Sea freight surge trace to the source: strong exports, foreign trade enterprises bargaining power is

The price boom and slump are due to accidental factors, and speculation by some shipping companies and financial companies is not excluded. It is expected that the boom in shipping prices will not last forever.If the epidemic situation in foreign countries is well controlled, the shipping price will probably return to rationality after the Spring Festival in 2021.Container manufacturing enterprises are at full capacity, stepping up production, container orders have been arranged to March or April next year.

Article | <Caijing Reporter>   Zhang Han

Since the second half of 2020, the sharp rise and maintain high container shipping prices, so that many people in the industry call "can not understand".

The knock-on effects and subsequent effects of this price surge are also of great concern to people.

According to the Shanghai Export Container Freight Index released by Shanghai Shipping Exchange on December 4, 2020, the comprehensive index of this period is 2129.26 points, which is 80.99 points higher than 2048.27 points in the previous period (November 27).

Compared with the low point of 855.34 in the first half of this year, it is a sharp increase of 1,273.92 points.

Such an increase is rare in recent years.

From the point of view of different routes, the continuous strengthening of freight rates of the US west (basic port), US east (basic port) and other routes promotes the overall freight price index to go up.

The latest edition of the Shanghai Export Container Freight Index shows that the cost of shipping a 40-foot container on the US East Line has broken the US $4,700 mark, a record high.

It's not just the price of Chinese exports to the United States that has skyrocketed. It's also the cost of shipping goods to places like Europe and Australia.

The recent surge of sea freight is related to many factors. For example, affected by the outbreak of the epidemic, the global consumer demand in the first half of the year was suppressed to a certain extent, which led to the demand of many merchants to replenish their inventory in the second half of the year.

The "stay-at-home economy" effect overseas has increased the demand for home shopping, as well as a large number of overseas imports of anti-epidemic materials, leading to a surge in Chinese exports.

At the same time, the poor turnover of shipping containers caused by the outbreak has further pushed up freight rates.

Directly under the party branch secretary of Shanghai international shipping research center, professor YanMing for caijing reporter said, "beauty in terms of different route line prices, saying the U.S. for fitness equipment, household appliances and other household products demand, and catch up with the traditional Christmas season, coupled with the outbreak of overseas logistics supply chain caused by blocked and terminal operation efficiency is low, making China's container highlighted the problem of inadequate, every shipping company's capacity is not fully released."

At the same time, a number of industry experts interviewed by this reporter said that in general, the price surge is due to accidental factors, not to exclude the suspicion of speculation by some shipping companies, financial companies, but it is expected that the surge in shipping prices will not last forever.

If the epidemic situation in foreign countries is well controlled, the shipping price after next year's Spring Festival is likely to return to rationality.

Deep reasons behind the surge in sea freight rates

On November 27, 2020, the China Container Industry Association responded to the issue of container and sea freight, saying that since July 2020, China's export volume has risen sharply, and the demand for export containers has soared. Both the shipping market and the China-Europe freight train are experiencing the phenomenon of shortage of box source, surging freight and turnover delay.

Large Chinese ports such as Qingdao, Lianyungang, Ningbo and Shanghai are experiencing container shortages that are delaying berthing operations and putting their ports under pressure.

The association proposed that container industry chain enterprises should actively engage in stabilizing foreign trade, strive to improve the efficiency of international container turnover, increase container return to air transportation by re-sailing ships, alleviate the shortage of Chinese export containers, do a good job of cross-peak transportation planning, and ensure the delivery of new container orders as soon as possible.

Yin Ming said container manufacturers are working at full capacity to step up production, container orders have been lined up until March and April next year.

"The deeper problem of rising sea freight, I am afraid, is that the pattern of the three container alliances has stabilized, the industry is highly concentrated and stable, price competition is not fierce enough, leading to the formation of a tacit understanding of price increases."

The so-called three alliances are 2M (mainly Maersk and Mediterranean Shipping), Ocean Alliance (Dafei, Zhongyuhaiji, Evergreen, etc.) and The Alliance (Yangming Shipping, One, Hyundai Merchant Shipping, etc.), which were successively established by 13 container shipping companies in 2017.

The three alliances try to obtain higher profits through the input of transport capacity and the regulation of freight rates.

Lu Xiaodong, dean assistant and professor of Lingnan College of Sun Yat-sen University, told "Caijing" reporter that the trend of short-term sea freight depends on the game between foreign trade enterprises and shipping companies.

For shipping companies, shipping space is all pre-sale, may sell more than its own capacity.

In the second half of this year, the export situation is good, less order, there is not enough shipping space, foreign trade companies compete for shipping space phenomenon, and foreign trade companies' bargaining power is weak, leading to the price rise.

"The current rise in sea freight prices is largely caused by congestion caused by the slow turnover of containers, which is a partial structural problem.

In the long term, there is no need to worry too much, because the overall capacity of the world's shipping companies is surplus, sea freight prices have not risen in the last 20 years, especially for dry bulk shipping, which has not been very profitable."

Lu Xiaodong said.

Since the second half of this year, Sea-Intelligence, a shipping consultancy, has sharply raised its earnings forecasts for 2020 due to rising Sea freight prices.

In April 2020, the company forecast a loss of $23 billion for global liner companies, recently revised to a profit of $14 billion, and the world's leading container shipping line will reach its highest level of profit in nearly eight years in 2020.

Maersk, the world's largest container shipping company, saw its net profit increase 83% in the third quarter, and German shipping giant Herberot also expects its profit growth to exceed 50% this year, foreign media reported.

Liu Chunsheng, an associate professor at the School of International Economics and Trade at the Central University of Finance and Economics, said in an interview with Caijing that some shipping companies or financial companies could not be excluded from taking the opportunity to exploit and hype up the concept behind the current surge in sea freight prices, leading exporters to rush to buy freight services.

It can be said that commercial speculation and the shortage of container containers have jointly pushed up the price of sea freight. It is expected that by the end of December this year, the sea freight price of a 40-foot container in the United States may even rise to more than $6,000. However, it is not easy to judge how much hype accounts for it, since the export demand is still very strong.

The short-term impact on China's economy is limited

China's export figures, released by the General Administration of Customs last week, were impressive.

In the first 11 months of this year, China exported mechanical and electrical products to 9.57 trillion yuan, up 5.4 percent year on year, accounting for 59.3 percent of the total export value.

Exports of goods related to epidemic prevention materials and household life were strong, with exports of textiles, including face masks, totaling 989.23 billion yuan, up 33 percent year on year.

Furniture exports amounted to 365.07 billion yuan, up 11.2% year on year.

Toys reached 210.48 billion yuan, up 6.8% year on year.

Looking at different countries, in the first 11 months, China's exports to the US totaled 2.82 trillion yuan, up 6.9 percent year on year.

China's exports to the EU reached 2.45 trillion yuan, up 7% year on year.

China's exports to ASEAN reached 2.37 trillion yuan, up 7% year on year.

Exports to Japan and South Korea were flat from a year earlier.

"With the resurgence of the epidemic in Europe and the United States, the demand for epidemic prevention materials has increased again, and people in Europe and the United States have reduced their travel and even returned to social isolation," the CICC research report said.

On the other hand, the outbreak has also slowed the resumption of production in Europe and the US, further increasing their dependence on Chinese goods.

"We expect Chinese exports to continue to perform strongly in the coming months, given that the winter outbreak continues in Europe and the US, particularly the US, and the severity of the third wave is much greater than that of the second wave."

Lu Xiaodong told reporters that changes in the end demand and consumption patterns of European and American countries will support China's export performance for about a year.

At present, the proportion of people working at home has risen from 16% to about 34% in Europe and the United States, and the demand for Chinese exports has increased.

In contrast, China has achieved at least 80% of the resumption of production, PMI and other economic indicators are also rising, the impact of a short-term increase in sea freight is bearable.

For foreign trade enterprises, can pass some technical processing, the sea freight costs to foreign consumers, digest the pressure of rising freight prices.

Jiang Yuantao, an expert in the strategic consulting expert bank of COSCO Shipping Group and an associate professor at Shanghai Maritime University, told Caijing that the high cost of shipping logistics is detrimental to the growth of international trade and the recovery of the global economy. Although the impact on China's exports is limited in the short term, it is certainly unsustainable in the long term.

If shipping is expensive for a long time, overseas importers may look for alternatives, affecting China's exports.

Suggestions that government departments pay more attention to the impact of rising sea freight, do a good job of emergency plan, develop appropriate countermeasures.

The shipping industry is a strategic and special industry, which has a large influence. The government should make necessary intervention to control the price within a reasonable range.

Liu Chunsheng also believes that if the price of sea freight continues to rise, it may bring about a series of chain reactions, such as the weakening of exporters' profit margins, the default of importers, and the difficulty of trade negotiations, which will affect the smooth progress of trade.

Sea freight is a relatively important trade factor, which will also affect China's total trade volume and trade structure, especially for low-value-added products.

"Export enterprises should make contingency plans and early warning of risks, pay close attention to changes in prices such as freight rates and exchange rates daily, and seize the opportunity to arrange production and shipment.

"Flexible contract terms can be used to mitigate some of the shipping risk, so that all parties can bear some of the shipping costs, and freight insurance can be considered."

Liu Chunsheng said.

Next year after the Spring Festival sea freight prices are expected to slow down

On December 3, 2020, the Ministry of Commerce spokesman summit held in the Ministry of Commerce said at a regular news conference, according to figures released by the National Bureau of Statistics, China manufacturing purchasing managers' index (PMI) November new export orders index and index of 51.5% and 50.9%, than last month increased by 0.5 and 0.1% respectively, improve both internal and external demand.

On the issue of the foreign trade logistics price, peak, said the Ministry of Commerce will jointly with relevant departments, on the basis of previous 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.

In general, container shipping prices are not only affected by macroeconomic factors, the recovery of the epidemic and other factors, but also the shipping companies' delivery of transport capacity, as well as whether it can match with the demand changes.

So, how should we look at the future trend of sea freight prices?

Liu Chunsheng believes that after Christmas this year, the demand from European and American countries will enter a slow decline process. It is expected that after February and March next year, the sea freight is expected to gradually decline and return to the normal level.

"The decline in demand is a slow decline process, which may last for a long time. It also depends on the control of the epidemic situation abroad. If it is not ideal, the demand for shipping from China will not return, which is not conducive to the decline in sea freight prices.

If the epidemic in Southeast Asia is well controlled, some orders can be taken, which will also help ease shipping prices."

Yin Ming expects that before the first quarter of next year, the sea freight price will maintain at a relatively high level. The current high level is certainly an abnormal phenomenon. After the epidemic stabilizes, the sea freight price will have a rational return.

"A short-term price change in the market does not mean a long-term fundamental change.

The pace of development has changed, but it does not mean that the competitive pattern has changed fundamentally.

In the face of the current shipping situation, national competent authorities need to pay close attention to strictly investigate monopolies and price collusion to ensure that price fluctuations do not harm exports.

For foreign trade companies, they need to choose reliable logistics partners, try to establish cooperative relations with big shipping companies, and lock in risks through some derivatives."

Yin said.