Have container shipping prices dropped?

  Recently, global container shipping prices have been adjusted, and freight rates on some routes have declined to a certain extent.

According to the FBX index released by the Baltic Shipping Exchange, on May 26, the average FBX container shipping price was US$7,846, down 29.5% from the historical high in September last year.

Among them, the freight rate of China/Far East-North America West Coast route decreased by 45.9% compared with the highest freight rate last year, the freight rate of China/Far East-North America East Coast route decreased by 34.3%, and the freight rate of China/Far East-North America route decreased by 29.7%.

Has the previously high sea freight price dropped across the board?

What will change in the future?

How should relevant companies respond?

  Supply and demand adjustment prompts a pullback in freight rates

  At present, the global container shipping price has still increased by nearly 50% compared with the same period last year, which is still at a historically high level.

There are three main reasons.

  Look at the rhythm of demand first.

After the outbreak of the new crown pneumonia epidemic, the global demand for container shipping was rapidly suppressed. However, after the first stage of the epidemic passed, there was a strong demand for restocking in various countries. At the same time, the traditional peak season of container shipping and the fiscal and tax subsidies in the United States and other regions were added to promote the demand for container shipping. Concentration broke out, and the freight rate of the US line was the first to rebound sharply, and then the world's major container shipping routes began to rise sharply.

  In addition, because my country's manufacturing industry chain is relatively complete and the epidemic control is relatively effective, the global manufacturing industry is further concentrated in China.

In this case, more capacity is needed on the China-Europe route, and more containers are transported from China to Europe and the United States and other parts of the world.

However, the first quarter is a traditional off-season for container shipping, and the short-term adjustment of market demand prompted a correction in freight rates.

  Look at the effective supply.

Container shipping has a high degree of standardization, large logistics volume, and long logistics chain, making it more vulnerable to the impact of the epidemic.

Before the outbreak of the epidemic, the container shipping market was relatively oversupplied. After the epidemic, due to the decline in the turnover rate of ships, the effective supply of shipping capacity was insufficient.

  At present, with the seasonal adjustment of off-season shipments and measures to ease port congestion such as demurrage fees, the congestion of ships in some ports has begun to improve, and with the launch of new containers and the efforts of shipping companies, there is a shortage of containers. has greatly eased.

Therefore, the improvement of the effective supply level is also an important reason for the pullback of freight rates.

  Finally, look at the market structure.

The container shipping market is a highly concentrated market, with the market share of the top ten liner companies reaching over 80%.

The high concentration of the container shipping market makes this market peak a certain speciality: First, in the early stage of the epidemic, when the demand for the container shipping market fell sharply, the container shipping rate was higher than in 2018 and 2018 because the idle level of container ships was at the highest level in history. The level in the same period in 2019 is even higher; second, the price difference between the actual carrier and the actual shipper is large.

For example, according to FBX (mainly the shipper's quotation), the freight rate of the Far East-North America route dropped by about 45%, but the SCFI (mainly the quotation of the shipping company) released by the Shanghai Shipping Exchange on May 20 showed that the freight rate of the Shanghai-America-West route Prices are down just 2.8% from their peak.

  Short-term freight rates will remain high

  Next, will container shipping prices rise or fall?

  According to the current performance of the container shipping market, when one of the concentrated demand release and the effective supply shortage occurs, the market freight rate will remain high; when the two appear at the same time, the market freight rate may rise sharply.

  Judging from the current demand rhythm.

Although the world's ability to adapt and control the epidemic continues to increase, the epidemic will continue to recur, demand will still show intermittent expansion and expansion, and domestic exports are still relatively strong, but the impact of the rhythm of demand has entered the second half.

  From the perspective of effective supply development.

The global logistics supply chain capacity is recovering, and the ship turnover rate is constantly improving.

According to the China Shipping Prosperity Survey by the Shanghai International Shipping Research Center, 65% of container liner companies believe that the ship turnover rate will be further improved in the second quarter.

Therefore, if there are no other unexpected factors, it should be difficult for the container shipping market to rise on a large scale.

Coupled with the rapid growth of ship orders in the past two years and the gradual release of effective shipping capacity, there will be great challenges for high freight rates in the market in the future.

  In the first half of this year, the container shipping market has a high concentration, and the rent of ships, fuel costs and crew wages have increased significantly, and the operating costs of shipping companies have risen sharply compared with previous years.

In addition, the ship operation rate has been at a high level in the past two years, and there is a need for a large number of maintenance and other aspects of ships. Shipping companies still have more room to operate in terms of stabilizing freight rates, and it is difficult for container shipping prices to adjust significantly.

At the same time, despite the repeated epidemics and the conflict between Russia and Ukraine, there is great pressure to reduce freight rates in northern Europe and related routes, but it is less likely that container shipping prices will be significantly reduced.

  With the control of this round of the epidemic and the early arrival of the peak shipping season, there are still periodic risks in the rhythm of demand and effective supply, and with the current balance of supply and demand still relatively fragile, the market freight rate is likely to rebound.

Therefore, the market freight rate will remain high in the short term.

  Enhance the ability to control logistics costs

  Under the background of the current high freight rate in the short term, how should relevant enterprises respond?

  In addition to making preparations in advance, according to the current production and operation status of the enterprise, combined with the situation of foreign trade orders, and considering the current logistics cost, the enterprise production and operation plan should be reasonably formulated, the proportion of unplanned logistics needs should be reduced, and the logistics needs of the enterprise should be carefully managed. Enterprises should pay attention to and adjust the initiative of the logistics department, compare and analyze the cost of different logistics transportation such as container shipping and China-Europe trains, comprehensively formulate more scientific logistics plans, and improve the diversity of enterprise logistics service options.

In addition, it is necessary to formulate a reasonable delivery cycle and appropriately increase the proportion of off-peak transportation based on the characteristics of the low and peak shipping seasons.

  Under the background that container liner companies generally develop direct customers, enterprises should actively connect with container liner shipping companies, fully rely on professional shipping consulting institutions, strengthen the research and judgment on the fluctuation of the shipping market, and combine the needs of enterprise logistics to sign contracts with shipping companies Long-term transportation contracts, and conduct detailed research on the proportion and duration of long-term transportation to improve the scientific nature of long-term contract signing.

At the same time, under the background of digitization of container liner transportation, fully relying on shipping companies or other professional platforms, choose liner shipping services through online booking and other forms, realize the digitization and transparency of logistics transportation, and enhance the enterprise's control over the operation of the logistics supply chain. strength.

  On the basis of fully conducting market research and judgment, enterprises should also appropriately expand certain logistics and transportation capabilities through mergers and acquisitions and other means, explore the establishment of certain logistics warehousing capabilities, and enhance the stability and controllability of the logistics chain.

At the same time, actively respond to the dual-cycle development strategy, actively explore to increase the proportion of domestic procurement, enhance the marketing ability of the domestic market, reduce the dependence on foreign customers, and improve the control ability of the enterprise supply chain.

  In addition, enterprises can follow the development of freight index futures products such as Shanghai SCFIS, and actively cooperate with relevant futures institutions. The hedging strategy of container shipping price, locking in the future freight rate to avoid the risk of price fluctuations and enhancing the control of logistics costs.

  (The author is Chief Economist of Shanghai International Shipping Research Center and Director of Shipping Development Research Institute, Shanghai Maritime University)

  Zhou Dequan

Zhou Dequan