The saying “Golden Nine and Silver Ten” was once equally applicable to the global shipping industry. However, during this year’s traditional peak season, the shipping market suffered a cold wave, and freight rates on major shipping routes plummeted…
The shipping companies may not have expected that the shipping market, which had soared last year, would “cool” so quickly. It was like “seeing a tall building rise before it collapses” – no, no, no, it has not yet reached such a “collapse” level. It has hit bottom, but many people in the industry have said that the shipping market has now transformed from a “seller’s market” to a “buyer’s market.”
The crazy market is “already cold”! Once the sea freight went back to two years ago
According to data from the Baltic Shipping Exchange, in January this year, the price of a 40-foot container on the China-U.S. West Coast route was about US$10,000. In August, the price was about US$4,000, a 60% drop from last year’s peak of US$20,000. The average price fell by more than 80%.
Even recently, there has been a quote in the freight forwarding circle for receiving goods from Yantian to Long Beach Port for a large container at US$2,850, which dropped below US$3,000!
We have compiled the market trends of some routes in Europe, America, Southeast Asia and other areas in recent weeks and the next two weeks for your reference, as shown in the following diagram:
Image source: Operation and Maintenance Network
The entry threshold for Asian near-ocean lines is low and the fluctuations are more obvious. Currently, the freight rates on some Thai-Vietnam routes are even lower than the cost, making them unprofitable!
The third quarter of each year is the traditional peak season for shipping. However, under the background of global inflation, economic expectations are weakening and demand is low. The shipping industry is not prosperous this year.
As an important participant in the shipping market, container truck drivers have a deep understanding of the market conditions. In the past many years, long queues have often appeared before the Mid-Autumn Festival and National Day as cargo owners rushed to ship goods. However, this year the situation has changed.
Many container truck drivers have reported that the market situation is indeed a bit low. Master Wu, who is about to retire, said frankly that in his more than 10 years of working in port container truck transportation, “the market situation this year can be said to be the weakest.”
Industry insiders predict that high overseas inflation is squeezing demand and the downward pressure on the economy continues to intensify. Compared with last year’s shipping prices, which were tens of thousands of dollars, the global container shipping market is still not optimistic in the fourth quarter. There may be a sluggish market in the peak season, and freight prices will rise. further decline.
What causes shipping prices to plummet?
The Global Times reported that Ding Chun, a professor at the Institute of World Economics at the School of Economics at Fudan University, said that high inflation rates in European and American countries, coupled with geopolitical conflicts, energy crises and the epidemic, have caused shipping demand to shrink significantly, which is the main reason for the collapse of global shipping rates. Ding Chun believes that although the current plunge has brought last year’s abnormally high freight prices back to relatively normal levels, “it means that the era of sky-high shipping freight prices has come to an end.”
Kang Shuchun, CEO of China International Shipping Network, said the imbalance between supply and demand has caused ocean freight rates to plummet. During the epidemic, due to supply chain disruptions, some countries experienced supply cuts of certain materials, and many countries experienced a “hoarding wave”, which also led to unusually high shipping costs last year. This year, due to the high inflationary pressure in the global economy, demand has dropped. At the same time, the previously accumulated inventory market has been unable to digest it, causing European and American importers to reduce or even cancel product orders. The “order shortage” is spreading around the world.
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 abnormally high freight rates made many shipping companies make a lot of money, and some large shipping companies invested their profits in new ships. Before the epidemic, global shipping capacity was already higher than shipping volume.
The Wall Street Journal quoted energy and ship consulting company Braemar as saying that a series of new ships will be launched in the next two years, and the net fleet growth rate is expected to exceed 9% next year and 2024, while the year-on-year growth rate of container cargo volume will be in 2023. It will turn negative in 2020, which will further exacerbate the imbalance between global shipping capacity and volume.
What impact will the changes have on China’s exports?
The Wall Street Journal believes that due to the many uncertainties in the international political and economic situation, shipping rates are likely to fall further during the remainder of this year and into next year. Judging from the current global economic situation, the downward trend of shipping freight is certain, but it is difficult to determine to what extent and when it will reach the limit.
At the beginning of the year, many cargo owners signed long-term price agreements with shipping logistics companies in order to avoid the situation of being hard to find a box again. However, now the spot freight rate in the market is far lower than the signed price. If domestic maritime logistics companies blindly follow price cuts, it will not only damage the interests of cargo owners, but also be detrimental to long-term cooperation. Moreover, price cuts will not bring about an increase in transportation demand. “Instead of fighting a price war, it is better to improve service levels, or develop fast shipping and consolidated logistics.”Waiting for new business”.
The situation of “hard to find a box” for export companies will definitely not happen again this year, but this does not mean sending a positive signal of profitability to the manufacturing industry. Among the key factors affecting corporate profits, freight accounts for a very small proportion, usually within 1% of the value of container goods.
For domestic export companies, what is more important is the international competitiveness and sales volume of goods. However, the European and American economies are in recession and inflation is intensifying. At the same time, last year’s over-ordered goods will take some time to digest, and the decline in purchasing power will continue for some time.