Data from the Shanghai Shipping Exchange shows that on July 8th, China's Export Container Freight Index (CCFI) was at 3232.18 points, a decrease of 1.2% compared to the previous period (July 1st), with prices across all popular routes falling. Among them, European routes dropped by 2% compared to the previous period, with freight rates in Europe having fallen by a cumulative 14% since February; US West Coast routes fell by 2.5%, and US East Coast routes fell by 1.7%.
Frost & Sullivan (Frost & Sullivan, hereinafter referred to as 'Frost & Sullivan') Executive Director for Greater China, Xiang Wei, was interviewed by Securities Daily to discuss the current situation and future development of the shipping industry under the backdrop of the pandemic.
Securities Daily
'Recently, popular routes, including futures freight rates, have fallen. On one hand, domestic export orders have decreased year-on-year; on the other hand, the supply chain in the container market has gradually recovered, and the super cycle caused by structural supply-demand mismatches may be coming to an end. The frenzy of 'grabbing seats and containers' that preceded it is no longer there.' A freight forwarder told a Securities Daily reporter.
After two years of 'super seasonality,' the container industry seems to have reached a 'turning point.' Data from the Shanghai Shipping Exchange shows that on July 8th, China's Export Container Freight Index (CCFI) was at 3232.18 points, a decrease of 1.2% compared to the previous period (July 1st), with prices across all popular routes falling. Among them, European routes dropped by 2% compared to the previous period, with freight rates in Europe having fallen by a cumulative 14% since February; US West Coast routes fell by 2.5%, and US East Coast routes fell by 1.7%.
Does this mean that the 'turning point' of the container industry has arrived?
Xiang Wei
Executive Director for Greater China, Frost & Sullivan
In response, Xiang Wei, Executive Director for Greater China at Frost & Sullivan, told Securities Daily: 'Overall, CCFI remains stable, but as the domestic epidemic prevention and control situation improves and related commodity transportation demand recovers, coupled with uncertainties in US port supply and commodity demand, it is expected that shipping prices will remain high and volatile in the short term.'
Spot freight rates have fallen below long-term contract rates,Sea shipping giants have withdrawn ships to protect freight rates
Recently, a freight forwarder posted an advertisement on WeChat Moments 'discounting containers' for sale, attracting attention, and the scene of 'hard-to-find containers' in the container market seems to be happening just yesterday.
A CEO of an export-oriented enterprise in Yiwu told Securities Daily: 'Currently, finding seats and containers is easier than last year, and sea shipping prices have also dropped significantly compared to last year, but foreign trade factories are facing the unfavorable situation of reduced orders from Europe and America.'
The latest World Container Index (WCI) released by Drewry, an international shipping research and consulting firm, shows that spot freight rates from Shanghai to Los Angeles dropped by 4%, or $300 to $7652 per FEU, a 16% decrease compared to the same period in 2021; spot freight rates from Shanghai to New York dropped by 2%, or $10154 per FEU, a 13% decrease compared to the same period in 2021.
Looking at the first half of 2022, container freight rates from Shanghai to Europe and America showed a downward trend, with spot freight rates even falling below long-term contract rates. Market rumors suggest that some shippers have proposed renegotiating long-term contract rates with freight forwarders.
A freight forwarder told Securities Daily: 'Many long-term contract prices were signed at the end of last year and early this year. At that time, the market was hot and freight rates were high. For example, the highest sea shipping price on US routes last year reached $20,000 per FEU, but now it is about to fall below $7,000 per FEU, and European routes are also expected to fall below $10,000 per FEU, which is already lower than some shippers' previously signed long-term contract prices.'
Regarding the volatile decline in container freight rates, Fangzheng Futures reported that 'global inflation remains high, central banks in Europe and America have accelerated their monetary tightening steps, marginal demand growth has sharply slowed down, or even decreased month-on-month. Many countries around the world have gradually lifted full pandemic control measures since January, and vessel punctuality rates and turnover efficiency have significantly rebounded. With increased seat supply and a significant slowdown in demand growth, freight rates have continued to fall.'
With the decline in spot prices, some shipping companies have also lowered their freight rates under government guidance. International container giant CMA CGM said that starting from August 1st this year, large French retailers can receive a discount of 500 euros for each standard 40-foot container when importing consumer goods through CMA CGM, which is roughly equivalent to a 10% discount. For all containers destined for overseas territories of France, they can also receive a discount of 500 euros, with the discount range being about 10% to 20%.
Facing the decline in sea shipping prices, international maritime giants have begun 'withdrawing ships' to reduce effective capacity and maintain sea shipping prices stable.
Drewry's latest data released on July 8th shows that in the next five weeks (weeks 27 to 31), the three major global shipping alliances will cancel 61 voyages one after another. Among them, the Alliance 2M and THE Alliance, which cancel the most voyages, both reach 23 voyages; the Ocean Alliance cancels 15 voyages. Among the 760 scheduled voyages on major routes such as trans-Pacific, trans-Atlantic, Asia to Northern Europe, and Asia to the Mediterranean, 86 voyages were cancelled between weeks 27 and 31, with a cancellation rate of 11%. In addition, Drewry data also shows that in the next five weeks, 66% of empty voyages (empty ships) will occur on trans-Pacific eastward trade routes, mainly to the west coast of the United States.
Container freight rates are volatile in the short term,Industry prosperity is uncertain in the future
Xiang Wei analyzed: 'Looking at this year, overall container market freight rates remain relatively high. The intensification of inflation in the United States may affect residents' daily consumption habits, bringing changes in commodity demand and supply. At the same time, consumers' shopping methods are also gradually changing, with more people turning to online platforms, and the expansion of cross-border e-commerce may further drive demand growth in the container market.'
In addition, a research report by Industrial Securities believes that domestic exports will continue to grow, and the demand for container markets will remain stable. As the domestic epidemic prevention and control situation improves, there is room for freight rates in the container market to recover and rise.
Yu Nan, an analyst at Haitong Securities, said in his analysis that the high prosperity continued at the beginning of this year, and supply-demand balance is still in a relatively fragile stage. After experiencing the hot market of global container shipping in 2021, freight rates at the beginning of this year dropped but still remained high. On the demand side, according to IMF forecasts, the global trade volume growth rate in 2022 is 6.7%, and import demand in developed countries has not weakened. It is expected that the import volume growth rate in developed countries will be 7.3%. At the same time, as a popular route in 2021, the Asia to North America route still has room for upward movement due to the current low retail inventory-sales ratio in the United States, coupled with rising retail sales in the United States, which is expected to continue to drive up freight demand on US routes.
'As of mid-May, the proportion of global container ship capacity in port operations was nearly 37%, still higher than the average level of 31% before the pandemic.' Yu Nan believes that this means that with further resumption of work and production, as well as traditional consumption seasons in Europe and America, container congestion may continue.
In addition, Yu Nan also said that currently, the industry is clearly polarized, which has a certain stabilizing effect on freight rates. For example, the three major shipping alliances (Alliance 2M, Ocean Alliance, THE Alliance) currently occupy more than 80% of the market share and can effectively control capacity supply to cope with changes in the demand side. 'We believe that the possibility of short-term freight rates continuing to fluctuate at high levels is greater, and medium- to long-term freight rates may stabilize at reasonable levels.'
However, a research report by Guotai Junan Securities issued a warning that although the volume of container freight on US routes has remained high since the beginning of the year, with a slightly slower growth rate compared to 2019, considering the weakening impact of the US epidemic and the shift from physical consumption to service consumption, it is recommended to pay special attention to the risk of demand turning points. On the supply side, congestion at US West Coast ports has significantly improved. With the weakening impact of the US epidemic and the improvement in inland supply chain efficiency, the disorderly state of the supply chain is gradually easing. It is expected that the net profit margin of container companies in the first half of the year may continue to remain high, and there is uncertainty risk regarding the sustainability of high industry prosperity in the second half of the year.
*This article is reprinted from Securities Daily, with reporters Jiao Yue and Shi Lu. The original article was titled 'From Hard-to-Find Containers to Discounted Ones: Is the 'Super Seasonality' in the Container Industry Over?'
