Source: Guotou Anxin Futures Research Institute
html Since September, due to the sluggish overseas demand, the demand for collective transportation trade has continued to decline. Although the actual capacity supply has decreased, the surplus of cabin space is still relatively obvious, and spot freight rates have "fallen continuously". Under the current pressure on the overseas economy, the demand for capacity on the main routes is difficult to improve, and the arrival of the new ship delivery wave and the continuous improvement of port congestion will further increase the gap between capacity supply and demand, and freight rates will be difficult to stop falling in the short term. In the long run, in the process of supply and demand rebalancing, ship owners and liner companies' efforts in capacity management will become an important factor affecting the depth of freight rate decline.
Freight Quick View: The surplus of the cabin is obvious, freight rates have dropped sharply
Since September, due to the sluggish overseas demand, my country's port container transportation volume has continued to decline. In September, the foreign trade heavy container throughput fell by 10.3% year-on-year and 6.4% month-on-month. Therefore, although the actual capacity supply of has decreased, the surplus of cabins is still relatively obvious, the ship owners are very enthusiastic about picking up cargo, and the route freight rates continue to decline. In terms of spot freight rates in , the SCFI in Shanghai export container freight index in September remained unabated. As of September 30, SCFI was 1922.95 points (one period was suspended on October 7), a decrease of 32% from the beginning of the month. Freight rates in Shanghai-Western, Shanghai-East and Shanghai-Europe fell by 39%, 26%, and 31%, respectively from early September. The Baltic freight index FBX, which is closer to freight forwarding, fell 14% during the same period.
Inter-regional routes in Asia continued to decline in the previous month. On September 30, the Southeast Asian container freight index SEAFI was 1450.97, down 38% from the beginning of the month.
The rapid cooling of the spot freight market has also led to a cliff-like decline in rental prices. The 8500TEU container ship 6-12 month rentals fell by 50% in September, and the 6500TEU container ship rentals fell by 54% during the same period.
capacity demand: The decline in foreign demand drags down capacity demand, and under the pressure of the overseas economy, the demand for centralized transportation of main routes is difficult to improve
The continuous decline in foreign demand drags down the weakening of the shipment volume of collective transportation, and in the short term, my country's foreign trade demand will further decline. data from the China-Hong Kong Association shows that in September, my country's foreign trade heavy container throughput fell by 10.3% year-on-year and 6.4% month-on-month, while foreign trade empty containers increased by 20.5% year-on-year, reflecting the current situation of insufficient supply of foreign trade containers and return of empty containers. my country's manufacturing PMI new export order index in September was 47, which continued to be in the contraction range and fell slightly from August. The sluggish export orders mean that my country's foreign trade collection volume will further decline in the short term.
Looking forward, the European and American economies are under pressure under high inflation, and commodity consumption demand cools down. In addition, the supply chain has a long whip effect, and the stock market demand for main routes is difficult to improve.
Currently, inflation pressure is still the main challenge facing the European and American economies. In the United States, CPI rose 8.2% year-on-year in September, and core CPI rose 6.6% year-on-year, both exceeding market expectations. Lower unemployment rates and continued high inflation will support the Federal Reserve's continued adoption of aggressive hikes in rate hikes, which will continue to suppress U.S. consumption. The National Retail Federation (NRF) lowered its forecast for the remainder of 2022 in early October, believing that imports from major U.S. container ports will drop to their lowest levels in nearly two years, while also expecting further declines by early 2023. In Europe, the risk of recession continues to increase under the energy crisis . ECB announced in September that it would raise the three key interest rates in the euro zone by 75 basis points, but this "largest in history" did not prevent the continued deterioration of inflation. The initial CPI value of the euro zone in September rose 10% year-on-year, the first time in history. And in the context of high energy costs in society, inflation pressure will be difficult to alleviate in the short term. The erosion of consumption power by high inflation and the recession risks brought by tightening policies will continue to affect European consumer demand, and the retail sales indexes of 19 countries in the euro zone have all declined for three consecutive months.
In addition, the decline in consumer demand has also slowed down on commodity inventory, and the previous excess orders brought about by the long whip effect have further pushed up the inventory level of shippers. The sales of in the United States continue to rise compared with , and due to the current poor land logistics in Europe and the United States, the invisible inventory volume that was backlogged before the logistics terminals has not been fully reflected.
capacity supply: Shipowners are facing pressure to accelerate their capacity growth, and may take multiple measures to meet the challenges
Since the current decline in capacity demand is mainly suppressed by the decline in demand for European and American commodities under high inflation, there is no elasticity in demand. Faced with the continued decline in freight rates, liner companies' strategies will focus more on the management of capacity supply. reviews the past experience of freight rates decline. Generally speaking, liner companies mainly control the fleet size, including delayed delivery of handheld orders, dismantling of old ships, and regulating actual effective capacity.
In terms of static capacity, the wave of new ship delivery is approaching, and the fleet growth rate will be significantly improved. Delayed delivery and dismantling of old ships may become potential solutions for shipowners to deal with overcapacity.
Currently, the global container fleet has a total of 25.67 million TEUs, and the annual fleet growth rate is expected to be about 4%. Driven by the wave of orders in the container ship market that began at the end of 2020, the current global handheld orders for container ships have reached 7.03 million TEU and will be delivered in early 2023. A large number of new capacity entering the market will further widen the gap between supply and demand of container capacity. Based on past experience, some shipowners may negotiate with the shipyard to extend the construction time and make certain delays in delivery to reduce operational pressure.
At the same time, the dismantling of container ships will also increase significantly. The high rental prices of container ships in the past two years have made the ship dismantling extremely limited. There have been reports of dismantling only one container ship in the world since the beginning of the year. At present, the proportion of container ships over 25 years of age has increased from 5% at the beginning of 2020 to 8%. However, as freight costs decline rapidly, ship owners are expected to gradually increase dismantling of old ships with weaker economicality within the fleet.
Judging from the actual capacity deployment, liner companies are currently starting to shrink the actual effective capacity of the market, and it is expected that the suspension of flights will increase. From the perspective of short-term capacity deployment, the scale of the main route's capacity declined in September, mainly because liner companies are based on the uncertainty of flights caused by congestion, typhoons and the epidemic, as well as considerations for weak demand and declining freight costs. In early October, affected by the National Day Golden Week, the number of flights suspended significantly increased and the capacity decreased significantly. The suspension of flights on the National Day is a conventional seasonal operation, and capacity is expected to recover in late October. However, in the face of the unoptimistic loading situation, it is expected that liner companies will continue to adjust their capacity. According to statistics from Weiyun.com, the air-to-airline air-to-line departures from Shanghai Port and Ningbo Port and will reach 27.2% and 31% in October.
At the same time, each liner company began to adjust the route. Since September, many companies such as MSCh, Mersk , Maersk and other companies have begun to cancel and merge some Pacific and Asia-Nordic route services. It is expected that more and more flights will be cancelled in the future to cope with the pressure of cargo collection caused by the continued decline in demand.
From the perspective of capacity turnover, the impact of port congestion on freight rates has gradually faded. Currently, there are still congestion in ports in the East and Europe to varying degrees, but the overall turnover efficiency is gradually improving with the decline in cargo volume. The backlog of capacity in ports is constantly released, the effective market capacity returns, and the impact of port congestion on freight rates gradually fades.
In the United States, the number of ships berthed in Long Beach, Los Angeles Port and other ports has decreased to normal levels, and the congestion in Auckland has intensified. Congestion in some ports in the eastern United States remains at a high level, but the stay time of ships in Savannah and New York has dropped significantly. It is expected that as the shipment volume continues to decrease, the congestion will continue to improve. In Europe, strikes caused by labor-management conflicts still repeatedly impacted the operating efficiency of European ports. Dockworkers at the Port of Flicksto and Liverpool in the UK conducted a second strike in late September and early October, and other European ports such as Rotterdam and Hamburg were also affected.
The subsequent port congestion will gradually return to the pre-epidemic normal with the decrease in cargo volume, but the inflationary pressure in Europe will be difficult to alleviate in the short term. The increase in workers' wages may still not be enough to cover the rise in living costs. Operational obstacles caused by labor-management conflicts will become more and more common, and the problem of labor shortage will continue to plague European ports.
It is worth noting that the environmental regulations come into effect will not have a significant impact on container capacity in the short term, and therefore will not have a supporting role in freight costs. However, in the long run, the pace of fleet capacity replacement will be accelerated. According to the judgment of professional institutions, the upcoming EEXI and CII have no significant impact on the effective capacity of current container ships. EEXI (Existing Ship Energy Efficiency Index) is a restriction rule on the carbon emissions of ships in operation. It is currently mainly achieved through measures such as main engine power limit, reducing speed, and installing energy-saving devices. However, it should be noted that EEXI meets the standards based on parameters such as maximum power and fuel consumption of main and auxiliary aircraft, so the so-called "reducing speed" is more compared to the original designed speed of the ship. However, the actual operating speed of container ships (below 16 knots) is much lower than the designed speed (below 20 knots), so the limit on the maximum speed will not have a significant impact on capacity.
Overall, in the face of declining demand and increasing effective capacity, ship owners and liner companies will narrow the gap between supply and demand through a series of methods including dismantling old ships and reducing actual capacity deployment. Moreover, the main route industry has a high concentration, and alliance operations will be more conducive to liner companies' capacity management than before. However, the pressure of the economic recession in Europe and the United States has made the demand side less elastic, and the acceleration of capacity growth in the next year and the following year will lead to severe challenges that ship owners will face.
Freight Outlook: The downward trend of freight rates is difficult to reverse, and changes in the actual effective capacity scale will affect the decline depth
Since September, although liner companies have begun to reduce the deployment of route capacity, container shipping trade volume has continued to weaken, coupled with the increase in effective capacity brought about by the improvement of port congestion, the freight rates of each main route have declined rapidly. In the short term, the freight rates in the United States and West have reached nearly US$2,000, and there is limited room for continued decline. Freight rates on the Eastern United States and Europe will fall rapidly with the decline in cargo volume and the easing of port congestion.
Looking ahead to the future market, the demand for capacity on the main routes will not improve under the pressure of the overseas economy, and the arrival of the new ship delivery wave and the continuous improvement of port congestion will further increase the gap between capacity supply and demand. Since there is basically no elasticity in terms of capacity demand, in the process of rebalancing supply and demand, the depth of the freight rate decline will depend more on the ship owner's management of capacity supply and the game between ship owners. However, the current changes in global geopolitical , global infectious diseases, and the frequent occurrence of extreme weather will still bring various uncertainties to future freight rates.
This article is from the financial industry
