global problem.
UBS predicts in its research report that port congestion will continue until 2022. This large-scale congestion leads to ship queues and delays, squeezing out a large amount of capacity on major trade routes and seriously dragging down shipping efficiency.
China CITIC Securities believes that the unilateral market pattern caused by severe supply-demand imbalance may continue for a long time.
Supply and demand imbalance continues
According to customs statistics, in the first seven months of this year, China’s total import and export value was 21.34 trillion yuan, a year-on-year increase of 24.5% and a year-on-year increase of 22.3% compared to the same period in 2019. Among them, exports amounted to 11.66 trillion yuan, a year-on-year increase of 24.5%; Imports amounted to 9.68 trillion yuan, a year-on-year increase of 24.4%.
Shipping costs are also growing alongside import and export trade. As of September 10th, the Baltic Dry Index has reached 3864 points, with an increase of over 200% since the beginning of this year; The Shanghai Export Container Freight Index is 4568.16 points, while the average in September 2020 was only 1372.11 points, a year-on-year increase of over 230%.
The person in charge of a certain technology industry limited company in Shenzhen stated that the sea freight cost for transporting a container to Europe and the United States is now between 150000 and 200000 yuan, which is 5 to 10 times higher than before, basically diluting the company’s profits by 30% to 50%. Among them, small and medium-sized enterprises suffer the greatest damage, especially some export enterprises that produce low value goods, with shipping costs even exceeding the value of the products.
Consumer electronics manufacturer Anke Innovation’s overseas revenue in the first half of 2021 was 5.194 billion yuan, a year-on-year increase of 49.12%, accounting for 96.71% of the total revenue. The person in charge of Anke Innovation told a reporter from China Securities Journal that the company’s products are mainly shipped by container sea. In the first half of this year, the growth rate of freight was faster than the company’s revenue growth. At present, the situation of rising freight rates has not improved.
China CITIC Securities pointed out that the super peak season for container shipping may be extended to a record high, and there is no sign of improvement in the supply and demand relationship due to the impact of the epidemic and various events. Although new small carriers continue to enter the Pacific market, the overall effective capacity of the market remains around 550000 TEUs per week, but it has not had a significant effect on improving the supply-demand relationship.
(Original title: Shipping companies freeze freight rates at high levels, leading to supply-demand imbalance in consolidated transportation. Continued)
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