Why are international container freight rates soaring

  Since the beginning of this year, freight rates in the international container market have continued to rise, which has had a huge impact on international logistics, transportation and trade.

  As of the end of August, China's export container freight index has reached 3,079 points, an increase of 240.1% over the same period in 2020, and more than double the historical high of 1,336 points before this round of increase.

  This round of price increases involves a wider range.

Before 2020, the freight rate increase in the container market was mainly concentrated in some routes and some time periods. This round has generally increased. The freight rates of major routes such as Europe, the United States, Japan and South Korea, Southeast Asia, and the Mediterranean have increased by 410.5 respectively compared with the end of 2019. %, 198.2%, 39.1%, 89.7% and 396.7%.

"Unseen before" freight rate increases

  Regarding the boom in the international container transportation market, Jia Dashan, vice president of the Water Transport Research Institute of the Ministry of Transport, who has been engaged in industry research for many years, also lamented "unseen before".

  Jia Dashan said that from the perspective of demand, the global economy has continued to recover since the beginning of this year, and international trade has quickly resumed growth. Compared with the same period in 2019, the demand for container transportation has increased by about 6%.

The situation in China is better. Starting from June 2020, manufacturing and foreign trade exports have achieved continuous growth.

  From the perspective of supply, the operating efficiency of ships affected by the epidemic has declined significantly. Countries have increased the prevention and control of imported epidemics at ports, prolonged the berthing time of ships in ports, and reduced the turnover efficiency of the container supply chain.

The average time for ships to stop at the port increased by about 2 days, and the time for ships at North American ports to stop was even more than 8 days.

The decline in turnover has broken the original balance. Compared with the situation where the basic balance of supply and demand in 2019 is slightly surplus, there is a shortage of supply of about 10%.

  The continued tight supply of crew has also increased the shortage.

The complicated epidemic situation in major seafarer countries such as the Philippines and India, coupled with crew shifts and isolation, has led to a continuous increase in crew costs in the maritime market.

  Disturbed by the above factors, the normal relationship between supply and demand in the market quickly reversed, and container liner freight rates continued to rise sharply.

  Statistics from the United Nations Trade and Development Council, China Customs and ports show that from before the outbreak of the epidemic to July this year, more than 80% of the global trade volume was completed by sea, while the proportion of China’s foreign trade import and export goods that was completed by sea was from the epidemic. The previous 94.3% increased to the current 94.8%.

  "According to relevant research, in China's import and export goods trade, the proportion of goods whose transportation rights are controlled by domestic enterprises is less than 30%. This part of the enterprises will be directly affected by price fluctuations, and most other enterprises are theoretically not affected by freight price fluctuations. ." Jia Dashan analyzed.

In other words, the cost increase brought about by the increase in freight rates will first be directly passed on to foreign buyers, and the direct impact on Chinese enterprises is relatively small.

  However, as an important cost of commodities, the increase in freight rates will inevitably have a huge impact on Chinese enterprises, which is mainly reflected in the decline in transportation services.

Due to the declining flight schedule rate and the tight space, the trade circulation of China's export processing enterprises is not smooth. Even if the orders can be produced smoothly, the delivery will be affected by the poor transportation, which will affect the company's order execution and production arrangements.

  "Small and medium-sized enterprises will be more affected." Jia Dashan believes that due to the lack of long-term contract guarantees, small and medium-sized enterprises mainly seek transportation services in the spot market. They are subject to bargaining power and capacity guarantees and face the current increase in freight rates. The dilemma of "a box is hard to find, and a cabin is hard to find".

In addition, the land-side port and inland transportation organization departments will also add additional cargo demurrage and storage costs due to increased freight rates and decreased flight punctuality.

Increasing capacity is difficult to cure

  According to data from maritime market research institutions, the global idle capacity of container ships has dropped to less than 1%. Except for ships that must be repaired, almost all of the capacity has been put on the market.

Many shipowners have begun to increase the scale of capacity ordering, but the long distance cannot satisfy the near thirst. Shippers still report that the capacity is still tight and it is difficult to find one cabin.

  Zhu Pengzhou, a member of the Shanghai Shipping Exchange, said that the supply chain is called a chain because the upper limit of the capacity of the entire chain is usually affected by the short-board effect.

For example, reduced terminal efficiency, shortage of truck drivers, and insufficient speed of unloading and returning containers in factories will all pose constraints.

Liner companies simply increasing the shipping capacity of ships cannot improve the overall capacity of the logistics chain.

  Jia Dashan agrees very much.

In terms of demand, compared with the same period in 2019, the demand for container transportation increased by about 6%.

In terms of capacity, capacity increased by about 7.5% over the same period.

It can be seen that the mismatch between supply and demand is not due to insufficient capacity.

The unbalanced increase in freight demand caused by the epidemic, poor collection and distribution, port congestion, and decline in ship operation efficiency are the main reasons.

  For this reason, current shipowners are still very cautious about investing in shipbuilding. By August 2021, the proportion of order capacity in the existing fleet will increase to 21.3%, which is far below the level of 60% during the last shipping peak in 2007.

Even if these ships are put into use before 2024, with an average annual growth rate of 3% and an average annual rate of 3% dismantling, the relationship between capacity and volume will remain basically unchanged, and the market will continue to maintain high freight rates. level.

When will the "difficult to find a cabin" alleviate

  The soaring freight rate is not only detrimental to trading companies, but also brings huge risks and uncertainties to shipping companies in the long run.

  The international shipping giant CMA CGM has made it clear that from September this year to February 2022, it will stop rising freight rates in the spot market.

Hapag-Lloyd also stated that it has taken measures to freeze freight rate increases.

  "It is expected that the end of 2021 will usher in the inflection point of the peak freight rate in the market, and the freight rate will gradually enter the callback space. Of course, the uncertain impact of emergencies cannot be ruled out." Zhang Yongfeng, Chief Consultant of Shanghai International Shipping Research Center and Director of International Shipping Research Institute Express.

  "Even if the supply and demand relationship is fully restored to the level of 2019, due to the increase in the cost of various factors, it is difficult for the freight rate to return to the level of 2016 to 2019." Jia Dashan said.

  Taking into account the current high freight rates, more and more shippers are inclined to sign long-term agreements to lock in freight rates, and the proportion of long-term agreements in the market is gradually increasing.

  Government departments are also actively working hard.

It is understood that the Ministry of Transport, the Ministry of Commerce and other relevant departments have implemented active promotion policies in many aspects such as expanding container production, guiding liner companies to expand capacity, and improving logistics service efficiency to ensure the stability of the international industrial chain supply chain.

  Reporter Qi Hui

Keywords: freight rates, points, container market, container freight rates, transportation, supply, round, logistics, container shipping market, ships, china, jia dashan, demand, cma cgm, export container freight index