Product
Supplier
Encyclopedia
Inquiry

EN

Home > Chemial News > Echemi Focus > When will the shipping "super peak season" end?

When will the shipping "super peak season" end?

Echemi 2021-07-21

The summer of 2021 is destined to be recorded in the history of the global container shipping market.

 

In the first half of 2021, the container shipping market continued to improve. The average value of CCFI (China Export Container Freight Index) was 2066.64 points, an increase of 133.86% compared with the same period of the previous year, and an increase of 92.44% compared with the second half of the previous year.

 

According to the global freight rate index released by Drewry, an international shipping research and 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.

 

Who would have thought that shipping a cabinet from China to Europe and the United States would cost more than US$10,000 in shipping costs!

 

In the face of such freight, companies with high profit margins can still "live"; companies with thinner profits are helpless and can only hope that buyers are willing to bear such crazy costs in order to ensure the stability of the supply chain.

 

What are the factors that pushed the freight rate to such a high level?

 

01

Under the epidemic, demand skyrocketed


Back to the beginning of 2020, due to the expectation that the epidemic may lead to a sharp drop in international trade, both container manufacturers and shipping companies are holding a austerity attitude——

 

"The coldest winter", "the biggest depression since the financial crisis", "recovery in the foreseeable future", "shipping company bankruptcy risks have increased"... These pessimisms once made shipping practitioners think that they were about to lose their jobs.

 

Unexpectedly, after a 12% decline in global trade volume in April and May 2020, consumption in Europe and the United States has explosively recovered in a V-shaped pattern. Retailers have begun to replenish goods frantically to meet the needs of "homeowners." "Consumers’ various needs:

 

Anti-epidemic supplies, home office equipment, small home appliances, home fitness equipment, outdoor supplies, kitchen supplies, and even bicycles have doubled their sales overnight.

 

So the shipping market really staged a dog-blood drama of "Today you are indifferent to me, tomorrow I will make you unable to afford it".

 

In 2020, the import volume of containerized cargo in the United States set a new historical record, and high import demand continued until 2021.

 

On March 11, 2021, US President Biden signed an economic stimulus plan totaling US$1.9 trillion. This is one of the largest economic stimulus packages in the history of the United States. The simplest and crudest content is to send money directly to Americans.

 

In the United States, an individual with an annual income of less than US$75,000, or a couple with an annual income of less than US$150,000, can receive a cash subsidy of US$1,400 per person, and the money will be available in 3 months at the earliest.

 

The initial value of the University of Michigan Consumer Sentiment Index rose to 83 in March, the highest in the next year, and it also exceeded market expectations. According to Bloomberg Information, the American people have accumulated about US$1.7 trillion in excess savings since January last year, and they are gaining momentum to show "retaliatory spending" after the economy is fully unblocked.

 

Subsequently, the United States really ushered in a consumer frenzy.

 

In May 2021, the Port of Los Angeles reported the highest monthly throughput ever-over 1 million containers. May was the busiest month for the port in 114 years.

 

However, it is not that the ship arrives from Asia and the goods can be delivered to the buyer immediately. The overseas epidemic that has not been able to completely quell the port operations has caused extremely slow port operations.

 

Sea-Intelligence, a Danish shipping research institute, said that from January to May 2021, the number of ships with a delay of more than one week from the west coast of the United States reached a staggering 695. According to data from the freight forwarding maritime website The Loadstar, in 2018, the transit time from Yantian and Shanghai to the UK was 26 and 31 days, respectively, and now it has jumped to 36 and 42 days.

 

The importers are crazy. The National Retail Federation (NRF) sent a letter to the White House on June 14 requesting a meeting with the Biden administration to discuss solutions to alleviate transportation interference. In a survey of member companies of the organization, more than 95% of retailers said they were affected by port and shipping delays.

 

On the other hand, due to the shortage of port operators and the inclination of the supply chain, imports from Europe, the United States, and Australia have surged while exports have plummeted. As a result, the ports are full of empty containers, but it is hard to find a container in the ports of major exporting countries in Asia. It even gave birth to a "scalper" who snatched boxes.

 

Lars Mikael Jensen, director of Maersk Global Shipping Network, said: "I have never seen such a situation. All links in the supply chain are fully loaded. Ships, trucks, warehouses."

 

02

High profits, big customers seize space

 

All importers want to book space for replenishment, so who is the space allocated to? Shipping companies will of course give priority to orders from customers with strong funds and large shipments of goods. In order to obtain space, cargo owners are racing to raise prices.

 

The shipping company thinks it is reasonable, and this is the price determined by the market.

 

Philip Damas, head of Drewry's supply chain consulting business, said that due to cargo owners' competition for space, some shipping companies will temporarily raise prices when cargo ships arrive at the port or customers urgently request cargo to be loaded onto the ship. "Compared to the traditional freight rate, it is now more like a bidding, and this bidding is still intensifying."

 

For cargo owners who are willing to bear such a premium, the profit margins of their products are generally relatively high. For example, when the overseas epidemic broke out in 2020, there was a serious shortage of epidemic prevention materials, and importers or exporters who rushed to take the goods were not sensitive to freight. After all, the profits were sufficient. Increase in freight rate? Yes, just get the space and ship normally.

 

When high-margin commodities push up freight rates, it will be difficult for them to fall again.

 

Zhu Guojin, a consultant for logistics company Jizhi Supply Chain Service Yiwu Co., said 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 rate would be reduced; but today is different from the past, and most people don't seem to value freight anymore.

 

Larger and more luxurious clients simply charter their own ships.

 

Home Depot, one of the top three importers in the United States, began to charter a container ship of its own in July, serving Home Depot 100%.

 

Amazon has also leased a container ship from a shipping company in Taiwan Province to specifically deliver Amazon goods. Even if the charter price is much higher than the current freight rate, the "big" Amazon just needs this ship to meet the two requirements. One requirement: ensure space and arrive at the port on time.

 

At this time, small and medium-sized buyers can only retreat in this battle of unequal strength. Many small buyers are facing this situation-they can't get low freight or secure space. It also lacks the right to speak to the terminal to pass on the rising transportation costs.

 

03

"Black Swan" adds fuel to the fire

 

At the same time, the "Black Swan" has also entered the maritime market in 2021.

 

On March 23, 2021, a container ship named "EVER GIVEN" under Evergreen sailed from Kaohsiung Port in Taiwan Province to the Port of Rotterdam in the Netherlands. When entering the Suez Canal from the north of the Red Sea, it was at the southern end of the estuary. Blew away by a "monster wind", the bow plunged into the shore, blocking the not-so-wide Suez Canal tightly.

 

Six days later, the Long Grant was towed out, but the delay effect caused by the suspension of the canal for nearly a week continued to ferment. When 437 ships waiting in line outside the canal passed by, a steady stream of containers poured into European ports. The big ports-Rotterdam and Antwerp in the Netherlands and Hamburg in Germany are heavily congested. The shipping company is a wave of price increases.

 

In May, the sequelae of the "ship jam" spread to China. As hundreds of container ships affected by the previous ship jam arrived in China, major container ports in China such as Shanghai Port and Shenzhen Yantian Port experienced severe congestion.

 

However, the South China port immediately ushered in another wave of "crit" of the new crown epidemic.

 

On May 21, the first confirmed case of COVID-19 was found at the Yantian Port in Shenzhen. Subsequently, 7 cases of asymptomatic infections with a history of exposure to overseas freighter workplaces were found in Shenzhen.

 

In order to prevent the spread of the epidemic, Shenzhen immediately adopted the most stringent, comprehensive and thorough prevention and control measures for the epidemic. Therefore, the operation speed of Yantian Port has been slowed down, and the acceptance of heavy export containers will be suspended from May 25.

 

The sudden drop in port throughput has brought about a chain reaction. Maersk believes that compared with the closure of the Suez Canal in March, the impact of the Yantian Port congestion is much more serious.

 

The blockage of the Suez Canal affected the daily flow of more than 55,000 TEU, which lasted for 6 days, and the total amount was 330,000 TEU. The previous operating capacity of Yantian Port was to handle 25,000 TEUs per day. In the 14 days when the congestion was the worst, it had affected more than 357,000 TEUs.

 

From June 1st to June 15th, 298 ships with a total capacity of more than 3 million container ships in Yantian Port chose to skip Shenzhen instead of calling at the port. The number of ships that jumped from the port increased by 300% in one month; the average stay time of export containers at Yantian Wharf From the average 7 days to 14 days, June 15 reached 23.06 days.

 

The blockage of the Suez Canal affects Asia-Europe trade more, while Yantian Port mainly affects Sino-US trade. Yantian Port is the fourth largest port in the world and the third largest in China. It is responsible for more than one-third of Guangdong's foreign trade imports and exports and one-quarter of the country's trade with the United States.

 

At that time, some foreign traders who were in a hurry to ship the goods even brought the goods to Xiamen Port, or were willing to spend more money to go to Yangshan Port, and some people simply changed the railway transportation. However, these remedial measures also mean that transportation costs have risen again.

 

Fortunately, after no increase in cases for more than 3 weeks, the overall operation of Yantian Port was fully restored from 0:00 on June 24. However, the full capacity of the terminal does not mean that the problem is solved-the purchase frenzy of the year-end promotional season in Europe and America is coming ahead of schedule.

 

No one can say for sure when this wave of freight rates, which can be called a "myth", will be capped.

 

In June, we invited a foreign trade lecturer to start a class. His first sentence on the stage was: Don’t ask me what to do with sea freight now, because I don’t know.

 

The crazy freight rate of 2021 is almost one of the most difficult problems experienced by all foreign traders since they started their business. Some foreign trade companies have even reported that "the freight rate is higher than the value of the goods, how to ship the goods".

 

For products with lower value, thinner profit and larger volume, it is currently an unsolvable problem. Everyone can only hope that after the epidemic subsides, commerce and trade will return to normal, and the shipping market will finally return to a reasonable space.

Share to:
Disclaimer: Echemi reserves the right of final explanation and revision for all the information.

Scan the QR Code to Share

Suggestions
Email:
Message:
Send Message