Source: Global Times Author: Global Times reporter Pan Xiaotong Global Times special correspondent in Germany Zhaodong 2022-09-14 09:10:07
The phrase “Golden Nine Silver Ten” used to be the same in the global maritime industry, but in this year’s traditional peak season, the maritime market suffered a cold snap. Freight rates on major shipping routes have plummeted “off a cliff,” and container shipping analysts say the global recession is dragging down the shipping market, driven by a surge in energy prices and rising inflation, and that the decline is likely to continue into next year. What impact will this change have on Chinese products and Chinese companies? The Global Times reporter investigated this.
Can Chinese Christmas goods be delivered to Europe on time
According to the data released by the Shanghai Shipping Exchange on the 9th, the Shanghai Export Container Comprehensive Freight Rate Index was 2562.12 points, down 10% from the previous period and down for 13 consecutive weeks. In the 35-issue weekly report data released by the agency this year, it has fallen for 30 weeks.
According to data from the Baltic Sea Maritime Exchange, the price of a 40-foot container on the West Coast route from China to the United States was about $10,000 in January, and the price in August was about $4,000, plunging 60 percent, down more than 80 percent from last year’s highest price of $20,000. The Market of Southeast Asia’s Thai-Vietnam route fluctuates greatly, due to the large gap in demand for route freight, which fell by 37.1% in a single week, and the booking price of the spot market fell sharply, and even a small amount of zero freight and negative freight.
According to supply chain platform firm Freight Waves, it is difficult to see hundreds of ships waiting in long lines at world-renowned ports such as Los Angeles, Boracay island and Rotterdam. As of Aug. 29, the Port of Los Angeles had 50,176 containers, compared with 90,397 in late November, when only eight container ships were at sea waiting to dock at ports near Southern California, compared with 48 at the same time last year.
As the Christmas season draws nearer, many traders are beginning to worry about whether China’s Christmas goods will arrive on time. Hamburg trader Yudan told the Global Times special correspondent in Germany that before the epidemic, he had to go to Yiwu and other places in China every year to purchase Christmas decorations, toys, bicycles and other Christmas goods. In the first two years, due to the epidemic and the disruption of the supply chain, the business was seriously affected. This year, the situation of China-EU shipping has improved, and the price of shipping has fallen, which is a good thing for traders. The bad news is that the euro has depreciated and commodity prices have risen. Fortunately, China’s prices are not as high as in Europe and the United States.
“Although Europeans are now depressed due to high inflation, Christmas is still passing, and the demand for Chinese goods is still very large.” Yudan said that Chinese goods still have great advantages in various indicators such as price, type and quality. Although the survey shows that more than two-thirds of German companies expect problems with deliveries in December, he still believes that the current situation of sea freight will be better than last year.
From abnormally high to normal
What causes the plummeting in seaborne prices? Ding Chun, a professor at the Institute of World Economics at the School of Economics of Fudan University, told the Global Times that the high inflation rate in Europe and the United States, superimposed on geopolitical conflicts, energy crises and the epidemic, has caused shipping demand to shrink significantly, which is the main reason for the collapse of global sea freight rates. Ding Chun believes that although the current plunge is to pull last year’s abnormally high freight rates back to relatively normal levels, “it means that the era of sky-high freight rates has come to an end.”
Kang Shuchun, CEO of China International Shipping Network, told the Global Times that the imbalance between supply and demand has led to a plunge in maritime freight rates. During the epidemic period, due to the break in the supply chain, some materials in some countries were cut off, and a “hoarding tide” occurred in many countries, which also led to the abnormally high cost of shipping last year. This year, due to the high inflation pressure of the global economy, the demand has declined, at the same time, the previously hoarded inventory market can not be digested, so that European and American importers have reduced or even cancelled commodity orders, and the “order shortage” has spread around the world.
In August, Walmart said it canceled billions of dollars in orders; Shortly thereafter, another retailer, Target, said it canceled more than $1.5 billion in orders. Kang Shuchun said that as the most advanced part of the logistics system, these retailers are the most sensitive to the direction of the market, and their large-scale cancellation of orders means that the purchasing capacity and consumption capacity of European and American countries are shrinking.
Xu Kai, chief information officer of the Shanghai International Shipping Research Center, told the Global Times that big data from the port and shipping showed that in the third quarter of last year, about 30% of the world’s container ships were moored, and this proportion fell to about 26% in the same period of this year, which shows that the global shipping turnover capacity has improved; On the other hand, the demand for capacity in global commodity trade has declined, so lower freight rates are inevitable.
In addition, the launch of a large number of new ships by shipping giants has exacerbated the gap between supply and demand. Kang Shuchun said that last year’s unusually high freight rates made many shipping companies earn a lot of money, and some large shipping companies invested their profits in newbuilding, while before the epidemic, the global shipping capacity was already higher than the volume. The Wall Street Journal quoted Energy and Ship Consulting Firm Bravemar as saying that there will be a series of new ships launched in the next two years, and the net growth rate of the fleet is expected to exceed 9% next year and 2024, while the year-on-year growth rate of container freight volume will turn negative in 2023, which will further exacerbate the imbalance between global capacity and volume.
Chinese companies should avoid internal price wars
The Wall Street Journal believes that due to the many uncertainties in the international political and economic situation, shipping charges are likely to fall further in the remainder of this year and next year. Kang Shuchun told the Global Times reporter that although the current shipping freight rate has plummeted, it is still slightly higher than the pre-epidemic level, and considering the current high global inflation rate, oil prices soaring, price increases and other factors, the current freight price is within a reasonable range. However, from the current global economic situation, the downward trend of maritime freight rates is certain, but it is difficult to determine the extent of the decline and when to stop.
Xu Kai believes that last year’s abnormally high sea freight rates were abnormal, while this year’s extreme plunge is even more abnormal, which should be the overreaction of shipping companies to market changes. He told the Global Times reporter that many liner companies have launched new container ships this year, and the weekly transfer capacity is very abundant, but the global demand for maritime booking is shrinking. In order to maintain the cargo loading rate of liners, shipping companies try to leverage demand with freight rates. However, the essence of the sluggish demand for transportation in the market is that trade demand is shrinking, and the strategy of reducing prices will not bring any new demand, but will lead to vicious competition and disrupt the order of the maritime market.
“The moderate decline in international maritime costs is reasonable, but the continuous plunge is not conducive to the normal development of the entire market”, Xu Kai believes that the future of maritime freight will not fall and stabilize below the level of 2019, and it is a more rational range to return to a level slightly higher than or close to 2019. Xu Kai revealed that at the beginning of the year, many cargo owners signed a long-term agreement price with a shipping logistics company in order to avoid another difficult to find box, and now the market spot freight rate is far lower than the signed price. If domestic maritime logistics companies blindly follow the price reduction, it will not only damage the interests of cargo owners, but also is not conducive to long-term cooperation, and the price reduction can not bring about an increase in transportation demand, “instead of fighting a price war, it is better to improve the level of service, or develop new businesses such as fast navigation and cargo flow.”
Xu Kai also said that this year’s export enterprises “a box is difficult to find” situation will certainly not appear again, but this does not mean that the manufacturing industry to send a positive signal of profitability. Among the key factors affecting the income of enterprises, freight costs account for a very small proportion, usually within 1% of the value of containerized goods. For domestic export enterprises, Xu Kai believes that what is more important is the international competitiveness and sales volume of goods, while the economic recession and inflation in Europe and the United States have intensified, and last year’s oversubscripted goods will be digested for a period of time, and the decline in purchasing power will continue for a period of time. “To solve this pain point, the first is to strengthen regional integration, improve the transnational management capabilities of China’s supply chain logistics, and open up the blockages of the supply chain; The second is to cultivate more outstanding Chinese-funded multinational enterprises and brands, enhance manufacturing product design, innovation and research and development capabilities, let China get rid of the label of “world factory”, and promote high-quality products of ‘Made in China’ to attract more international consumer demand. Xu Kai said.
Post time: Sep-14-2022