freight rate plummeted, flights and flights were suspended, speed was reduced, container shipping market "changed color" overnight. The shortage of ships, containers and ports that have caused the prosperity of the container shipping market in the past are being eliminated one by one. With the sharp reduction in the demand for freight in container ships, , the "good days" of the container shipping market have ended.
SCFI has fallen for 16 consecutive weeks, and the Western Front of the United States may fall below the cost price
Global economic outlook is worrying, inflation has led to weak demand, the originally in short supply and demand market reversal instantly, freight rates accelerated, and the Western Front of the United States may fall below the cost price in the short term.
The peak season of the collection transportation market in the third quarter of this year was not strong, and the situation in the Port of Saita has also eased. The Shanghai Export Container Freight Index (SCFI) has fallen for 16 consecutive weeks so far. As of September 30, it has fallen below the 2000 point level and only 1922.95 points, down more than half from the historical high of 5109 points at the beginning of the year.
According to the latest data from the Shanghai Aviation Exchange, as of September 30, the freight rate per FEU per FEU per FEU per ,399, down more than two-thirds from the historical high of $7,900 at the beginning of the year; the freight rate per 5.8% per 6,159 per TEU of the US Eastern Line fell below $3,000, of which the freight rate per TEU of the European Line fell 6.73% per TEU to $2,950 per TEU, and the freight rate per TEU of the Mediterranean Line fell 7.69% per 2,999 per 2,999 per 2. The World Container Freight Index (WCI) released by Deluri also fell 10% last week to $4471.99/FEU, down 57% year-on-year.
Industry insiders pointed out that on average, the cost per FEU of the US West Front is about US$2,000, and the cost of large ships and new ships is relatively low, which is about US$1,500, but the cost of small and medium-sized ships or old ships reaches US$2,500-US$3,000. The current freight rate level is basically close to the cost price. If it continues to fall, small and medium-sized transport companies will withdraw from the market, while large companies will control transportation capacity, reduce shifts or suspend cabin spaces, supporting freight rates to a certain extent. More than
traders revealed that the freight rates in late September were less than 10% of the same period last year. Freight rates usually rise before the National Day holiday in previous years, but Judah Levine, research director of online freight platform Freightos, said that due to other dynamic factors, it is impossible for the National Day holiday to provide any support for freight this year.
As spot freight prices plummeted, shipping companies were forced to negotiate with customers on long-term contracts again, and the "protective umbrella" that "sky-high" long-term contracts are no longer there. Xeneta chief analyst Peter Sand said 50% of clients surveyed successfully obtained a reduced freight rate for fixed contracts.
In the past, high-priced long-term contract prices were the protective umbrella for shipping companies to make profits, but this beautiful imagination was also broken. Zhang Shaofeng, director of Yangming Shipping, pointed out that considering the long-term cooperation with customers, if the contract is breached, although there are liquidated damages clauses, "it will not be executed normally, but will only be modified and adjusted according to the situation."
Deluli expects that the shipping freight index will continue to decline in the next few weeks, and the utilization rate of container ships will still decline. Sea-Intelligence, a shipping research and consulting agency, also pointed out that freight rates have been normalized and a hard landing will occur.
Shipping companies cancel their routes, Maersk wants to slow down the speed to save fuel
Maersk CEO Shi Suoren said in an interview with Reuters recently that as American consumers reduce shopping and the Russian-Ukrainian war weakens market confidence, sea freight volume is expected to remain flat or decline this year. Even if ports and global supply chains are still blocked, freight rates have begun to decline this year.
Shi Suoren said that the company is still working hard to minimize transportation delays, but as the situation gradually improves, the ship should return to normal navigation speeds, which is very important for fuel efficiency . By what he said, he refers to the soaring fuel costs.
. Just recently, Maersk announced the suspension of its Asia-US East Coast TP28 pendulum route. The 4447TEU "Merkur Archipelago" will start the last route of the TP28 route on October 13, departing from Vung Tau, Vietnam.
After that, the TP28 route will be incorporated into the Maersk TP20 pendulum route, and the order of affiliation ports will be modified to: Jakarta- Vungton -Shanghai- Ningbo - Busan - Panama Canal - Mobile -Newark, and then return to Jakarta via Suez Canal .The first voyage will be carried out by the 4658TEU "Maersk Kentucky" on October 16.
Maersk said: "We are still committed to carrying all goods signed with Maersk or obtained through Maersk Spot and Twill channels. Once cargo demand rebounds, we will resume capacity."
Obviously, Maersk has discovered that operating two 4500TEU-class Panamax container ships for this 77-day round-trip voyage, coupled with the waiting time, is becoming increasingly uneconomical, especially when high prices and long-term goods are scarce, Maersk needs to load with lower freight spot goods.
is not just Maersk. Previously, Maersk and Mediterranean Shipping 's 2M alliance has suspended the trans-Pacific TP3/Sequoia route service. Maersen Steelers has revoked the CCX overtime express service from China to California , and China United Shipping (CU Lines) has suspended the US-Western TPX route. It is said that Dafeisteel is also stopping its US-Western direct flight "Golden Gate Bridge" (GGB) service. These signs indicate that Trans-Pacific Convergence Transportation Corporation's bookings are declining in North American ports along the Pacific and Atlantic coasts.
However, due to the decline in freight rates, many shipping companies have begun to suspend their flights one after another to change the situation of oversupply. Data released by the shipping consulting agency Drury showed that in the five weeks from September 19 to October 23, 122 flights were cancelled out of a total of 750 scheduled flights on major routes such as the Trans-Pacific, Transatlantic, Asia-Nordic and Asia-Mediterranean, with a cancellation rate of 16%. Among them, the three major shipping alliances in the world have successively canceled 101 voyages.
The three positive factors in the collective transportation market have disappeared! Market demand has significantly decreased
container shipping market "changed colors" overnight, mainly because demand has declined unexpectedly sharply. At the beginning of this year, the three major shipping research institutions, Deluri, Alphaliner and Clarkson, all predicted that the market still has the most opportunities for supply and demand this year, but issues such as inflation, interest rate hikes, and economic recession began to ferment in the middle of the year, suppressing consumer demand. The three major institutions also changed their expectations, believing that there will be oversupply this year.
At the same time, the reduction in demand has also accelerated the digestion of goods originally accumulated in the port. Recently, the situation of the Port of Serbia on the Western United States has completely disappeared. The Port of Serbia on the Eastern United States has slightly Serbia on the European route. Except for Germany and the United Kingdom, where dock workers have strikes, there are no other signs of Serbia on the European route.
Not only that, the market originally predicted that the environmental protection regulations that the International Maritime Organization (IMO) will come into effect next year will help reduce market supply, but now the industry believes that the influence of environmental protection regulations may be mostly declarative in the first year of their effectiveness. Maersk recently pointed out that the impact of the new IMO environmental regulations will fall in 2024.
Total view, the shortage of ships, boxes and port blockages that have caused the prosperity of the stock market in the past are being eliminated one by one. Long-term contracts and environmental protection regulations that were originally regarded as favorable factors during the hot market were also exposed one by one, and the risks in the stock market seem to be becoming increasingly severe.
Nowadays, the future of the shipping market is probably to judge whether freight rates may stop falling and rebound from three aspects: economic data, Russian-Ukraine war, and supply and demand. The World Economic Outlook Report released by the International Monetary Fund (IMF) in July once again lowered the global economic growth rate to 3.2% and 2.9% this year. The economic growth rate of the United States and Europe is only about 2.5% this year, and will drop to 1.4% and 1.2% next year respectively. If the global economy does not improve, it will continue to have doubts about global consumption power. Secondly, the Russian-Ukrainian war not only deepened inflation in the euros zone, but also became the key to the high prices of raw materials and energy this year and the high global inflation.
Finally, it depends on how the transportation company regulates transportation capacity and "rescue itself". According to data recently released by Deluri, in the five weeks from September 19 to October 23, the world's three major maritime alliances will cancel a total of 101 voyages. In addition, it is also rumored that there are non-three major alliances. Because when the market is booming, many ships are rented into the Western Front market, and as freight rates fall, it is very likely to lose money and withdraw the lease, which will gradually have an effect on reducing supply and stopping the decline in freight rates.
Danish shipping consulting agency predicts that freight rates will fluctuate at low levels and then show a significant rebound; on trans-Pacific routes, weekly capacity after the National Day holiday is estimated to decrease by 22%-28%, far higher than the average of 9%-17% from 2014 to 2019, and the reduction in capacity from Asia to Europe is about 20%, the same as the same period in 2019, but higher than the average from 2014 to 2018.
Maersk CEO Shi Suoren expects that trade will rebound “moderately” this year, but freight volumes entering the Christmas season are lower than normal years. He pointed out that maritime cargo volume will remain flat or lower this year, although global supply chains are still congested; the purchasing power of American consumers is not as strong as the outbreak of the epidemic in the previous two years, and the Russian-Ukrainian war also hit consumer confidence.
Shi Suoren said that the current market demand has decreased significantly, especially the transportation demand for durable goods. The decline in global demand is not so much a recession or inflation as a surplus of demand during the epidemic. In addition, inflation and consumer sentiment setbacks have exacerbated the impact on demand, and rising prices have affected consumer purchasing power, especially in Europe.
Shi Suoren believes that the current supply and demand trends in the collective transportation market are exactly the opposite of the trend during the peak period of the epidemic. From the end of 2020 to the beginning of 2021, market demand began to rise and port congestion increased. At that time, the market was facing the dual impact of increased demand and reduced transportation supply. Nowadays, not only is the labor force increasing, but the congested ships are also becoming less and less, and the actual transportation capacity is increasing. Of course, the phenomenon of Serbia Port still exists, and the supply chain has not returned to normal yet, but the situation is obviously improving.
Maersk released the latest issue of Asia-Pacific market insights on the 27th, pointing out that due to inflationary pressure and rising energy costs, the economic outlook for Europe and the United States is becoming increasingly pessimistic, and the container shipping market is facing strong headwinds. The latest economic data shows that from May to July, regional container volume showed negative growth, with Asia's total export volume falling by 1.1%, and import volume falling by 8.3%.
This means that the shipping market will normalize freight rates relatively quickly. In August this year, Shi Suoren said that the global collective transportation market is expected to "normalize" by the end of the year as inflation and worsening economic situation weakened consumer demand.
Although freight rates continue to fall, Maersk is not expected to "hard land". The current freight rate level is still far higher than before the outbreak of the epidemic, with high freight rate duration exceeding expectations, and Maersk has twice improved its full-year performance forecast this year. Lee Klaskow, logistics analyst at Bloomberg Intelligence, said that the ensemble operation industry may still usher in the third best year in history in 2023, but new ships ordered when the market was most prosperous last year will begin to be launched, and a large number of new ships will be put into use next year, which will curb spot and long-term freight rates. With more new capacity added by 2024 and the supply chain returns to normalization, the situation may get worse.
"Spot freight rates are still falling, and it will inevitably affect the long-term contract agreement in the short and medium term. After such a long period of growth, are we starting to see the alarm bells of shipping companies?" said Peter Sand, chief analyst at Xeneta.
