Sea Freight has Fallen to the Level of the Same Period Last Year, and the Sky-high Freight has Reversed in August?

By mid-2022, the sky-high freight rates have finally loosened, approaching the level of the same period last year.

On June 24, the Shanghai Shipping Containerized Freight Index (SCFI) for the latest week released by Shanghai Shipping Exchange has shown signs of falling from a high level.

But no matter how it retreats, the index is still at an all-time high of 4,216.13 -- it's been below 1,000 for most of the decade between its release and pre-pandemic.

On June 24, the freight rates (sea shipping and shipping surcharges) for exports from Shanghai Port to the US West and US East base ports were US$7,378/FEU and US$9,804/FEU, respectively, down 1.5% and 2.7% from the previous issue. For the first time since July 30, 2021, the freight rate per 40-foot container of the Eastern United States fell below the US$10,000 mark.

In terms of European routes, the freight rate (maritime and marine surcharges) for exports from Shanghai Port to European base ports is US$5,766/TEU, down 0.5% from the previous issue; the freight rates for exports from Shanghai Port to Mediterranean base ports (maritime and marine surcharges) It was US$6,425/TEU, down 1.0% from the previous issue.

A shipper who shipped to the United States said: "The freight rate from China to the United States has dropped from about 13,000 before the Spring Festival to about 8,000 or 9,000 US dollars in late March. Because of the high price of sea freight last year, everyone is concerned about the price. The affordability is relatively poor now, so there is less rush to ship, and the shipment volume has also dropped significantly; the price in June was almost 8,000 US dollars, and it is estimated that there is still room for further declines.”

Data shows that the volume of imported containers at the top ten U.S. ports has dropped by an average of 25% since May this year. Data from the Southern California Maritime Exchange shows that the recent number of vessels waiting to unload at the ports of Los Angeles and Long Beach has decreased from 109 in January this year to 22 ships.

The latest data from the Baltic Index shows that the recent freight rate from China to the United States and the West per container was US$9,585, down 34% from the beginning of this year and 50% from the same period last year, but still four times that of June 2020.

However, there is still a big mine buried in the US line: the current contract involving labor rights in 29 ports in California, Oregon and Washington will expire on July 1, and now the labor representatives "International Terminal and Warehouse Union" (ILWU) and The Pacific Maritime Association (PMA), representing the management, is negotiating in San Francisco. If a word fails, the labor force may go on strike.

Isaac Larian, chief executive of MGA Entertainment, the world's largest toy maker, said: "I'm very nervous because I've seen this before. There are no alternatives to these ports, and I'm praying twice a day instead of once a day."

In Europe, the "thunder" of the strike has exploded. The first strike in Germany's largest port in 30 years has occurred in Hamburg, which has further aggravated port congestion. The port of Antwerp-Bruges, Europe's second-largest port, has also been hit hard by strikes.

There is a growing backlog of undelivered cargo at European ports. This is forcing ocean carriers to prioritise shipping full containers, leaving Asian exporters with vital empty containers stranded in export hubs like the Dutch port of Rotterdam.

The latest situation announcement of ports in the major Nordic regions released by Maersk stated that the ports of Bremerhaven, Rotterdam, Hamburg and Antwerp are facing continuous congestion and have even reached critical levels. Some traders worry that the recent strike by European dockworkers will cause the nth shock this year to global supply chains.

Professionals pointed out that the market is now at a very delicate time, both parties are waiting, the shipping company is waiting for the volume of goods to increase, and the cargo owner is waiting for the freight rate to continue to drop. Now the contract price signed by the cargo owner is very high, he will consider it. Do you want to break the contract, but you are worried that once the contract is broken, you will not be able to get the space from the shipping company in the peak season. If the market has not fully recovered by mid-July, the two sides will make a decision, and the shipping company may make capacity adjustments to adapt to the new market changes.

The prevailing view in the shipping industry is that the epidemic has brought special opportunities to shipping. Over the past two years, congestion in the supply chain has resulted in significantly longer transit times, not only related to delays by sea, but also inland congestion and delays. The bigger the problem in the supply chain, the bigger the need for ocean freight. Some people in the shipping industry describe this phenomenon as the "structural prosperity" of the shipping industry, and speculate from this that once the periodical problems brought about by the epidemic are over, part of the demand will naturally "disappear", and the shipping industry may face problems at that time. Challenge to overcapacity.

Therefore, in the face of successive declines in freight rates, shipping companies choose to continue the strategy of "stop sailing and jump to ports" to stabilize market freight rates. According to the latest data from Drewry, the three major alliances will cancel a total of 48 routes in the next five weeks, including 23 cancellations by 2M, 19 cancellations by The Alliance, and 6 cancellations by Ocean Alliance. The vast majority of this will occur on eastbound trans-Pacific routes, primarily to the US West Coast.

Skou, CEO of Maersk, the world's second largest container shipping company, said in an interview that the factors that previously drove the prosperity of container shipping in the first wave of the new crown epidemic may reverse sharply after August, with shrinking demand and increasing supply. "Longwhip effect", impacting container transportation. "The factors that have led to the boom in container shipping since the end of the first wave of the pandemic may soon reverse sharply," he said.

"When that happens, it's going to be pretty quick, and we expect that (the drop in traffic) is unlikely to happen early in the second half of the year, maybe not until August or later," Skou said. "I don't want to say I'm afraid. ."

The third quarter is the traditional peak season for shipping, but two major factors, such as inflation and unblocking, are changing consumer behavior in Europe and the United States. Inflation affects consumer confidence in Europe and the United States. After unblocking, consumption shifts from goods to services, which may slow down manufacturing and retail sales in Europe and the United States. Industry pulls goods kinetic energy.

According to industry insiders, according to the usual practice, European and American retailers and manufacturing companies began to pull goods in July, but this year's wait-and-see atmosphere is strong. will be clearer.