A few days ago, when talking about this year’s situation, Li Hao mocked himself.
As the person in charge of a foreign trade company in Shenzhen, Li Hao has been “struggling” in the trade industry for more than ten years, but the changes in the shipping market experienced by himself this year have made the “veteran” call “never seen”.
Since the beginning of this year, China’s foreign trade import and export have maintained growth, as well as the continued high sea freight prices. According to the export container freight rate index released by Shanghai Shipping Exchange, on September 1, 2021, the China export container index (CCFI), which represents the settlement price, closed at 3079.04 points, a record high at that time, up 269% from the lowest point of 834 points last year. Moreover, after the outbreak of the epidemic, the shipping industry has also seen significant situations, such as difficult to find one cabin, difficult to find one box, port congestion, ship delay and so on. Like Li Hao, many participants in the industrial chain feel pressure.
According to the latest data in December, China’s export container freight rate index is still rising compared with August and September. “At present, the price of a 40 foot container to the United States is about $13000 – $14000, but it was only about $500 before the outbreak.” In this regard, Li Hao revealed a little helpless.
Now, 2021 is coming to an end. What has happened to the shipping market in the past year? What is the current situation? In the past month, the reporter of the international finance news interviewed more than ten front-line practitioners, such as foreign trade enterprises, freight forwarding companies, shipping enterprises, ports and even shipyards, trying to show the whole market from their perspective.
“On the whole, at least in the past decade, we have not encountered these urgent situations. Both freight rates and transport capacity resources are facing unprecedented pressure and difficulties.” Sun Yi, who holds a management position in a large global logistics enterprise, told reporters that the industry has also been discussing the trend of the whole market in the future. However, due to external objective factors and the interests of all parties in the industrial chain, it is difficult to predict whether the shipping price will decline and whether the supply of transportation capacity can be balanced in 2022.
“lack of box” is under heavy pressure
According to the announcement of China Navigation day 2021 issued on July 11, 2021, China’s maritime import and export volume will reach 3.46 billion tons in 2020, accounting for 30% of the global maritime trade volume. Among them, about 95% of China’s international trade cargo volume is completed by sea. However, in Li Hao’s view, since last year, shipping has not been friendly to the trade enterprises on which it depends.
“When we export the Christmas tree, we may have to take the Shenyang China Europe train. Instead of sea transportation, it’s almost the same price as air transportation. We can’t afford it.” One afternoon in mid December, when communicating with reporters by telephone, Li Hao said.
Li Hao’s trading company is mainly engaged in the export of daily necessities, including some kitchen utensils. In the past two years, under the influence of the epidemic, its overseas customers’ demand for corresponding products has increased, and their orders have almost doubled. But he was not so happy because he couldn’t find a container to transport the goods, and this situation has become the norm. “In previous years, the other company begged you to book containers. Now you (take a high price) begged him not to be able to rent them. I know a company that makes tires in Shandong. There are more than 400 containers of freight that don’t go out. There’s no way to go with such a large volume. I can only wait.”
“For example, if a container is negotiated at the price of $15000 in the morning and the goods are delivered to the terminal in the afternoon, the container may rise to $17000. If you want to increase the price, don’t just pull it away and return the goods.”. According to Li Hao’s statement to reporters, the price of containers has increased significantly before because of the shortage of supply, and foreign trade companies were even faced with the risk of “starting from the ground”.
As a freight forwarding company shouldering the task of “connecting the preceding and the following” in the industrial chain, it also has a deep feeling of “lack of boxes”. It is understood that the shortage of containers began to appear in the second half of 2020, and the phenomenon of “lack of containers and less containers” spread in major ports one after another. A number of freight forwarding companies told reporters that in the first half of this year, the situation of “one box is difficult to find” is particularly obvious. Sometimes, the team even needs to “grab” the box in the middle of the night. In addition, the booking time of containers is also different from that in previous years. It is possible to book containers 15-25 days in advance.
For “one box is hard to find”, Zhang Zhenrong, an employee of a freight forwarding company in Shenzhen, gave his own analysis. “Since the outbreak of the epidemic, European and American countries have transferred a large number of orders back to China from Southeast Asia, resulting in a surge in China’s export trade. A large number of containers are exported abroad and cannot be returned in time. For commercial purposes, shipping companies prefer empty ships to return to China for loading rather than empty and imported heavy containers, resulting in a large number of containers staying abroad.”
In fact, lack of containers is only one of the many problems faced by these trading companies. Zhang Zhenrong told reporters that due to the serious epidemic in foreign countries, there is a serious shortage of wharf workers and loading and unloading equipment, the wharf loading and unloading operation cycle is lengthened, and a large number of shipping schedules are stranded at the anchorage and unable to enter the port for unloading, resulting in a large area of delay in the shipping schedule or jumping from the port, and the whole shipping schedule is chaotic, which also brings the situation of “it is difficult to find one cabin”. In addition, since the beginning of this year, China’s foreign trade export volume has continued to grow. At the same time, with the continuous rise of transportation costs such as sea and air transportation, it has brought great pressure to foreign trade enterprises that trade on CIF or FOB terms. “The high freight cost has caused many buyers to suspend transactions or cancel order plans.”
“For example, the port of shipment is Dalian, and the port of destination is Lin Chaban’s 20 foot general cabinet. The freight rate before the epidemic was US $260, and the current price has reached US $2400.” A freight forwarder from Dalian pointed out to reporters.
In an interview with reporters, the relevant person in charge of a foreign trade enterprise in the field of biological manufacturing in Inner Mongolia admitted that the congestion problem at the port of destination is extremely serious due to the lack of handling manpower at the port of destination. At present, the shipping schedule delay, tight positions and high freight have brought great difficulties and instability to the shipment of import and export enterprises.
The heavy external pressure finally affected the order situation of foreign trade enterprises. The person from the foreign trade enterprise in Inner Mongolia told reporters that, on the one hand, some ports were jumped or suspended due to frequent soaring prices, resulting in disordered production plans and shipping plans of enterprises; On the other hand, some ships need to stay at the transit port, resulting in delayed delivery of goods, which reduces the deliverability between enterprises and customers, reduces customer satisfaction, and reduces the amount of signing orders by enterprises, “Every import and export enterprise’s personnel are based on their performance. However, due to the shipping problem this year, FOB customers have difficulty booking space, resulting in the delay in the completion of enterprise plans, the delay in payment collection, and the delay or failure to achieve profits; while CIF fully prepaid customers bear the risk of marine freight encroaching on profits caused by the sharp rise of shipping prices.”
Li Hao also pointed out that at present, many companies are unable to unload at the U.S. port, which also leads to various miscellaneous fees such as port congestion fee and storage fee. Moreover, failure to unload will also increase the collection risk and make the purchaser abandon the goods. However, the destruction of the goods also requires additional costs, such as US $1000 for the destruction of ten cubic meters of goods in the United States, All the derived costs ultimately need to be borne by the seller. This situation has led to many disputes.
“For our foreign trade enterprises, there is no way to solve the current problems. We can only start from the company’s strategy and consider changing from export to domestic sales and self-produced and self-sold, but this will affect the enterprise’s profits.” The aforementioned people from foreign trade enterprises in Inner Mongolia sighed.
why does the freight rate continue to have a high fever
As one of the major container liner shipping companies in the world, COSCO Shipping Container Transportation Co., Ltd. (hereinafter referred to as “COSCO Shipping Container Transportation”) also experienced and felt the pressure of tight transportation capacity and container shortage.
“Since the second half of 2020, due to the continuous and repeated overseas epidemic, the low efficiency of the global supply chain has become the norm. In addition, due to the superposition of a series of black swan and grey rhinoceros events, the contradiction between supply and demand in the container liner transportation market has been expanding.” In late December, COSCO told the reporter of international finance that the container logistics supply chain involves many links such as ships, terminals and inland transportation. At present, the supply chain dilemma faced by the shipping market is the systematic transportation capacity shortage of the whole supply chain caused by the progressive mismatch of supply and demand under the continuous influence of covid-19 epidemic. At the same time, the bottleneck of terminal processing capacity is also one of the reasons for the decline of effective supply of centralized transportation. The poor turnover of port supporting centralized transportation system and the high congestion of railways, trucks and inland storage further aggravate the complexity and continuity of congestion in the centralized transportation supply chain.
In the reporter’s interview for days, several people in the industrial chain also mentioned the above situation.
“Since this year, the shipping market has encountered Black Swan events one after another. Among them, the negative effects brought by the Suez Canal ship jam in March this year have continued to this day.” According to Li Hao, the congestion of the Suez Canal has affected almost all export enterprises. “All ships are blocked there. If the containers contain live animals, frozen products or food goods, they will be abandoned after floating at sea for two months.”
In order to alleviate the pressure on the whole shipping market, relevant departments and participants in the supply chain have started to rescue from many aspects.
In early December, the people’s Daily quoted the relevant person in charge of the water transport bureau of the Ministry of transport as saying that it had actively coordinated and guided liner companies to increase their investment in China’s export routes together with relevant departments. In addition, in addition to speeding up the return of overseas empty containers, we are also speeding up the production of new containers. It is said that the Ministry of industry and information technology and the Ministry of transport actively coordinated with Chinese container manufacturing enterprises to fully expand production, so as to increase the monthly production capacity from 200000 TEUs to 500000 TEUs, the highest in history. At present, the inventory of new containers of China’s major container manufacturers has exceeded 700000 TEUs, and the supply of new containers is fully guaranteed.
COSCO also mentioned that in order to smooth the global maritime supply chain, ensure safety and stability, the company took multiple measures to increase the supply of transport capacity and actively increase the laying of routes. In order to ensure the supply of containers, it used enough return shipping space by means of hanging, etc., and accelerated the callback of overseas empty containers. Up to now, the cumulative callback of empty containers has increased by 22.7% year-on-year in 2021. In addition, the company also increased the input of new containers to make up for the shortage of containers. The cumulative use of new containers exceeded 400000 TEU, and the container ownership increased by more than 10% year-on-year.
Liu Jianguo, who has been engaged in ship manufacturing for nearly 20 years, told reporters that nationwide, the order volume of shipyards has indeed increased this year, “especially in Jiangsu and Zhejiang, there are many orders, and some time ago (basically) mainly container ships and bulk carriers. Another situation is that many non container ships have been changed into container ships.”
Another anonymous person close to the official Department of transportation told reporters that he also learned that some bulk cargo ships have been converted into container ships this year. “On the side, it can be judged that there is a shortage of decoration containers in the market, and a large number of container ships are still being manufactured, and some projects that have stalled in the past have been restarted.”
“In fact, a lot of ships have been built this year, new ships have been launched, and more empty containers have been produced, but to a certain extent, it may not be completely ‘enough’, because they are delayed on the road, and these transport capacity have been consumed.” Zhou Jun, who works for a large port group, pointed out.
Zhou Jun believes that this is mainly the result of the pressure on the port caused by the global epidemic. Ships and containers are forced to stay in the port in a large area, and the transport capacity cannot be released. “There are so many (ships) lined up outside the port that they can’t come back. Like dominoes, heavy containers (containers) can’t be picked up. The wharf is full, the ship can’t get on, and there’s no place to unload, because picking up goods at the wharf requires trucks and manual transportation, but the foreign side can’t digest it, so the ships are waiting.”
Zhou Jun also told reporters that the ship that originally ran to Europe could return home in 45 days, but now it is difficult to return in 60 days. “The whole cycle has been lengthened, and the normal cycle has been interrupted. If the cycle is prolonged, it needs (new transport capacity) investment, but no matter how much investment is made, the cycle can not be digested. In fact, the same is true for (container) containers. Empty containers can be recycled, but when the boxes go out, they don’t pick up the goods there, and the empty containers can’t come back, and the whole cycle of using containers has also been lengthened.”
It is worth mentioning that although the current practitioners believe that the tight transportation capacity has not been greatly improved, a good trend has emerged. The relevant person in charge of a freight forwarding company in the northern market pointed out that after various efforts, the pressure of container shortage in the second half of this year has actually been alleviated. “At present, the thorny problem is that it is difficult to find shipping space. If you can’t get shipping space, you can’t make money.”
can the industry accelerate its stabilization
For the whole shipping market, 2021 is about to pass. In 2022, whether some problems still experienced by the industry can be further solved is the concern of all links.
From the perspective of shipping price, the reporter of the international finance news learned from trading companies and freight forwarding companies that at present, the shipping price of all routes has increased, ranging from 6-10 times. Among them, the US line has the largest increase, which has risen from US $2000-3000 before the epidemic in 2019 to an average freight rate of about US $10000.
Sun Yi recently revealed to reporters that the freight rate of the US line has fallen slightly recently, but since October this year, the freight rate from China to Southeast Asia has increased significantly.
For the above situation, Zhang Zhenrong pointed out that this is due to the fact that some shipping companies transfer ships to European and American routes or suspend shipping, resulting in the recent sharp rise in shipping costs in the south market of East Asia.
For foreign trade enterprises, can transportation costs usher in a significant turning point of decline?
“In fact, it is difficult to predict. From the perspective of shippers or businesses, if the rise in sea freight prices continues, shippers will not be able to bear the increase in freight rates, because their own value or original trade profits are not so high, and such a large proportion of logistics costs will have a great impact on such companies.” Sun Yi said.
In Sun Yi’s opinion, on the one hand, the current measures of shipping companies and container companies to build new ships and containers seem to want to reduce freight rates and relieve pressure. On the other hand, shipping companies, especially international giants such as COSCO and Maersk, have actually benefited. “In this case, I think there is uncertainty about whether the shipping companies are willing to actively callback the price to the previous level, especially now there are many unstable factors. In fact, before the epidemic, many shipping companies did not have high profit margins when the overall shipping market was weak, and some even operated at a loss. Therefore, many shipping companies are in this round Is to make some recovery and compensation for past losses, which may become one of the driving forces for shipping companies to maintain this freight rate. ”
Taking COSCO and Maersk as two well-known companies, for example, the financial report shows that as the world’s largest container shipping company, Maersk achieved record revenue in the third quarter of 2021, with revenue increasing by 68% to US $16.612 billion, and profit before interest and tax (EBIT) also increased by more than 3.5 times to US $5.859 billion. The revenue of container shipping central enterprises Cosco Shipping Holdings Co.Ltd(601919) in the first three quarters of this year was 231.479 billion yuan, a year-on-year increase of 96.65%, and the net profit was 67.59 billion yuan, a year-on-year increase of 1650.97%. Among them, its revenue in the third quarter increased by 111.23% year-on-year to 92.214 billion yuan, and its net profit increased by 1019.81% year-on-year to 30.492 billion yuan.
It is worth noting that in November, the review report on maritime transport in 2021 issued by the United Nations Conference on Trade and development (UNCTAD) pointed out that due to strong demand, as well as the increasing supply uncertainty caused by the shortage of equipment and containers, the decline of service reliability, port congestion and the prolongation of delay time, it is expected that the maritime freight rate will remain high for some time in the future.
As for the freight rate, Zhang Yongfeng, chief consultant of Shanghai International Shipping Research Center and director of International Shipping Research Institute, said in an interview with the reporter of international finance that if the subsequent port congestion is alleviated and the ship turnover is continuously accelerated, the final freight rate will still be determined by the market’s own mechanism. “If the supply and demand tends to ease, it should gradually reduce the costs of these enlarged links in transportation, and it will take time to return to a more rational market. After the Spring Festival, there may be some downward correction changes, especially the impact of the off-season in the first half of next year. The market may enter a short-term accelerated adjustment, but the greater probability will still maintain a relatively high level. After all, overseas ports Not completely unobstructed, including the current prices of some long-term associations are generally high. ”
Zhang Yongfeng also pointed out that in terms of the current development of container manufacturing industry, the number of new containers continues to remain high every month. “According to statistics, about 500000 TEU containers are delivered every month around the world, so the supply of boxes should not be a problem by next year, and there may even be a risk of surplus.”
Zhang Yongfeng further said that there is still a problem of “tight” shipping space at present. The main reason is that the congestion in overseas ports leads to the serious queuing of ships and the long time in port, which affects the turnover rate and punctuality rate of ships. Although there has been some mitigation at present, the future situation of this link depends on the changes of the subsequent epidemic situation.
“We believe that when the plight of container logistics supply chain can be alleviated mainly depends on two aspects: epidemic development and market supply and demand.” COSCO Shipping said that from the perspective of epidemic development, the current Omicron mutant strain has been found in nearly 90 countries, and the number of infected people in the world has increased rapidly. Its strong dissemination has forced the Netherlands and other European countries to launch a new round of blockade during the new year. If the epidemic continues to spread rapidly, it will not rule out more countries to join in restarting the blockade, which will make the current supply chain congestion worse, “In addition, according to the prediction of supply and demand growth in 2022 by major shipping consulting institutions, the growth of transportation demand in the centralized transportation market in 2022 will still be faster than the growth of fleet size. At present, the market generally expects that the problem of supply chain congestion will continue for half a year to one year. We believe that unless the demand drops rapidly, the supply chain congestion will continue in the short term.”
(International Finance News)
