SCFI continues to adjust.
Route freight rates have diverged.
After the 2008 US financial crisis, , freight rates in the global container liner market have been sluggish. As can be seen from the figure below, for ten years, the freight rate for 40-foot containers from Shanghai to the basic ports on the East Coast of the United States has basically fluctuated between US$2,000 and US$4,000.
Until the impact of the COVID-19 epidemic in 2020, the shipping container market has gone from epidemic prevention and control and reduced terminal operating capacity to port congestion and tight terminal operating capacity. The tension has even spread to railways, trucks, truck drivers, and every link of the entire supply chain. They are all in a state of tension. The supply and demand of the international container shipping market are also out of balance. The shipping capacity of container ships has also gone from saturated to tight. Prices in many links of the shipping supply chain have also skyrocketed.
However, since the beginning of 2022, the Spring Festival off-season has combined with the outbreak of the Russia-Ukraine conflict in February, and the rebound of the epidemic in South and East China in March. Container freight rates have weakened. With the recurrence of epidemics in East and South China, urban lockdowns have affected corporate production and logistics transportation. All were hindered, affecting the normal shipment of containers. Container freight rates fell for 12 consecutive weeks. It was not until Shanghai resumed work that container freight rates showed signs of rebound.
Driven by the increase in freight rates on routes such as Southeast Asia, the SCFI composite index has also rebounded for four consecutive weeks, but the US-Western and European routes are still declining.
So what will be the trend of the international container shipping market in the future? Will prices continue to rise? Or ease the decline?
2
European and American demand is not optimistic
Freight volume shows signs of weakness
(1) Affected by inflation, European and American demand weakened
In the United States, CPI continued to hit new highs, interest rate hikes progress was advanced, and retail sales in May fell for the first time in five months. .
The U.S. CPI in May exceeded expectations by 18.6%, hitting a 40-year high. The U.S. June Michigan consumer confidence index dropped to a record low of 50.2 in June. In this context, the demand side of the United States is facing greater pressure.
In Europe, demand has also slowed down due to the recurrence of the epidemic, the conflict between Russia and Ukraine and rising inflation.
html Affected by the intensification of geopolitical conflicts since 13 months, the European economic prosperity has been greatly damaged. The Eurozone ZEW Economic Sentiment Index has fallen into negative territory since March, reporting -29.5 in May. The consumer confidence index of the 19 countries in the Eurozone dropped to -22%, the lowest level since April 2020. The upward pressure on inflation in Europe is increasing. As of March, the HICP of EU 27 countries has increased by 7.8% year-on-year, which is the highest level since records began in 1997. Energy has become the main factor pushing up inflation levels.
(2) Global freight volumes will slow down
Rasmussen, chief shipping analyst at BIMCO, the maritime trade association, also pointed out: "In Europe and the Mediterranean, reported consumer confidence levels are the second lowest on record. In the United States, from 2021 "Retail sales have been very stable from April 2020 to March 2022, but it seems reasonable to expect that low consumer confidence levels will eventually hurt retail sales, especially if interest rates rise," he said. As the global economy slows, signs of softening in freight volumes are becoming increasingly apparent, especially in Europe.
The performance of the slowdown in global freight volumes can also be seen in the Container Trade Statistics (CTS) review of the market. CTS data shows that freight volume as of April this year fell by 3.6% compared with the same period last year. After a 1.4% increase in January, global freight volumes fell in the following three months, with a 9% drop in April alone.
The first quarter financial report of Maersk , the world's largest container shipping company, also predicts that the growth of global container demand in 2022 will be between -1% and +1%, which is compared with its previous forecast range of +2% to 4%. is significantly reduced. The company believes that risks in the economy are increasing, while consumer and business confidence is declining in Europe and the United States, and orders for exports from major manufacturing economies are also falling.
3
Transportation capacity has increased significantly
Non-basic factors may intensify the supply chain crisis
(1) Transportation capacity supply has increased significantly, or we will face the challenge of overcapacity
For container freight, my country's Water Transport Science Research Institute of the Ministry of Transport 3Vice President Jia Dashan It has also been pointed out that the imbalance between market supply and demand is the main reason for the sharp increase in container freight prices in 2021.
Generally speaking, container shipping capacity is mainly determined by two factors. One is the empty container turnover rate , and the other is the ship's operating efficiency.
Regarding the supply of empty containers , my country's export heavy containers for international routes are generally larger than import heavy containers. In addition, my country took the lead in controlling the epidemic and resuming work and production. A large amount of cargo demand began to shift to China, and the demand for empty containers increased significantly. At the same time, the overseas circulation of containers is not smooth and the return shipping of empty containers by sea has slowed down, resulting in a shortage of empty containers.
However, since the second half of 2020, the Ministry of Industry and Information Technology and other departments have actively coordinated with my country's container manufacturing companies to fully expand container production, and the Ministry of Transport has actively coordinated and guided liner companies to increase the return of empty containers from overseas ports. At present, the shortage of empty containers at my country's ports has been basically solved, and the supply of new containers is fully guaranteed.
In order to meet the rapidly growing trade demand, the global container fleet capacity has further increased. As of the end of 2021, the total shipping capacity of global container ships has exceeded 280 million deadweight tons and 24 million TEU. From the perspective of load capacity, it will increase by 2.5% year-on-year in 2021; from the perspective of the number of TEUs, it will increase by 4.5% year-on-year.
According to data from Alphaliner, an international shipping consulting organization, the total number of global container ships at the end of 2021 was 24.97 million TEUs, a year-on-year growth of 4.6%. Except for necessary maintenance and repairs, all available ships in the world have been put into the market.
In terms of new shipping capacity, was dragged down by the overall domestic economy and the epidemic in the first half of this year. Orders in the shipbuilding industry declined, but the number of orders held by the industry is still very high. According to statistics recently released by the China Shipping Association, from January to May 2022, the national shipbuilding completion volume was 14.277 million deadweight tons, a year-on-year decrease of 15.3%; the number of new ship orders received was 17.692 million deadweight tons, a year-on-year decrease of 46%. As of the end of May 2022, the number of ship orders on hand was 102.2 million deadweight tons, a year-on-year increase of 20.2%.
In this regard, some people in the shipping industry will speculate that once the phased problems caused by the epidemic are over, part of the demand will naturally "disappear", The shipping industry may then face the challenge of overcapacity.
(2) Workers’ strikes and port congestion may exacerbate the supply chain crisis
Container shipping, although it occupies the main part of logistics transportation, the upper limit of the capacity of the entire supply chain is usually affected by the short board effect. Reduced terminal efficiency will create bottlenecks, and shortages of truck drivers and insufficient return speed will cause supply chain shortages.
It can be seen that simply increasing ship transport capacity cannot improve the overall transport capacity of the logistics chain.
According to statistics, the ship on-time rate of 50 major ports around the world dropped significantly last year. The comprehensive on-time rate index of global trunk routes released by the Shanghai Shipping Exchange has been within 20% for a long time (generally 72%-73% before the epidemic) . Although there has been an improvement this year, by April, it had only risen to around 28%.
Recently, many port workers’ negotiations and workers’ strikes around the world have led to low port work.
At the same time, the International Longshore and Warehouse Union (ILWU) labor negotiations at the West Coast Ports officially began on May 10. Although the overall cooperative attitude between the two parties has made the negotiation atmosphere more relaxed, the two sides have great differences on the focus of terminal automation. According to industry insiders, the risk of work slowdowns and strikes still exists. If the decline in operational efficiency in the future overlaps with the arrival time of goods in Shanghai's resumption of work, the congestion situation will intensify again, possibly exacerbating the supply chain crisis.
4
Freight rate outlook:
Freight prices will rebound in the short term
Although the supply of shipping capacity is still tight, the global container shipping trade market continues to weaken due to poor shipments from China. In the short term, as the epidemic situation in Shanghai gradually improves, cargo volume will gradually rebound. However, it is expected that this year will not be able to return to the same period last year, and the rebound space of each route will also be different.
In terms of European lines, the rebound in cargo volume after the resumption of domestic work may bring some support to freight prices. However, it seems that a downward channel for freight prices has gradually formed. The weakening of consumer demand has lowered import demand, and freight prices will continue Decline under pressure.
As for the U.S. line, , the current increase in demand for imports of U.S. goods still exists, which will still provide some support for freight rates during the year. However, if labor negotiations at U.S. terminals do not go smoothly, increased congestion will also drive up freight rates. Recently, the United States has launched a review process for the additional tariffs imposed on China. In order to curb domestic inflation in the United States, tariffs on related products may be removed, which will also be beneficial to freight rates.
In addition, another factor that needs attention in the near future is the signing of the long-term freight rate agreement. The supply chain has been continuously impacted in the past two years, making cargo owners pay more attention to the stability of future transportation capacity supply. Liner companies are also trying to bypass freight forwarders and shift booking channels to long-term contract direct passengers. Therefore, long-term contract prices have been affected to a certain extent. It can be regarded as the price center of the spot market. The hot scene in the container shipping market from last year to the beginning of this year has caused this year's long-term contract prices to continue to rise in the past few months. Although the current weak supply situation caused by domestic epidemic control has made cargo owners wait and see about signing long-term agreements, when freight prices continue to fall and when market freight rates are significantly lower than the contract price, the fulfillment rate will definitely be affected.
However, the cargo owner’s breach of contract will face certain risks and costs:
â‘ Some long-term contracts have cabin insurance clauses (liquidated damages will be incurred if cabin insurance requirements are not met).
②After the default, if the spot price rises again and exceeds the long-term contract price, there will be no way to enter into a long-term contract that year.
③Breach of contract record will affect the negotiation price and even success or failure of the next long-term contract (customers with bad records will be blacklisted by airlines).
Therefore, there will definitely be defaults in long-term agreements, but the more they care about their own credibility, the more they pay attention to the security of the supply chain, and the more cautious they are about subsequent spot prices, the less likely they are to default (or in other words, the greater the need) Generally, cargo owners will negotiate and ask the liner company to modify some terms by modifying the contract price, extending the performance period, or significantly reducing the "minimum cargo volume commitment", so that the contract can continue to be performed. Therefore, unless the space utilization rate of drops further, there will be little motivation for the long-term agreement price to decline.
Overall, freight rates will recover in the short term as Shanghai resumes production and work. Looking at the freight rates of the European line and the American line, the freight rates have diverged. The European line has entered a downward channel, and the American line still has recovery momentum, but the overall price center has increased significantly compared with last year. However, judging from container trade statistics, global freight volume is slowing down, container turnover time will return to normal, and freight rates will overall decline.
