Why the ocean freight so crazy but container is shortage! How long will this continue?

12, 2020

by oyade


2020 is a really special year. In terms of global trade, the epidemic has increased the dependence of other countries on China's exports. In the post-epidemic era, global trade still faces quite a lot of challenges. The prices of raw materials in China, such as metals, chemicals, textiles and so on, have risen sharply.On top of that, we also face another big challenge:quadrupled sea freight prices and shortage of containers.

At present, the world's container terminals present a paradoxical scene, the United States, Australia, Africa and other ports have a large number of containers, but domestic ports such as Qingdao, Ningbo port is extremely short of containers.

According to the China Container Industry Association, China only returns one container for every three it exports, leaving a severe shortage of containers at home and a glut of empty containers piling up overseas, leading to port congestion.

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The most immediate effect of the congestion has been a surge in shipping prices.In fact, since October, from India to South America, to Southeast Asia, to Europe, North America, etc., the global shipping price has increased linearly, and even doubled in a single night.

With the drastic fluctuation of shipping price and soaring logistics cost, the survival situation of many small and medium-sized foreign trade enterprises has become more severe than before.

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Hard to booking containers,Soaring sea freight

"According to the previous standard, when we export a 20gp container, the normal sea freight is 1,000 Dollars. When it was cheap, it was only 800 dollars. But since October, the sea freight has increased to 4,000 dollars, which has increased by four times.”Liu Yang told Ti Media.

Under normal circumstances, foreign trade companies have fixed big customers, at the beginning of the year has placed orders for the whole year, signed a good contract, including the sea price has also been set, even if the sea price rises, and other circumstances, also must be shipped according to the contract agreed, otherwise it will lose credit, the next year's business will be ruined.

Lin Xu (not his real name), the head of a freight forwarding company in Tianjin, told Ti Media that his company is mainly responsible for india-Pakistan, Southeast Asia and Europe routes. When shipping prices rose, he also contacted shipping companies to find out the reasons for the rise.The other agent said that the previous freight was too low, resulting in most shipping companies are in the state of loss, the way to stop the loss is to reduce the ship, in order to reduce the space, increase bargaining power.With the stabilization of the epidemic in China this year, and the centralized delivery of goods by domestic traders, the demand for positions has exploded. However, the positions that can be provided are very few, resulting in a situation where a position is difficult to find and prices rise rapidly.

"At present, our freight forwarding company still has the most orders from Europe, and the shipping space is basically reported to the shipping company half a month in advance. The shipping space on special routes needs additional money to be released, and the demand for large and high boxes is the largest."Said Lin Xu.

At the same time, he said, shipping companies now can maintain half a month to a month of freight rates, into a weekly change.The sharp fluctuations in prices have had the greatest impact on small and medium-sized traders, so most exporters have opted to delay shipments.


Ship companies made tons of money,when can the price be stable?

The rapid rise of sea freight brought a lot of operating pressure to the domestic foreign trade businesses , but brought great good performance to the global ship companies.

In the third quarter of 2020, all the world's 10 major liner companies made profits totaling $3.412 billion, up from less than $800 million in the same period last year and 4.27 times that of the same period last year, According to China Aviation Weekly.

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As can be seen from the above data, Maersk earned the highest profit, reaching $1.043 billion, and Eva Shipping increased the most with a year-on-year increase of nearly 60 times. It is known that Star Shipping was once on the verge of bankruptcy, but its performance increased by 28 times in the next round of price rise, successfully emerging from the bankruptcy haze.

"We can calculate an account. If a freighter carries 10,000 containers, the freight cost of each container is $3,000 more, which will increase the income of $30 million, or $200 million in RMB."Liu Yang told Ti media that with such a large profit, the big ship companies have no incentive to lower prices, but in fact the relationship between foreign trade companies and shipping companies is complementary, this situation is really difficult to say normal.Very abnormal, but also very unfair to foreign trade enterprises.

It is understood that in the past year, due to the tightening monetary policy of developed economies, global trade environment tension and other unstable factors, the container transport industry is in the stage of recession, now hit the "good times", a quarter of the entire year's money back, naturally on the price is not willing to let go.

"The forwarder in Tianjin Port, my long-term partner, also told me that the shipping companies are at the most profitable time and it is almost impossible for them to reduce the price."Liu Yang told Ti Media.

While sea freight rates continue to remain high, worse news is on the way.

Maersk, the container shipping giant, recently announced that it has imposed a new peak season Surcharge (PSS) in Europe and East Asia from December to next year for refrigerated goods from the Far East to northern and southern Europe.The surcharge will be $1000/20 'cooler, $1500/40' cooler and will be effective on December 15, and Taiwan China PSS will be effective on January 1, 2021.

In addition, major shipping giants including Maersk Line and CMA CGM have started to introduce new FAK rates, among which MSC rates have been adjusted since December 1, indicating that another wave of price increases may be imminent.

Titanium media has noted that in order to fill the gap in the market, domestic container production enterprises have increased their production efforts. At the same time, due to the impact of market supply and demand, it has also had a positive impact on enterprise operation.

Not long ago, CIMC, a leading container company, released its performance report for the third quarter of 2020. The report showed that CIMC realized an operating income of 63.592 billion yuan from January to September of 2020, up 3.13% year-on-year.Net profit attributable to shareholders and other equity holders of the parent company was 698 million yuan, up 9.62% year on year.

In addition, CIMC said on the Interactive platform of Shenzhen Stock Exchange that the volume and price of container market in the second half of this year, especially in the fourth quarter, have been significantly improved. The company's container orders have been scheduled to the first quarter of next year, and its gross profit margin has returned to the normal level in the third quarter of this year.Subsequent price trends are influenced by market demand and raw material price fluctuations.

It is worth noting that is strained by domestic container market resource distribution caused by uneven, once the normal backflow, container supply and demand will be back to normal, and even supply, at present, including CIMC group, Shanghai west, container manufacturing enterprises, at the same time of new orders, to further expand production capacity is also cautious.

This also means that the situation of container shortage, will continue for a period of time, during this period, the vast majority of foreign trade enterprises will still face operating pressure.

So, when exactly can ocean freight return to normal?

Textainer and Triton, two of the world's top three container leasing companies, said recently that the supply and demand of containers will not regain balance until mid-February next year, and the shortage of containers will continue beyond the Spring Festival in 2021.

At present, the European and American countries are still in lockdown, vaccine research and development and promotion are not as expected, economic activities are restricted, logistics personnel transportation is blocked, in fact, the situation after the Spring Festival is still difficult to predict.

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However, there are also agencies giving optimistic estimates.Alphaliner, a shipping consultancy, believes that although a full recovery is not imminent, there is an opportunity for demand to recover 6.8 percent next year as the global lockdown is gradually lifted and demand begins to recover, while market capacity is expected to increase by about 2.8 percent, leading to significant improvement in supply and demand.

Titanium media noted that the foreign trade industry has attracted the attention of the Ministry of Commerce.

December 3, a commerce ministry spokesman said it will jointly with relevant departments, on the basis of preliminary work, continue to push for more capacity, support to speed up the container shipped back, improve the efficiency of operation, supports container manufacturing enterprises to expand production capacity, at the same time increase the strength of market regulation, to stabilize the market price, for the smooth development of foreign trade logistics support.

With strong measures in place, expect that the problem plaguing the foreign trade industry will be effectively solved.

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