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Stop shipping! Freight rates have skyrocketed by 6 times, and more than 20 ports have been congested!

Echemi 2021-07-16

In late May of this year, the cost of transporting a container from Shanghai to Rotterdam exceeded the $10,000 mark. According to Drewry data, this week's freight has reached 12,795 US dollars, a surge of nearly 600% year-on-year, while a container from China to the United States will cost nearly 10,000 US dollars, and the price has soared by 229% in a year.


The Drewry World Container Index released last Thursday showed that the spot price of a 40-foot container from Shanghai to Los Angeles rose to $9,631, a 5% increase from the previous week and a 229% year-on-year increase. The composite index reflecting the eight major trade routes rose to US$8,796, a year-on-year increase of 333%.


Drewry said that freight rates are expected to rise further in the coming week.


According to the global freight rate index of Drewry Shipping Consultants, a London consulting agency, as of July 1, the global average freight rate for 40-foot containers was more than four times the level of the same period last year, reaching US$8,399. Since the first week of May, the index has soared 53.5%.


According to Drewry's freight reference, the listed freight rate from China to major ports on the west coast of Europe and the United States is close to USD 12,000 per container, and some companies call for sending the cargo to the outbound vessel, and they reached an agreement at the last minute for freight rates as high as USD 20,000. 


The Wall Street Journal reported that Brian Bourke, chief growth officer of Seko Logistics, a freight forwarding company headquartered in Itasca, Illinois, said, “Global trade is now like the hottest restaurant. If you want to book a space, you need to make a reservation two times in advance. Monthly plan. Everyone is trying to seize the space they can get, but it’s actually hard to find one space."


The backlog and delays have worsened, and the pressure on container transportation has increased

According to a Bloomberg report, although the soaring freight rates have brought huge profits to container shipping companies such as Maersk Group and COSCO Shipping Holdings, importers are also facing higher costs that are more difficult to digest. Some companies have raised retail prices, intensifying central banks’ concerns about inflationary pressures, and supply bottlenecks caused by the epidemic are also hindering economic activity.


Bloomberg reported that before the outbreak, most shipping analysts could not imagine that each container from Asia to the United States would be charged $10,000 per container. According to Drewry's data, between 2011 and March 2020, the average freight from Shanghai to Los Angeles was less than $1,800 per container.


Demand from American consumers and companies is one of the reasons for the surge in freight rates, but the shortage of containers is another reason for tight market supply. Container capacity on the eastbound trans-Pacific route is particularly scarce, and the recent outbreak at Yantian Port in Shenzhen, China has hindered imports and exports. At the same time, the scene of a large number of ships waiting to enter Los Angeles and the Port of Long Beach, the largest ocean-going trade gateway in the United States, shows no signs of dissipating.


Shipping experts said that in the context of Western retailers and manufacturers eager to replenish inventory depleted during the epidemic, multiple links in the supply chain were interrupted, causing delays in ports and inland distribution networks and triggering increases in shipping prices.


Supply chain experts say that rising ocean prices have given many shippers, especially those with relatively low cargo values, a choice: either pay high prices and try to pass the cost on to customers, or withdraw from overseas markets.


Zhu Guojin, a consultant for logistics company Jizhi Supply Chain Service Yiwu Co., said last month that most of the company's customers, including Amazon's suppliers and some US importers, are paying premium prices, and their demand for goods is very urgent. Zhu said that last year many customers postponed shipments, hoping that the freight would be reduced; but today is different from the past, and most people don't seem to value freight anymore.


Damas predicts that the pressure on container transportation will be "still severe" before the Chinese New Year in early 2022. Chinese factories usually shut down during the Lunar New Year holiday. He said, "It is still not in sight; in the current peak season, the situation cannot be improved. The backlog and delays will only worsen."

Some textile foreign trade companies have received customers to stop shipping
Freight is rarely valued by buyers and sellers in the course of trade, and this part of the cost is almost negligible when air freight is not involved. Before 2020, the price of shipping a container to the UK was US$2,500, but now the price is US$14,000, an increase of more than five times. Now any trader can hardly ignore this part of the cost. With such a skyrocketing freight rate, those engaged in textile foreign trade also suffered from it. They said with emotion, "I have never seen such a high price in ten years in the industry! This business can't be done!"


"I'm almost dying of worry. The ocean freight for a single trip costs 200,000 yuan, which is too high. Moreover, the shipping company does not ship the goods. I have been saying two days or two days later." Vinings Textile (Suzhou) Co., Ltd. The person in charge of the company, Li Yu (pseudonym), told reporters that the company mainly exports anti-epidemic materials and other textile products to Spain. Since 2020, the order situation has been good and the performance has been impressive.


Li Yu said that in the first quarter of this year, the company was not too busy and its gross profit margin was relatively good. However, since April, the company has become more and more busy. However, affected by the surge in ocean freight and the appreciation of RMB, the company's profits have fallen compared with the same period last year. 


In this regard, the above-mentioned industry insiders said that textile export enterprises in the second quarter of this year faced three major difficulties: rising ocean freight rates, rising exchange rates and rising commodity prices.


"The sharp increase in ocean freight is due to the outbreak of the foreign epidemic, especially the outbreak in India, which has greatly affected the global supply chain. The upward push of the supply chain will affect the imbalance of global shipping and cause the freight rate of domestic ocean routes to soar. But other countries Due to the epidemic, there may be many container stacks in ports that can be shipped quickly, so their ocean freight is relatively low." An industry insider said, for example, that the freight for a container has risen from US$5,000 to 10,000. US dollars, and the entire container may only be worth 30,000 US dollars, and freight accounts for more than a quarter. "This makes some products with relatively low profit margins less competitive than products from other countries, and there is no need for them. Export, because you lose money because of export."


At present, it is understood that many foreign trade companies have received news from customers that they have stopped shipping due to high sea freight, and the trend in the future is that costs will continue to rise, and profits have been repeatedly squeezed!


Sea freight has become a roadblock to the recovery of foreign trade market

However, the foreign trade market has recently become loose, and orders received in the early stage have not been tepid, and the improvement has not been significant. Recently, there has been news of improvement, and orders have begun to increase. However, the sea freight at today's price has added cost pressure to foreign textile enterprises invisibly, and they have to raise their quotations, but it is also easy to lose orders due to high prices.


Sea freight has become a barrier to the recovery of foreign trade. Especially in the second half of the year, the important traditional peak season "Golden Nine and Silver Ten" will soon be ushered in. On the one hand, based on past peak season market conditions, prices of raw materials, grey fabrics, dyeing fees and other prices are likely to rise, coupled with high sea freight, the cost of foreign trade textile companies will further increase, which is very unfavorable for them to take orders. On the other hand, it is the traditional off-season of the textile industry. Orders are relatively small, and there may be plenty of time for shipments. However, in the peak season of the second half of the year, once orders increase and the shipping situation is still not alleviated, shipments will definitely become more difficult, and there will even be problems such as transaction delays and eventually compensation.


From a short-term point of view, it is not optimistic that the market can continue to rise, especially in the short term, in the absence of downstream order support, the price increase can only be temporary. From a long-term perspective, it is difficult for upstream raw materials to have such a violent increase. Rally. Not only did traders feel that the off-season was coming, weaving companies also began to feel that the market was waning.


The market is weakening, and the demand is bound to weaken. The downstream stocks that bought up and did not buy down in the early stage have increased their raw material inventory by about a week. Under the influence of the reduction in dual demand, the demand for raw materials by manufacturers has also been weakening, supply pressure has eased, and price increases have been lost.

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