Is high freight rates sustainable on Sino-us routes?

According to the Weekly report on China's export container transport market released by the Shanghai Shipping Exchange on Sept. 18, the average utilization rate of ships on the U.S. West and U.S. East routes at Shanghai port is still close to full capacity. Some carriers slightly raised rates, spot market booking prices rose. The freight rates (sea freight and sea freight surcharges) for Shanghai exports to us West and US East basic ports were US $3867 /FEU and US $4634 /FEU respectively, up 1.4 per cent and 2.2 per cent from the previous period.

In recent months, the continued rise of the trans-pacific route has become the focus of attention. There are industry estimates that eastern U.S. freight rates have a chance to soar to an all-time high of $5,000 per FEU in order to ship in time for Thanksgiving in The United States in October, and western U.S. freight rates could top $4,000. But how long can such high rates last against a backdrop of excess capacity and uncertain demand?

Double the rate of cargo ship bursting

When asked about the market situation in July and August, a number of practitioners including foreign trade enterprises, freight forwarders and freight forwarding companies mentioned one word in the same place -- cabin burst. "For example, the actual shipping space is 300, but the shipping company releases 400, and when the ship is allocated, the goods will not be loaded. Either they will be detained in the port for the next voyage, or they will be transferred to other ports and shipped out on another voyage." As one freight forwarder explained, "The bulk shipments to the US in the past two months often burst, and my (agent's) cargo volume more than doubled. We used to book shipping a week in advance. Now it's two to three weeks in advance."

Data provided by SIPG shows that in July, the throughput of foreign trade containers between China and the United States in Shanghai port reached 489,000 teU, up 24% month-on-month and shrinking to -4% year-on-year. In August, despite the impact of several typhoons, the volume of foreign trade between China and the United States still reached 494,400 teU, achieving a positive year-on-year growth.

In order to increase the capacity, the shipping company began to call constantly inquiring about the dock space and berths, hoping to arrange overtime ships. According to Tu Yufeng, deputy manager of zhendong Company's operation department, there were 18 overtime ships at Waigaoqiao Ii terminal in July, most of which were bound for the United States. In August, the number of overtime ships was reduced to 15, but the number of containers increased by 1,283 teU compared with that of the previous month.

This is because many shipping companies have changed from small ships to large ones. Cma, for example, replaced a ship with a capacity of 3,000 TEU with one with a capacity of 5,000 TEU. In August, THE shipping company affiliated to THE Alliance even replaced THE ship with a capacity of 11,000 twenty-foot equivalent units (TEU). As the new ship is larger, wider and has a deeper draft, it is transferred to Yangshan port for operation.

At the same time, the freight rates of the United States west (base port), the United States East (base port) and other routes also continued to strengthen, thereby driving the aggregate price index higher.

In the first half of this year, average rates on U.S. East and West routes were $1,749 /FEU (a 40-foot container) and $2,813 /FEU, up 8.6 percent and 3.9 percent, respectively, from the same period last year. However, since June, shipping space on the West and East Routes of the United States began to show tension, with the monthly increase of more than 20%, 28.4% and 20.9% respectively. In the latest quotation, the freight rate of America West airlines has risen from $1,662 /FEU on April 3 to $3867 /FEU, up as much as 132.67%; The price of freight on the Eastern United States route broke through the $4,000 mark and reached $4,634 /FEU, a new high in nearly 10 years.

However, the head of a tempered glass company said the export business had not been affected by the high freight rates. "We mainly export to Brazil and Russia on a FOB basis at the buyer's expense." And if sign is CIF (namely land price) clause, namely the quotation of export enterprise besides goods cost, still include transportation cost and insurance cost, the extra cost that high freight brings, undertake by export enterprise.

Supply and demand determine tariff trends

"Supply and demand are the main factors that determine the price of maritime transport," he said. "When there is more capacity than demand, the price falls, while when there is more capacity than supply, the price rises. This is beyond the control of any single market player." Some professionals said that the recent surge in freight rates on North American routes, the basic factor is the overall strong demand for transport. Liner companies have also added temporary flights to meet demand. However, liner route layout and adjustment takes time, so the contradiction between supply and demand can not be alleviated immediately.

This personage analysis, since July begins north American airline to enter traditional peak season. July-september is the traditional peak season, and China has managed to control the epidemic well, so the market demand recovered better than expected. According to data from the General Administration of Customs, China's export volume to the United States by water transport in the first July reached us $151.535 billion, down 12.15 percent year on year. However, in July, both imports and exports achieved year-on-year positive growth, and the increase in trade directly led to the increase in transport demand.

Since the second quarter, the transportation demand of overseas epidemic prevention materials and related articles for daily use has increased significantly. In the first half of the year, China's exports of epidemic prevention materials and products for the "residential economy" grew rapidly, while the decline in exports of mechanical and electrical products and labor-intensive products was lower than the overall decline, said Li Kuiwen, spokesman for the General Administration of Customs and director of the statistical analysis department. In the first half of this year, the export of textiles, including face masks, increased by 32.4% year on year; the export of medical medicines and medicines, medical instruments and apparatus increased by 23.6% and 46.4% respectively; the export of notebook computers and mobile phones increased by 9.1% and 0.2% respectively due to the increased consumption of the "home economy".

Some experts also analyzed that considering many uncertainties such as the epidemic situation in the later period, the trend of China-Us trade and the US election in November, shippers have the demand for centralized shipment, which contributes to the short-term prosperity of the current centralized transportation market, the shortage of transportation capacity and the sharp rise of freight rates.

Zhou Shihao, CEO of Qunar.com, an online international logistics service, also said that shipments of containers from China to the United States began to increase significantly around June. There are three reasons for this. First, during the epidemic, the US government issued a large number of cash checks and other benefits to its residents to stimulate consumption, which in turn boosted the number of cross-border e-commerce orders. Second, due to the remarkable control effect of the epidemic in China and the smooth resumption of work and production, China's status as the "factory of the world" has not been weakened but further strengthened in the face of the global outbreak. Third, exports of goods that could not be exported due to the epidemic backlog in the first half of the year began in the second half.

High freight rates have no basis for long-term sustainability

Although demand is strong, but many in the industry think high rates are unsustainable.

"In the long run, high rates are definitely not sustainable and eventually people will come back to a healthier and more stable market." Han Ning, delury's China director, believes that continued high rates will lead to intervention and investigation by national or regional authorities to curb high rates.

The personage inside course of study thinks, 3 quarters this is the traditional peak season of shipping, price rises is general phenomenon. "In the first half of the year, when the cheapest price in South America was a few hundred dollars, it's now up to 4,000 dollars for a high container. But that should ease after October."

"In fact, the essence of the crash and boom is a change in the relationship between supply and demand. Now there is a serious surplus of capacity, and the boom is only temporary." People involved in the industry say that high freight rates have no basis for long-term sustainability without a fundamental change to the status quo of overcapacity in the industry.

According to data from Alphaliner, a third party, the world's container ship capacity stood idle at 521 teUs, or 2.61 million TEUs, in early June, up from 1.52 million teUs in the wake of the 2008 global economic crisis.

Previously idle capacity is gradually coming on to the market as demand is released. Delury's monthly report showed that the share of global container idle capacity had fallen from 9.8 per cent in June to 7.4 per cent in July. That means half a million TEU capacity was brought back to the market in just one month.

But sustaining capacity will not be easy. In addition to the need for a long-term steady flow of goods, recruiting basic Numbers of seafarers has been a problem.

The head of a seafarers' brokerage firm said it was difficult to recruit seafarers in China because of the outbreak. "A lot of people just want to do offshore or domestic work, they don't want to go offshore because they are worried about the risks. Many more have been on board before, and have not been for more than a dozen months. If you want someone now, you can only charge more."

Shipping companies also admit that it is difficult to recruit seamen "because the shift is not easy". In fact, if the number of seafarers and the type of work assigned to ocean-going vessels cannot meet the minimum requirements, they will not be able to pass the maritime authorities' inspection.

"If freight rates are high, eventually some shipping companies will lose control and cut prices to boost market share, which is when freight rates come down." "Until then, companies will stay quiet and enjoy the market dividends of less capacity," Concludes Mr Henning.

According to media reports, Maersk offered $4,200 for the West Coast and $5,000 for the East Coast, but is now offering $3,900 and $4,700 respectively. Cosco/OOCL also scrapped the original GRI price hike and other shipping lines are expected to follow suit.

"This seems like the smartest thing to do right now," notes Andy Lane, a LinkedIn consultant. "At current prices, shipping companies are making good profits. This is not the time to be greedy. One can only hope that when the market turns, rates will remain within profit margins and not fall to losses, as they have in the past decade."

The work is deployed.