Source: Guotou Anxin Futures Research Institute
Since October, although liner companies have actively reduced their actual capacity supply, the weak pattern of route freight rates has not changed under the surplus of supply. Among them, the European freight rate has experienced a cliff-like decline of nearly 30% in a single week. It is expected that the European and American economies will face downward pressure in the future and demand will slow down. The market hopes that the recovery of demand for replenishment of inventory after the peak consumption season will drive the volume of collective transportation trade. The current contraction in capacity has begun to show results, but it has not yet helped freight rates stop falling and stabilize, and the short-term downward trend remains unchanged. As the long-term contract approaches, capacity management and destocking situation have become the key to future market sentiment.
Freight Quick View: The US line's decline narrows, and the European line accelerates to make up for the decline
Since October, weak overseas demand has continued to drag down the demand for collective transportation trade. In October, my country's port foreign trade container throughput fell by 4.5% year-on-year compared with . Therefore, although liner companies actively reduce actual capacity supply, the weak pattern of route freight rates remains unchanged under the oversupply. In terms of spot freight rates of , the Shanghai export container freight index SCFI has been in a downward channel since October. As of November 11, SCFI was 1443.29 points, and the monthly fell by 20% month-on-month . Among them, the freight rates of Shanghai-Western and Shanghai-East have slowed down after liner companies chose to actively shrink their capacity, but they have now fallen below the same level in 2018 and are close to the same level in 2019. The European freight rate, which has a small contraction in capacity, has widened its decline, and Shanghai-Europe has experienced a cliff-like decline of 29% per week, a month-on-month decline of 43%, and has fallen to the same level in 2020.
Asian inter-regional route freight rates stabilized. On November 11, the Southeast Asian container freight index SEAFI was 1506.95, a slight decline of 1% month-on-month and a year-on-year decline of 68%. The decline in rent levels of
narrowed, with the monthly rent of 8500TEU container ships 6-12 months down 11% month-on-month, and the rental of 6500TEU container ships fell 16% during the same period.
capacity demand: demand in Europe and the United States slows down, and the market hopes to repair the demand for replenishment after the peak consumption season
Currently, my country's foreign trade collection capacity demand continues to weaken. data from the China-Hong Kong Association shows that in October, the foreign trade container throughput of eight major container hubs in my country's coastal areas decreased by 4.5% year-on-year. In addition to the impact of the domestic epidemic and the long National Day holiday, it also reflects the current shortage of foreign trade container supply. The decline in my country's export growth rate beyond expectations further confirms this situation. In October 2022, China's exports denominated in US dollars fell by 0.3% year-on-year. In addition to the weakening of price contribution and the impact of high base, the slowdown in demand for European and Americans in has become an important reason for my country's export decline : After my country's export growth rate to the United States turned negative in September, the export growth rate to the euro zone in October also turned positive and negative. In October, China's exports to the United States fell by 12.6% year-on-year, and exports to the EU fell by 9%.
Looking forward, it is difficult to eliminate the high inflation in Europe and the United States at present, and the impact of the policy of continuing interest rate hikes in will gradually emerge. It is expected that the European and American economies will face downward pressure in the future, and the growth rate of imports will continue to decline. The market hopes that the recovery of demand for replenishing inventory after the peak consumption season will drive the volume of collective transportation trade.
Currently, US commodity consumption continues to weaken, and has been negative for three consecutive quarters. The future consumption prospects may continue to cool down. On the one hand, the pressure of high inflation will continue to affect residents' purchasing power. In October, the US CPI fell more than expected, with growing 7.7% year-on-year, growing 0.4% month-on-month, core CPI rising 6.3% year-on-year, and inflation growth may have peaked, but in the context of geopolitical conflicts and labor supply constraints that are difficult to alleviate, it will take some time for inflation to fall from a high level. On the other hand, the current support for consumption by U.S. residents' income and savings is gradually weakening. The current year-on-year growth rate of wages in the non-agricultural sector in the United States has been continuously lower than the year-on-year growth rate of CPI, and the decline in fiscal subsidies has also gradually reduced the scale of residents' excess savings.
At the same time, under the influence of the bullwhip effect, the inventory scale of US retailers soared. In August, US retailers' inventory was US$740.4 billion, a year-on-year growth rate of about 22%, reaching an all-time high. Many retailers such as Walmart , Target , etc. said they are working hard to deal with a large amount of redundant inventory. Weak consumption and high inventory curb U.S. import demand.The National Retail Federation (NRF) has once again lowered its U.S. import expectations, which currently forecasts a monthly decline in the last quarter of 2022 will be between 8.5% and 9.0%. It is forecast that imports in November will be 1.92 million TEU, down 9.2% year-on-year, the lowest figure since February 2021, with imports in December falling to 1.9 million TEU, down 9% year-on-year. At present, the market is looking forward to the upcoming traditional shopping peak season to accelerate the destocking, thereby restoring some demand for replenishment.
Europe is constantly troubled by the high inflation under the energy crisis . The eurozone's reconciliation CPI rose 10.7% year-on-year in October, breaking through the September high and setting a new record high. In addition, in the face of the tight energy supply pattern, Europe has been working hard to reduce demand to ensure the security of energy supply, and energy consumption control measures will inevitably weaken Europe's industrial production and consumption demand and drag down the European economic recovery. Eurozone manufacturing activity has contracted for the fourth consecutive month, with the manufacturing PMI in October reaching 46.6, a new low since June 2020. High inflation and recession risks will continue to affect European consumer demand, and the euro zone consumer confidence index hovered at a historical low after falling below -28 in September.
Capacity supply: capacity shrinkage has begun to show results, but the continued release of capacity supply in the future is unfavorable to supply and demand rebalancing
The current weakening of consumption demand in Europe and the United States means that the elasticity of capacity demand is limited. Faced with the continuous decline in freight rates, liner companies' strategies will focus more on the management of capacity supply.
In terms of static capacity, the new ship delivery wave will start from the fourth quarter of 2023, and the fleet growth rate will be significantly increased. Ship owners may absorb new capacity by replacing old ships (disassembly, resale).
The current global container fleet has a total of 25.85 million TEUs, and new ship delivery is at a low level, so the annual fleet growth rate remains at a low level of 4%. However, since the end of 2020, liner companies have mass-customized large container ships based on the background of high cash flow and their considerations for future fleet competitiveness and market share. Currently, global handheld orders for container ships have reached 7.07 million TEU, and the proportion of handheld orders in the fleet has increased from less than 10% at the beginning of 2021 to 30% at the current level.
The batch delivery of new ships will begin in the fourth quarter of 2023. At that time, the fleet growth rate will be significantly improved. Ship owners may reduce the pressure on fleet capacity supply through dismantling, reselling, etc., thereby absorbing new capacity. The high rental prices of container ships in the past two years have made the ship dismantling extremely limited. But with the rapid decline in freight rates and the additional costs that increasingly stringent environmental regulations such as forward CII may bring to older ship operations, shipowners may choose to accelerate the handling of older ships in existing fleets.
From the perspective of actual capacity deployment, suspension of flights and reduction of flights has become the way for the main liner companies to cope with insufficient demand and decline in freight rates, and players who rent boats into the main route market have also gradually withdrawn. Currently, the cross- Pacific routes from Asia to North America, especially the US and Western routes, have experienced significant suspension and reduction in flights. The actual limited capacity has been significantly reduced, and the capacity of the European route is not significantly reduced than that of the US route.
In North America, liner companies chose to actively suspend flights and reduce flights to cope with insufficient demand and the decline in freight rates. The total capacity has been declining since September. According to statistics from Easy Ship Times, there are 7 routes in the US line that have been or will be cancelled in October, including 6 routes in the US and Western United States and 1 route in the US and Eastern United States. The current capacity of the US-Western route has dropped by 13% compared with two months ago, and the US-East route has dropped by 11%. Liner companies' shift reduction strategies for US routes are also one of the important reasons for the narrowing of US routes. However, considering the competition in market share, companies are expected to basically maintain this level by the end of the year, which may decline slightly. In recent months, the change in capacity deployment in Europe has not been significantly higher than that of the US line, and the scale of capacity deployment in recent weeks will even increase. There are no plans for cancellation of European routes in the market. It seems that the European line freight rates cannot be supported by capacity shrinkage.
Ship speed reduction is another way to dynamically adjust capacity and reduce costs. Currently, the average speed of container ships of all sizes continues to decline . Among them, the speed of container ships above 8,000 TEU and above used in the main routes is around 15.6 knots, which has dropped to a low level in 10 years.It is expected that the speed level will continue to decline in the short term, further diluting the deployment of actual effective capacity.
From the perspective of capacity turnover, port congestion still exists, but turnover efficiency gradually improves with the decline in cargo volume, and the impact on freight rates is limited in the context of overall capacity oversupply.
In the United States, the overall performance of ships in ports continues to improve, and only some ports still have congestion to varying degrees . The berthing situation at the ports of West Long Beach and Los Angeles has basically returned to the level before the port congestion began in 2020, but there are still bottlenecks in land transshipment. As of November 10, 32.5% of containers still lasted more than 9 days from unloading the terminal to being picked up. Auckland Port still has a certain degree of congestion, and a brief strike occurred on November 2. The waiting time has resumed before the strike. The congestion in ports in the east of the United States is also gradually improving. At present, only , Savannah, , Houston and other ports still have a certain degree of congestion, and the waiting time for ships is about 6 days.
In Europe, port congestion continues to improve, but strikes caused by labor-management contradictions will repeatedly impact the operational efficiency of European ports. With the decrease in cargo volume of , most of the time at ports in major European ports such as Rotterdam and Antwerp have been reduced to less than 3 days. But the strike became a nightmare that European ports are hard to escape. Since August, the Port of Flixto and Liverpool have conducted five strikes, affecting the UK supply chain and other European ports such as the Port of Rotterdam and Hamburg. It is reported that Royal Mail workers plan to conduct two strikes during the "Black Friday" at the end of November and the "Net One" at the beginning of December. The disorder of the supply chain on land may also affect the port's operating efficiency. It is expected that operational obstacles caused by labor-management conflicts will become increasingly common in the future, and the problem of labor shortages will continue to plague European ports.
freight outlook: The short-term downward trend remains unchanged, and the future market capacity management strength and destocking situation have become key
Since October, although the declines of each main route are different, the overall overcapacity pattern remains unchanged under the influence of weak demand, and the downward trend continues. In the short term, the decline in US-line prices will continue to narrow, but the decline in European freight rates will be difficult to slow down.
On the other hand, the arrival of the end of the year means that both the ship and cargo parties will begin to consider signing a long-term contract for the new year, which depends more on the market's expectations for next year. At present, the market has a strong wait-and-see sentiment about the depth of the decline in freight rates. The centralized delivery of new ships will begin in the fourth quarter of next year, giving the market a window for adjustment. Therefore, ship owners' management of capacity supply, the destocking situation of European and American importers at the end of the year, and the game between ship owners will ultimately affect the market's expectations for next year's freight rates.
In addition, the current weakening of trade growth has also made the impact of emergencies on shipping freight rates more and more obvious. 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 industry information
