Recently, the freight rates of popular routes on the Shanghai Shipping Exchange have fallen one after another, and the container shipping market in China is no longer “hard to find”. Although the freight rate has fallen in the short term, it is still at a high level in the medium and long term. Upstream companies are not affected because they hold a large number of long-term orders, and some freight forwarders are selling space at lower prices due to reduced cargo volume. For downstream exporters, the drop in freight has eased the pressure on shipping costs. In the medium and long term, the demand in the middle and lower reaches of the container shipping industry decreases while the supply in the upstream increases, and the industry is gradually changing from a shortage of supply to a surplus of supply.

Price adjustments for multiple routes

According to a reporter from China Securities Journal, the price drop on the route from China to Europe and the United States is the most obvious. The main reason is that the demand for containers has decreased, and the container shipping industry has experienced an oversupply in the short term.

In the China container shipping industry, freight forwarders are the main force in the midstream. As a bridge between cargo owners and shipping companies, the barriers to entry are relatively low, the number is large, the concentration is low, and the market is relatively fragmented.

It is understood that in the industrial chain of the global container transportation industry, in addition to the midstream freight forwarding companies, the upstream mainly includes shipowners and shipping companies, such as the three major liner alliances, which are highly concentrated markets; while the downstream is dominated by companies involved in import and export. , including but not limited to traders and manufacturing companies, the market is relatively fragmented.

Judging from the recent trend of freight rates on popular routes, the prices of routes such as Far East-Europe and Far East-North America have all declined. Judging from the recent quotations, the freight rate of the Shanghai-West America route was quoted at US$7,116/FEU, down 11% from the beginning of the year; the freight rate of the Shanghai-Europe route was quoted at US$5,697/TEU, down 26.7% compared with the beginning of the year. Except for the Japanese route, the routes in other regions all declined to varying degrees.

According to data from the Shanghai Shipping Exchange, the Shanghai Export Containerized Freight Index (SCFI) has fallen for four weeks in a row, showing a downward trend as a whole since the beginning of the year. As of the week of July 8, 2022, the SCFI composite index was at 4143.87, down 19% from the beginning of the year and up 5.4% year-on-year.

The cost pressure of export enterprises is eased

As for the reasons for the decline in container shipping prices, on the one hand, the demand for imported goods in major economies such as Europe and the United States has decreased, which is also the main reason for the recent decline in container freight rates. Line freight rates fell significantly. On the supply side, on the other hand, global container capacity has grown moderately. Clarkson data shows that as of June 2022, the total global container shipping capacity is about 25 million TEU, an increase of about 3.6 million TEU from the beginning of the year. The increase in capacity also provides a certain impetus for the decline in freight rates.

A shipping analyst told a reporter from China Securities Journal, “Recently, the quotation of futures has indeed loosened. Previously, the US route attracted a large amount of speculative demand, but this year’s external economic environment has deteriorated, coupled with the impact of various emergencies, the speculative sentiment has weakened, and freight forwarding has weakened. Offers have been lowered.”

It is worth mentioning that the Baltic Sea Freight Index (FBX), which is closer to the freight rate of the freight forwarder, has fallen more significantly, reflecting the continuous narrowing of the price difference between the freight forwarder price and the shipping company’s quotation.

The reporter learned that the drop in spot freight rates has a more significant impact on mid-stream and downstream companies, while upstream shipping companies have signed a large number of long-term contracts with high prices and have not been affected for the time being. For shipping companies, the current space utilization rate for departures from Shanghai Port is still about 90%, and the signing of the long-term association this year is very good, which has formed a certain guarantee for the profits of shipping companies.

China Freight forwarding companies are now facing a lot of pressure. The weakening of overseas demand has brought about a certain loss of cargo volume, and the increase in the proportion of direct passengers has further squeezed the market share of freight forwarding; for downstream companies, the decline in freight and the turnover of ships The increase in the rate has eased the pressure on exporting companies’ shipping costs.

Finding a new balance between supply and demand

The global container shipping market has changed from “hard to find a box” to “selling boxes at a discount”, reflecting that the supply and demand pattern of the container shipping industry is changing.

This year is an inflection point for the container shipping industry. With high inflation in Europe and the United States, a shift in monetary policy and the increased risk of economic recession, it is difficult for container shipping prices to continue to rise.

Looking back at the current round of global container shipping price increases, since the outbreak of the epidemic in 2020, China has taken the lead in resuming work and production. At the same time, under the background of financial subsidies and monetary easing policies in Europe and the United States, a large number of imported goods have been demanded. The demand for container transportation has grown substantially. In addition, due to the epidemic and the mismatch between supply and demand, port congestion and slower turnover efficiency further pushed up freight rates. After entering 2022, affected by the conflict between Russia and Ukraine, inflation in most economies around the world will be high, and the demand for imported goods in Europe and the United States will decline. In the medium and long term, the container shipping industry is gradually changing from a shortage of supply to a surplus of supply.

In the short term, the freight rate has not yet entered the stage of accelerated decline, and the overall freight rate level this year will remain high and volatile. The focus of the supply side is still on port congestion. With the advent of the peak season and the risk of strikes, port congestion in Europe and the United States has worsened to varying degrees. Therefore, it is difficult for freight rates to decline in the third quarter; in the fourth quarter, liner alliances can effectively respond to the decline in demand by adjusting voyages, and it is expected that the rate of decline in freight rates in the fourth quarter will not be too fast. Looking forward to 2023, a large number of new ships will be launched, the flexibility of capacity adjustment will shrink, and demand will further weaken, and container freight rates may enter a stage of accelerated decline.

In the context of falling shipping prices and oversupply of containers, Chinese exporters should be more cautious in their choice of freight forwarders in China. Instead of blindly pursuing low prices, it is better to choose an international freight forwarding company that is guaranteed and cost-effective to optimize costs and maximize profits.Shenzhen Focus Global Logistics Co., Ltd. has been deeply involved in the industry for 21 years, and has maintained close and friendly cooperative relations with many well-known shipping companies. With advantageous shipping prices, from the perspective of customers, it provides the most cost-effective cross-border logistics and transportation solutions from China. If you have business needs, please feel free to contact us – TEL: 0755-29303225, E-mail: info@view-scm.com, and look forward to cooperating with you!