Since the second half of 2020, container shipping prices have soared sharply and remained high, and the chain reaction and subsequent impact of such price increases are also worthy of attention.
From the perspective of different routes, the freight rates of the US West (basic port) and US East (basic port) routes have continued to strengthen, which has promoted the overall increase in the container shipping price index. The latest issue of the Shanghai Export Container Freight Index shows that the freight rate of 40-foot containers on the Eastern US route has reached a record high. Not only did the freight rates of China’s exports to the United States soar, but also the freight rates of goods shipped to Europe and Australia have soared, making it difficult to find one cabin.
The recent surge in ocean freight is related to many factors. For example, due to the outbreak of the epidemic, consumer demand in various countries around the world was suppressed to a certain extent in the first half of the year, leading to the need for many businesses to replenish inventory in the second half of the year; the effect of overseas “home economy” has increased. The demand for home shopping and the large import of anti-epidemic materials from overseas have led to a sharp increase in China’s export products. At the same time, the poor turnover of shipping containers caused by the epidemic has further pushed up freight rates.
The deep reasons behind the skyrocketing sea freight
Since July 2020, China’s export volume has risen sharply, and the demand for export containers has soared. Whether in the shipping market or the China-Europe freight train, there have been shortages of container sources, soaring freight rates, and delayed turnover; in Qingdao, Lianyungang and Ningbo Large ports such as Shanghai and Shanghai are experiencing delays in ship berthing operations due to the extreme shortage of containers, and the ports are under pressure. The pattern of the three major alliances in the international container liner industry has basically stabilized, and the use of price competition methods by liner companies is more rational than in previous years.
In the second half of this year, the export situation was very good. There were fewer orders running, and there were insufficient space and foreign trade companies rushed for space. However, the bargaining power of foreign trade companies was weak, which led to the increase in prices.
The current increase in ocean freight prices is largely due to the congestion caused by the slow turnover of containers, which is a partial structural problem. In the long run, there is no need to worry too much, because the overall capacity of global shipping companies is surplus.
Recently, China’s export data released by the General Administration of Customs performed well. In the first 11 months of this year, China exported 9.57 trillion yuan in mechanical and electrical products, a year-on-year increase of 5.4%, accounting for 59.3% of the export value. The export of goods related to epidemic prevention materials and home life was strong. The export value of textiles, including masks, was 989.23 billion yuan, a year-on-year increase of 33%. The export value of furniture was 365.07 billion yuan, a year-on-year increase of 11.2%. Toys amounted to 210.48 billion yuan, a year-on-year increase of 6.8%. By country, in the first 11 months, China’s total exports to the US were 2.82 trillion yuan, an increase of 6.9% year-on-year; exports to the EU were 2.45 trillion yuan, an increase of 7% year-on-year; exports to ASEAN were 2.37 trillion yuan, an increase of 7% year-on-year . Exports to Japan and South Korea were basically the same as the same period last year.
Changes in terminal demand and consumption patterns in European and American countries will also support China’s export performance for about a year. At present, the epidemic situation in Europe and the United States is severe. The proportion of residents working at home has increased from 16% to about 34%, and the demand for Chinese export products has increased. In contrast, China has achieved at least 80% of the resumption of work and production, and economic prosperity indexes such as PMI are also climbing, which can bear the impact of short-term increases in ocean freight. For foreign trade companies, they can pass on the cost of ocean freight to foreign consumers through some technical treatments, so as to absorb the pressure of rising freight prices.
The high cost of maritime logistics is not conducive to the growth of international trade and the recovery of the global economy. Although the impact on China’s exports in the short term is limited, it is certainly not sustainable in the long term. If shipping prices are high for a long time, overseas importers may seek alternatives, which will affect China’s exports.
If the price of sea freight continues to rise, it may bring about a series of chain reactions, such as exporters’ profit margins weakening, importers defaulting, and increasing the difficulty of trade negotiations, which will affect the smooth progress of trade. Sea freight is a relatively important trade factor, and it will also affect China’s total trade volume and trade structure, and will have a greater impact on low value-added products.
Export companies should prepare emergency plans and risk early warnings, pay attention to changes in freight rates and exchange rates and other prices on a daily basis, and seize the opportunity to arrange production and shipment. Flexible contract terms can be adopted to resolve part of the freight risk, so that all parties can bear some freight costs, and freight insurance can also be considered. Sea freight prices are expected to slow down after the Spring Festival next year
In general, in addition to the macroeconomic and the recovery of the epidemic, the price of container shipping is also key. Factors such as the delivery of shipping capacity by shipping companies and whether they can match changes in demand are also key.
Before the first quarter of next year, ocean freight prices will remain at a relatively high level. The current high level is definitely an abnormal phenomenon. After the epidemic has stabilized, ocean freight prices will have a rational return. The decline in demand is a slow declining process, which may last for a relatively long time, and depends on the control of the foreign epidemic situation. If it is not ideal, the demand for shipping from China will not return, which is not conducive to the decline of ocean freight prices. If the epidemic situation in Southeast Asia is well controlled, some orders can be accepted, which will also help ease shipping prices. “