According to foreign media reports, when the global freight market is in chaos, the world’s leading furniture giant Ikea has sold the containers it purchased last year and announced that it will abandon its container strategy and will focus on other supply chain solutions.
IKEA has 474 warehouses around the world and annual revenue of nearly 42 billion euros. In a reply to the media, IKEA wrote, “We did decide to temporarily purchase containers during the winter container shortage in 2021 to support our shipping partners (container shipping companies).” “But we have since sold them Without these containers, IKEA’s supply chain department does not want to develop such a business model in the long term.” In 2021, the global container shipping crisis faces the current situation of tight shipping capacity, long congestion, and high freight prices. Retailers such as Coca-Cola, Walmart, and Home Depot Some other cargo owners and freight forwarding companies have purchased containers, rented container ships and even established their own shipping companies.
The recent sharp decline in global shipping rates has had an impact on some emerging and small companies in the liner shipping industry because their current earnings are not enough to pay the sky-high rents of their charter commitments. In August, the newly established British freight forwarding company Allseas Shipping committed to charter the 1,740 TEU “Green Ace” ship built in 2005 from SFL Corp. for two years at a price of just under US$50,000 per day. However, this month Allseas reportedly abandoned the agreement, leading SFL to charter the vessel to another operator at $23,000 per day, less than half what Allseas initially agreed to.
It is reported that with the decline in freight volume, Asia-Europe freight rates have dropped by 25% compared with May, averaging only around US$7,700/teu, and Allseas decided to reduce shipping capacity.
“Order shortage” spreads around the world
The era of sky-high shipping rates is over
These emerging shipping companies may not have expected that the shipping market, which had soared last year, would “cool” so quickly. It was like “seeing the building rise before it collapsed”…
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.
Chinese export companies are under pressure
It will take some time to digest last year’s over-ordered goods
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.
As gasoline and food prices soar, European and American consumers no longer rush to buy clothing, home furnishings, home appliances and kitchen utensils, causing retailers to build inventory.
Major U.S. retail importers are not optimistic about U.S. consumption expectations and have significantly reduced retail orders. Walmart canceled billions of orders; Target canceled more than $1.5 billion in orders and said it would take “necessary” actions, including price cuts and order cancellations. Both Walmart and Target are forcing some suppliers to absorb rising costs.
European and Japanese importers��It is even more difficult. The euro has depreciated to parity with the US dollar, and the yen has fallen to a new low in more than 20 years. This has caused their procurement costs to rise significantly, and some customers are afraid to place orders at all.
A recent questionnaire survey conducted by the China Council for the Promotion of International Trade among more than 500 companies showed that the main difficulties companies currently face are slow logistics, high costs and few orders. 56% of companies said that raw material prices and logistics costs are high. For example, although shipping rates have fallen in the short term, they are still at high levels in the medium and long term. 62.5% of companies said that orders are unstable, with more short-term and small orders and less long-term and large orders. The demands of enterprises mainly focus on maintaining the stability and smooth flow of international and domestic logistics, implementing relief and assistance policies, and facilitating cross-border personnel exchanges. Some companies are looking forward to resuming domestic exhibitions and liberalizing overseas participation in order to obtain more orders.
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. This can be seen from the recent Christmas numbers. Orders in Europe and the United States are relatively soft. Maybe after the good times last year, the outlook is no longer optimistic, and the recession will only get deeper…
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