“The recent decline in spot freight prices on popular routes is due to, on the one hand, a year-on-year decrease in domestic export orders; on the other hand, the supply chain in the container shipping market is gradually recovering, and a super cycle caused by the structural mismatch of supply and demand may It’s about to end, and the crazy scene of ‘grabbing all the space and grabbing boxes’ is gone,” a freight forwarding practitioner told reporters.
After two years of “super peak season”, the container shipping industry seems to have reached an “inflection point.” Data from the Shanghai Shipping Exchange shows that on July 8, the China Export Container Freight Index (CCFI) was 3232.18 points, down 1.2% from the previous period (July 1), and prices on all popular routes fell. Among them, the European route fell by 2% from the previous issue, and the European route freight rate has dropped by 14% since February; the US-West route fell by 2.5% from the previous issue, and the US-East route dropped by 1.7% from the previous issue.
Does this mean that the container shipping industry has reached an “inflection point”? In this regard, Xiang Weili, executive director of Sullivan Greater China, told reporters: “CCFI is still performing stably overall, and as the domestic epidemic prevention and control situation improves, the demand for related commodity transportation has recovered, superimposed on the inconsistency in U.S. port supply and commodity demand. Certainty, shipping prices are expected to remain high and volatile in the short term.”
Spot freight rate falls below long-term agreement price, shipping giant withdraws ships to guarantee freight rate
Recently, a freight forwarder posted an advertisement for “selling boxes at a discount” on WeChat Moments, attracting onlookers. It seems like just yesterday that “a box is hard to find” in the container shipping market.
A CEO of a Yiwu foreign trade company told reporters: “It is now easier to find space and boxes than last year. At the same time, shipping prices have also dropped a lot compared to last year. However, foreign trade factories are facing the unfavorable situation of reduced orders from Europe and the United States.”
The latest World Container Comprehensive Freight Index (WCI) released by Drewry, an international shipping research and consulting organization, shows that the spot freight rate from Shanghai to Los Angeles fell by 4%, or US$300, to US$7,652/FEU, a 16% decrease from the same period in 2021. ; The spot freight rate from Shanghai to New York fell by 2% to US$10,154/FEU, a 13% decrease from the same period in 2021.
Throughout the first half of 2022, container freight prices from Shanghai to Europe and the United States have shown a downward trend, and spot freight rates have even fallen below long-term agreement prices. According to market rumors, cargo owners have proposed to renegotiate long-term agreement prices with freight forwarders.
A freight forwarder told reporters: “Many long-term agreement prices were signed at the end of last year and the beginning of this year. At that time, the market was hot and the freight rates were high. For example, last year, the sea freight price on the U.S. route was as high as 20,000 US dollars/FEU, but it is about to fall below that level. At US$7,000/FEU, European routes are also expected to fall below US$10,000/FEU, which is already lower than the long-term agreement price signed by some cargo owners.”
Regarding the volatile decline in container shipping prices, the Founder Futures report stated, “Global inflation is high, European and American central banks have accelerated the pace of monetary tightening, and the marginal growth rate of demand has slowed sharply, even declining month-on-month. Many countries around the world have gradually relaxed full control over the epidemic since January. With the measures taken, ship schedule rates and turnover efficiency have rebounded significantly, and freight rates have continued to fall amid an increase in the supply of space and a significant slowdown in demand growth.”
As spot prices have fallen, some shipping companies have also lowered freight rates under government guidance. International container giant CMA CGM said that starting from August 1 this year, when large-scale French retailers import consumer goods through CMA CGM, they can receive a discount of 500 euros per 40-foot standard container, which is roughly equivalent to a 10% discount. For all containers destined for French overseas territories, you can also get a discount of 500 euros, with a discount of about 10% to 20%.
Facing the drop in shipping prices, international shipping giants began to “withdraw ships” to reduce effective shipping capacity and maintain stable shipping prices.
The latest data released by Drewry on July 8 shows that in the next five weeks (weeks 27 to 31), the world’s three major shipping alliances will successively cancel 61 voyages. Among them, the 2M alliance and THE alliance have canceled the most voyages, both reaching 23 voyages; the Ocean Alliance, which has the least cancellations, has canceled 15 voyages. Among the 760 scheduled voyages on major routes such as trans-Pacific, trans-Atlantic, Asia to Northern Europe and Asia to the Mediterranean, 86 voyages were canceled between weeks 27 and 31, with a cancellation rate of 11%. In addition, Drewry data also shows that 66% of blank sailings (empty ships) will occur in the eastbound trans-Pacific trade route in the next five weeks, mainly heading to the West Coast of the United States.
Container shipping prices will fluctuate in the short term, and industry prosperity is uncertain in the future.
Xiang Weili analyzed: “From this year’s perspective, the overall freight rate in the container shipping market remains at a relatively high level. Increasing inflation in the United States may affect residents’ daily consumption habits and bring about changes in commodity demand and supply. At the same time, consumers The way of shopping is also gradually changing, more people are turning to online platforms, and the expansion of cross-border e-commerce is likely to further promote demand growth in the container shipping market.”
In addition, Industrial Securities research report believes that domestic exports will maintain growth and container shipping market demand will remain stable. As the domestic epidemic prevention and control situation improves, there is room for recovery and supplementary growth in freight rates in the container shipping market.
Yu Nan, an analyst at Haitong Securities, said in his analysis that the high prosperity continued at the beginning of this year and the balance between supply and demand is still at a fragile stage. After experiencing the hot global container shipping market in 2021, although freight rates fell back at the beginning of this year, they still remain high. On the demand side, according to the IMF forecast, global trade volume will grow by 6.7% in 2022, with developed countriesImport demand has not weakened, and imports from developed countries are expected to grow by 7.3%. At the same time, the route from Asia to North America, which is a popular route in 2021, still has room for growth due to the fact that the current retail inventory-to-sales ratio in the United States is still at a historically low level. In addition, U.S. retail sales are still rising, which is expected to continue to promote the demand for U.S. line freight.
“As of mid-May, the global container shipping capacity in ports accounted for close to 37%, which is still higher than the average level of 31% before the epidemic.” Yu Nan believes that this means that with the further resumption of work and production, and the arrival of traditional traditions in Europe and the United States, During the peak consumption season, container transportation congestion may continue.
In addition, Yu Nan also said that the industry is currently dominated by obvious leaders, which has a certain stabilizing effect on freight prices. For example, the three major shipping alliances (2M Alliance, Ocean Alliance, and THE Alliance) currently occupy more than 80% of the market share and can effectively control the supply of shipping capacity to respond to changes in demand. “We believe that freight rates are more likely to continue to fluctuate at high levels in the short term, and may stabilize at reasonable prices in the medium to long term.”
However, a research report from Guotai Junan Securities issued an early warning. Although U.S. line container shipping volume has remained at a high level since the beginning of the year, slightly lower than the high growth rate in 2019, considering that the impact of the U.S. epidemic has weakened and physical consumption is shifting to service consumption, it is recommended to focus on vigilance. Demand turning point risk. Congestion at ports on the western US coast has improved significantly. As the impact of the epidemic in the United States weakens, the efficiency of inland supply chains has improved, and supply chain chaos is gradually easing. It is expected that the net profit margin of container shipping companies is expected to remain high in the first half of the year, and there are uncertainties in the sustainability of the industry’s high prosperity in the second half of the year.
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