Out of stock? Skyrocketing freight rates are facing collapse

International oil prices have risen for many consecutive days, and the price of Brent crude oil broke through the $80 mark, setting the highest level since October 2018. This round of oil price increase was affected by many factors.

Against the backdrop of the global economic recovery, demand for crude oil consumption rebounded strongly, faster than expected. Although the world is still affected by the epidemic, the spread of the "Delta" mutant strain has less impact on global flight operations than previously estimated.

The recent surge in natural gas prices is also stimulating the growth of demand for crude oil. European gas prices have risen by a staggering 10 times, and US natural gas futures prices have also hit their highest levels since 2014. The increase in the cost of natural gas power generation has prompted the market to look for alternatives to fuel oil power generation.

On the supply side, due to the hurricane, offshore oil and natural gas production in the Gulf of Mexico has been suspended on a large scale since August, and oil and gas production has not yet fully recovered. U.S. natural gas production and inventories have both declined. According to data from the U.S. Energy Information Administration (EIA), last week, U.S. commercial crude oil inventories fell to the lowest level in the past three years, to 414 million barrels.

Goldman Sachs has raised the year-end target price for Brent oil from $80 to $90 per barrel. Forecasts show that as the weather gradually gets colder and the northern winter is approaching, oil and natural gas prices will continue to rise.

According to the research report of CITIC Construction Investment, in the later stage, the U.S. Gulf of Mexico still has close to 300,000 barrels of crude oil production capacity to be restored. The loosening of border controls in the U.S. has helped the recovery of jet fuel demand, and the continued strong global natural gas price has increased the substitute demand for crude oil, which has multiple positive stimuli. Still, crude oil is expected to remain strong.

On the other hand, the incredible thing is that sea freight, which has been soaring, is facing collapse!

On September 27, Ma Yong, the person in charge of a freight company in Ningbo, said that the price of sea freight from Ningbo Port and Shanghai Port to the west coast of the United States has dropped sharply, "a three-month drop in three days."

According to data provided by Zeng Yuanli, an employee of Sinotrans Co., Ltd., from June last year to early September this year, ocean freight rates continued to rise, with 20-foot standard container containers from the eastern coastal ports of China to the west coast of the United States (referred to as "Western US Route") The price rose from US$1,000 to US$10,000, and reached a peak of US$15,000. The price of other routes also rose sharply, and the shipping price to the Middle East rose from US$300 to US$4,500.

Ma Yong said that the sea freight price on the West Coast line "should be a little more than US$12,000 per TEU today, which is almost the price three months ago."

Why did the soaring ocean freight suddenly turn down?

The whole market is out of stock!

Wang Kai, a foreign trade logistics service company in Huizhou, said, “Recently, ocean logistics has experienced a sharp drop, mainly due to power cuts, which caused factories to fail to deliver goods. The whole market is out of stock, and container prices naturally cannot be speculated.”

In this regard, Zeng Yuanli put forward a different view. He said, "I did a small survey in Cixi and Yuyao a few days ago. Some companies that make conversion plugs and extension cords have a holiday before the National Day. The warehouses of the goods produced before can not be loaded, tens of millions or even Hundreds of millions of dollars in inventory, waiting to be shipped out."

In addition, according to Zeng Yuanli, the decline of ocean freight depends on the shipping route. The western US route is falling, but the South Asian route continues to rise. The decline in freight rates on the West Coast route was due to the fact that many ships returned home during the National Day and the positions increased; in addition, the positions from October 1st to 7th were sold together before the National Day, which squeezed a little price.

On September 26, at a press conference held by the Information Office of the State Council on accelerating the construction of new infrastructure in the field of transportation, Sun Wenjian, spokesperson for the Ministry of Transport and head of the Policy Research Office, said that in response to rising sea freight, “one box is difficult. The Ministry of Transport actively cooperates with the Ministry of Industry and Information Technology to coordinate my country’s container manufacturers to increase productivity and coordinate liner companies to speed up the return of empty containers. At present, the monthly production capacity of containers has increased from 200,000 TEUs in the past to 500,000 TEUs, the highest in history. "With the release of my country's new container production capacity, empty container turnover has accelerated. According to major liner companies, the shortage of empty containers has been basically eased."

In addition, Sun Wenjian said that Chinese shippers are encouraged to actively negotiate and sign long-term transportation contracts with liner companies. “The interests of both parties can be protected and the market price can be stabilized.” He cited an example of a Chinese company at the beginning of this year. Signed a long-term contract with the relevant shipping group, and the price of each box is about US$2,600.

Regarding the future price trend of ocean freight, Zeng Yuanli said that some people who had stocked containers and roasted containers were afraid of smashing them in their hands and were eager to make a move. Some people might lose money.

Liu Guofeng, the person in charge of a freight company in Huizhou City, Guangdong, said frankly that the future price trend is not easy to predict. “The price of ocean freight has fallen very sharply. Discounts are placed between shipowners. The price is also chaotic and changes every day.”