The saying "nine gold and ten silver" was once also applicable to the global shipping industry, but in the traditional peak season of 2022, the shipping market suffered from cold waves. The freight rates of major sea routes fell "precipitously". Container shipping analysts said that, driven by the soaring energy prices and rising inflation, the global economic recession is dragging down the shipping market, and this decline is likely to continue until next year. What impact will this change have on Chinese products and Chinese enterprises? The reporter of Global Times conducted an investigation.
Can Chinese Christmas goods be delivered to Europe on time
The data released by the Shanghai Shipping Exchange on the 9th showed that the Shanghai Export Container Comprehensive Freight Index was 2562.12 points, down 10% from the previous period, falling for 13 consecutive weeks. In the 35 weekly report data released by the institution in 2022, there have been 30 weeks of decline.
In addition, according to the data of the Baltic Sea Shipping Exchange, in January 2022, the price of 40 foot containers from China to the West Coast of the United States was about $10000, and in August it was about $4000, a sharp drop of 60%, more than 80% lower than the average price of $20000, the highest point last year. The Thai Vietnamese route market in Southeast Asia fluctuated greatly. Due to the large gap in the demand for freight, the weekly drop was 37.1%. The spot market booking price fell sharply, and even a small amount of zero freight and negative freight occurred.
According to the data of Freight Waves, a supply chain platform organization, it is difficult to see hundreds of ships waiting for berthing in long lines in Los Angeles, Long Beach Island, Rotterdam and other world-famous ports. As of August 29, 2022, Los Angeles Port has 50176 containers, while in late November last year, the number was up to 90397; On the same day, only eight container ships were waiting at sea to call at ports near Southern California, compared with 48 at the same time last year.
With the Christmas season approaching, many traders began to worry about whether Chinese Christmas goods could be delivered on time. Hamburg trader Youdan told the special correspondent of the Global Times in Germany that before the epidemic, he would go to Yiwu, China and other places to purchase Christmas decorations, toys, bicycles and other Christmas goods every year. In the first two years, business was seriously affected by the epidemic and supply chain disruption. This year, the maritime transport situation between China and Europe has improved, and the maritime transport price has declined, which is a good thing for traders. The bad news is that the euro has depreciated and commodity prices have risen. Fortunately, prices in China are not as high as those in Europe and the United States.
"Although Europeans are in low consumption mood due to high inflation, Christmas is still around the corner and there is still a great demand for Chinese goods." Youdan said that Chinese goods still have great advantages in terms of price, variety, quality and other indicators. Although the survey shows that more than 2/3 of German companies expect problems with the delivery in December, he still believes that the current shipping situation will be better than last year.
From abnormal height to normal
What causes the sea freight price to plummet? Ding Chun, a professor at the World Economic Research Institute of the School of Economics of Fudan University, told the Global Times that the high inflation rate in European and American countries, coupled with geopolitical conflicts, energy crises and epidemics, led to a sharp decline in shipping demand, which is the main reason for the sharp decline in global shipping charges. Ding Chun believes that although the current slump is to pull the abnormally high freight rate of last year back to a relatively normal level, "it means that the era of sky high ocean freight rates has ended".
Kang Shuchun, CEO of China International Shipping Network, told the Global Times that the imbalance between supply and demand led to a sharp drop in shipping freight. During the epidemic, the supply of some materials in some countries was cut off due to the rupture of the supply chain, and the "hoarding tide" occurred in many countries, which also led to the abnormally high shipping costs last year. This year, due to the great inflationary pressure of the global economy, demand fell. At the same time, the stock market that had been hoarded before could not be digested, which made European and American importers reduce or even cancel their orders for goods. The "order shortage" spread around the world.
In August 2022, Wal Mart said to cancel orders worth billions of dollars; Shortly thereafter, another retailer, Target, said it had cancelled more than $1.5 billion in orders. Kang Shuchun said that as the most front link in the logistics system, these retailers are most sensitive to the market direction. Their massive cancellation of orders means that the purchasing and consumption capacities of European and American countries are shrinking.
Xu Kai, the chief information officer of Shanghai International Shipping Research Center, told the Global Times that the big data of port and shipping showed that in the third quarter of last year, about 30% of the world's container ships were in the state of berthing, and this proportion fell to about 26% in the same period of this year, indicating that the global shipping turnover capacity has improved; On the other hand, the demand of global commodity trade for transport capacity has declined, so it is inevitable that the freight rate will decline.
In addition, a large number of new ships launched by shipping giants have aggravated the gap between supply and demand. Kang Shuchun said that last year's abnormally high freight rates made many shipping companies earn a lot. Some large shipping companies invested their profits in new shipbuilding. Before the epidemic, the global shipping capacity was already higher than the traffic volume. The Wall Street Journal quoted Braemar, an energy and shipping consulting company, as saying that a series of new ships will be launched in the next two years. It is estimated 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 further aggravate the imbalance between global transport capacity and volume.
Chinese enterprises should avoid internal price war
The Wall Street Journal believes that due to the many uncertainties of the international political and economic situation, shipping charges are likely to fall further from the rest of 2022 to next year. Kang Shuchun told the Global Times that although the current sea freight has plummeted, it is still slightly higher than the level before the epidemic. Considering the high global inflation rate, high oil prices, rising prices and other factors, the current freight price is within a reasonable range. However, from the perspective of the current global economic situation, the downward trend of ocean freight is certain, but it is difficult to determine the extent and when it will fall.
Xu Kai believes that the abnormally high sea freight rate in 2021 is abnormal, while this year's sharp decline is even more abnormal, which should be the excessive response of shipping companies to market changes. He told the Global Times that many liner companies have launched new container ships this year, with abundant turnover capacity, but the global demand for shipping space booking is shrinking. In order to maintain the cargo loading rate of the liner, the shipping company tried to leverage the demand with freight. However, the essence of the sluggish market transport demand is the shrinking trade demand. The strategy of price reduction will not bring any new demand, but will lead to vicious competition and disrupt the order of the maritime market.
"The moderate decline of international shipping costs is reasonable, but the continuous sharp decline is not conducive to the normal development of the whole market", Xu Kai believes that the future shipping costs will not fall and remain below the level of 2019, and it is more rational to return to a level slightly higher or close to the level of 2019. Xu Kai revealed that at the beginning of the year, many shippers signed long-term agreement prices with shipping logistics companies to avoid another case of difficulty. Now the market spot freight is far lower than the signed price. If domestic shipping logistics enterprises blindly follow the price reduction, it will not only damage the interests of cargo owners, but also be detrimental to long-term cooperation, and the price reduction will not bring about an increase in transport demand.
Xu Kai also said that in 2021, the situation that export enterprises are "hard to find a box" will definitely not occur again, but this does not mean that it will send a positive signal to the manufacturing industry to make profits. Among the key factors affecting the enterprise's income, freight accounts for a very small proportion, usually within 1% of the value of container goods. For domestic export enterprises, Xu Kai believes that the more important thing is the international competitiveness and sales volume of goods, while the economic recession and inflation in Europe and the United States have intensified. At the same time, the over ordered goods last year will be digested for a while, and the purchasing power will decline for a period of time. "To solve this pain point, first, we need to strengthen regional integration, improve the transnational management ability of China's supply chain logistics, and break through the supply chain blockages; second, we need to cultivate more excellent Chinese multinational enterprises and brands, improve the product design, innovation and research capabilities of the manufacturing industry, so that China can get rid of the label of" world factory ", and promote high-quality products made in China to attract more international consumer demand." Xu Kai said.
