According to recent data from the Shanghai Shipping Exchange, the Shanghai Export Container Freight Index has maintained a downward trend for 14 consecutive weeks. Moreover, two of the world's major shipping giants are bearish on freight rates in the second half of the year. Recently, Hapag-Lloyd hinted that spot freight rates may drop significantly in the second half; earlier, Maersk also expressed an optimistic attitude towards spot freight rates in the second half of the year during a corporate telephone conference following the release of its first-quarter financial report.
What are the main reasons for the decline in container freight rates? What is the outlook for freight rates in the post-petroleum market? Wei Li, Executive Director of Frost & Sullivan's Greater China RegionRecently, an interview with Securities Daily was conducted to jointly interpret the future trend of the container market.
Securities Daily
The super-long cycle of container shipping, which has been on fire for two years, may have reached an inflection point. According to recent data from the Shanghai Shipping Exchange, the Shanghai export container freight rate index has maintained a downward trend for 14 consecutive weeks.
"Currently, the volume of cargo is decreasing. For the Asia to West Coast route, the spot freight rate for standard containers has remained at around $6,500, a reduction of about 60% compared to the peak of $20,000 last year," said an unnamed shipping industry insider to the Securities Daily on May 18th.
Moreover, the two global maritime giants are bearish on freight rates for the second half of the year. Recently, Hapag-Lloyd hinted that spot freight rates for the second half of the year may drop significantly; earlier, Maersk also expressed an optimistic attitude towards spot freight rates for the second half of the year during its corporate conference call following the release of the first-quarter financial report.
Has the demand inflection point arrived?
The freight rates for popular routes dropped by about 60%
The supercycle of consolidated transportation that had persisted for some time may have temporarily come to an end.
On May 16th, data from the Shanghai Shipping Exchange showed that the comprehensive freight rate (CCFI) for container shipping rose by 1% week-on-week last week (May 9th - May 13th, the same below), marking a cumulative decline of 15% since mid-February. Among them, the freight rate on the US West Coast route rose by 3% week-on-week compared to the CCFI (reflecting the settlement price of container shipping companies); SCFI (reflecting the booking price of container shipping companies) remained unchanged; and FBX (reflecting the clearing price of freight forwarders) decreased by 12%.
To power
Executive Director, Greater China, Frost & Sullivan
Regarding the main reasons for the decline in container freight rates, Wei Li believes that Frost & Sullivan's Executive Director for Greater China has identified several aspects. "Since early this year, the epidemic prevention and control situation in some domestic regions has been unstable. The various control policies triggered by the escalation of the epidemic have posed a huge challenge to the supply chains of various industries, affecting manufacturing shipments and overall maritime trade volumes. This has changed the situation where 'containers are hard to find' globally since the second half of last year. During the prevention and control period, the volume of fixed containers decreased compared to previous years, affecting container freight rates. On the other hand, since the second half of last year, major shipping companies have continuously increased their fleet layout, opening more near- and far-ocean routes. With container capacity exceeding demand, prices have declined. Furthermore, changes in consumer behavior brought about by international situations and the ongoing inflation in Europe and America have also indirectly triggered maritime trade and freight rates."
In terms of demand, since the beginning of the year, the volume of freight shipped by US liner services has declined from the high growth rate seen in 2019. This is because after the impact of the pandemic weakened the supply chain, fiscal stimulus may be reduced, and the inflection point of liner demand should have arrived. 'The congestion at US West Coast ports has improved somewhat, and the number of ships waiting to berth at Los Angeles Port has dropped from its high level in the past three months. As the impact of the US pandemic gradually weakens, it is expected that supply bottlenecks will also be gradually alleviated,' said the above-mentioned shipping industry insider.
Regarding the future market of the container shipping industry, Yue Xin, an analyst in the transportation sector at Guotai Junan Securities, believes that there are uncertainties about the market conditions in the second half of the year. "The impact of overseas epidemics is gradually weakening, and it is expected that the net profit margins of container shipping companies will continue to remain high in the first half of the year. However, there are risks of uncertainty regarding the high prosperity of the industry in the second half."
"On one hand, shipping companies have maintained their previous shipping schedules, but the export of goods from China to Europe and America has significantly decreased, reversing the supply-demand relationship. As a result, popular routes such as West Coast container shipping rates (standard containers) have fallen to around $6500, while the highest price on this route was as high as $20,000, a reduction of about 60% compared to the peak. Therefore, the three major shipping giants have recently started to withdraw ships to prevent a sharp drop in freight rates." The above-mentioned shipping expert added to the Securities Daily reporter.
According to the data disclosed by a listed A-share container shipping company, freight volume shows a downward trend. In the first quarter of 2022, the company's containerized freight volume was 6.1617 million TEUs, a year-on-year decrease of 9.17%, with a fleet capacity of 2.9419 million TEUs.
Regarding the future trend of container shipping, Galaxy Futures stated in their research report that in the short term, China's epidemic has not fully recovered, and with the active resumption of work and production in Southeast Asian countries, China's export demand is being diverted. It is expected that container shipping prices will continue to weaken in the short term. In the medium to long term, against the backdrop of geopolitical conflicts, global inflation and interest rate hikes are expected to suppress commodity demand, making it inevitable for container shipping prices to fall back from high levels.
Freight rates plummeted
Shipping giant Asia-Pacific routes voluntarily suspended voyages
"3 and 4th months saw immediate freight rates for group shipments continue to decline. Recently, shipping companies have withdrawn their ships, so prices have slightly warmed up a bit, and space has become a bit more scarce. However, overall it is very difficult to return to the state last year when one ship was hard to find. Last year, there were many goods but ships were stuck at foreign ports, forcing a reduction in schedules. This year's situation is just the opposite," revealed an unnamed freight forwarder from Shanghai to the Securities Daily reporter.
Not only is ocean freight falling, but Seaintelligence's latest data shows that the demand for sea container transportation has also declined for the fifth consecutive week.
Facing the continuous decline in freight rates and the continuous reduction in export cargo volume, the container transportation market is 'over-supplied'. In order to maintain high freight rates, international maritime giants have taken measures such as canceling some voyages and increasing empty flights to keep prices stable.
According to public information, the Maritime Alliance is preparing to cancel more than one-third of its Asian routes within the next few weeks. Mediterranean Shipping recently announced that due to persistent challenging market conditions leading to congestion in the entire supply chain and delays in shipping schedules, it will cancel routes from Asia to the US East Coast. Hapag-Lloyd has recently issued a schedule adjustment notice, stating that services on its Asian-to-Mediterranean route, including MD1, MD2, and MD3, will be cancelled for voyages calling at Shanghai Port, Ningbo Port, and Busan Port over the next eight weeks.
Maersk issued a notice on May 10th: The unprecedented severe port congestion globally continues to cause delays on several routes from Asia to the Mediterranean. To provide our customers with better visibility of schedules, after careful review of schedules, Maersk has decided to adjust sailings starting from the following voyages to match the actual number of weeks before departure for ships and services.
Even though the cancellation of ships is inevitable, it cannot stop industry insiders from being bearish on the container market in the second half of the year.
"Since 2022, despite the peak period of the container market, congestion problems still exist at some major overseas ports, which will continue to affect the maritime logistics supply chain and may lead to further declines in freight rates. At the same time, affected by geopolitical situations and the COVID-19 pandemic, the global supply chain continues to face immense pressure, which is expected to continue impacting container freight rates." Xiang Weili added to a reporter from Securities Daily.
*This article is reprinted from 'Securities Daily', with reporter Shi Lu. The original title was 'Popular Routes' Freight Rates Drop by Nearly 60% as Shipping Giants Cancel Ships to Protect Their Prices'.
