Shipping costs plummet, will Chinese companies profit?

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 ship…

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 has suffered from cold spells. Freight rates on major shipping routes have plummeted. Container shipping analysts said that the background of the global economic recession, driven by soaring energy prices and rising inflation, is dragging down the shipping market, and this decline is likely to continue into next year. What impact will this change have on Chinese products and Chinese companies?

Can Chinese Christmas goods be delivered to Europe on time?

Data released by the Shanghai Shipping Exchange on the 9th showed that the Shanghai Export Container Comprehensive Freight Index was 2,562.12 points, down 10% from the previous period and falling for 13 consecutive weeks. Among the 35 weekly reports released by the agency this year, there have been 30 weekly declines.

According to data from supply chain platform organization Freight Waves, it is currently difficult to see hundreds of ships lining up in long queues waiting to berth at world-renowned ports such as Los Angeles, Boracay, and Rotterdam. As of August 29 this year, there were 50,176 containers in the Port of Los Angeles, while in late November last year, this number was as high as 90,397. On that day, there were only 8 container ships waiting at sea to dock at ports near Southern California. On the same day last year, At that time, the number was 48 ships.

As the Christmas season draws closer, many traders are beginning to worry about whether China’s Christmas goods can be delivered on time. Before the epidemic, he would go to Yiwu, China and other places every year to purchase Christmas decorations, toys, bicycles and other Christmas products. In the past two years, business was severely affected due to the epidemic and supply chain disruption. This year, the shipping situation between China and Europe has improved, and shipping prices have dropped, which is a good thing for traders. The bad news is that the euro is falling and commodity prices are rising. Fortunately, China’s price inflation has not been as high as in Europe and the United States.

Although Europeans are currently experiencing low consumer sentiment due to high inflation, Christmas still has to be celebrated and the demand for Chinese goods is still huge. Chinese goods still have great advantages in various indicators such as price, variety and quality. Although the survey shows that more than two-thirds of German companies expect to have problems with delivery in December, he still believes that the current situation of shipping will be better than last year.

From abnormal height to normal

What causes shipping prices to plummet? High inflation rates in European and American countries, combined with geopolitical conflicts, energy crises and the epidemic, have caused a sharp shrinkage in shipping demand. This 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.”

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 August this year, Walmart said it was canceling orders worth billions of dollars; shortly thereafter, another retailer, Target, said it was canceling orders worth more than $1.5 billion. Kang Shuchun said that as the front-end link in the logistics system, these retailers are the most sensitive to market trends. Their large-scale cancellation of orders means that the purchasing power and consumption power of European and American countries are shrinking.

Port and shipping big data shows that in the third quarter of last year, about 30% of global container ships were berthed. In the same period this year, this proportion dropped to about 26%, which shows that global shipping turnover capacity has improved; on the other hand, global commodity trade has The demand for shipping capacity has dropped, 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. Last year’s extremely high freight rates allowed many shipping companies to make a lot of money. Some large shipping companies invested their profits in new ships. Before the epidemic, global shipping capacity was already higher than shipping volume. A series of new ships will be launched in the next two years. It is expected that the net growth rate of the fleet will exceed 9% next year and 2024, while the year-on-year growth rate of container freight volume will turn negative in 2023, which will reduce global shipping capacity and shipping capacity. The imbalance between quantities has further intensified.

Chinese companies should avoid internal price wars

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. Although the current shipping freight has plummeted, it is still slightly higher than the level before the epidemic. Taking into account the current high global inflation rate, soaring oil prices, rising commodity prices and other factors, the current freight price is considered to be within a reasonable range. However, 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.

It is believed that last year’s abnormally high sea freight rates were abnormal, and this year’s rapid decline is even more abnormal. It should be an overreaction of shipping companies to market changes. Many liner companies have launched new container ships this year, and their turnover capacity is abundant. However, global shipping booking demand is declining.shrink. In order to maintain cargo loading rates on liners, shipping companies try to use freight rates as leverage to drive demand. However, the essence of the sluggish market transportation demand is shrinking trade demand. The price reduction strategy will not bring any new demand. Instead, it will lead to vicious competition and disrupt the order of the shipping market.

The moderate decline in international shipping rates is reasonable, but the continued plunge is not conducive to the normal development of the entire market. In the future, shipping rates will not fall and stabilize below the 2019 level. It is more rational to return to a level slightly higher than or close to 2019. interval. It was revealed that at the beginning of the year, many cargo owners signed long-term price agreements with shipping logistics companies in order to avoid the difficulty of finding a box again, but 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, they believe that 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. “To solve this pain point, the first step is to strengthen regional integration, improve the transnational management capabilities of my country’s supply chain logistics, and open up supply chain blockages; the second step is to cultivate more excellent Chinese-funded multinational companies and brands and improve manufacturing products. Design, innovation and R&D capabilities will allow China to get rid of the label of just the ‘world’s factory’ and promote high-quality products ‘intelligently made in China’ to attract more international consumer demand.” said.


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Author: clsrich