Affected by the epidemic, transportation chain problems in the container market of the shipping industry have frequently occurred.
From insufficient transport capacity to port congestion, extending to the shortage of land truck drivers, and poor connectivity of various transportation links, the problem has not yet been satisfactorily resolved.
There are various predictions in the industry as to when shipping prices will cool down. Liu Dawei, deputy general manager of Changjiu Logistics, believes: “The increase in shipping prices is a temporary phenomenon. As the supply chain gradually recovers, it will take about three years for prices to return to normal.”
Multiple factors lead to high shipping prices
Looking back at the shipping industry in 2021, first there was a blockage in the Suez Canal in March, then severe congestion at Yantian Port in May, and then in August, the Meishan Terminal at Ningbo Port was closed for two weeks due to the outbreak. The closure of ports in many countries has intensified the tension of containers and shipping spaces, and shipping prices have continued to rise.
Looking at ocean freight prices in 2021, the U.S. route has the highest freight rates.
A freight forwarder revealed: “The third quarter of each year is usually the peak season for shipping. The hot market in 2021 has pushed the shipping price to a peak. Some freight forwarders have raised the freight rate for the China-US route to US$20,000.”
Freight rates on European routes have also risen sharply. The freight forwarder said: “The original freight rate for a container to Germany was US$3,000, and it will rise to a maximum of US$14,000 in 2021.”
Freight rates on other routes have also increased to varying degrees. Hua Guangyu, CEO of cross-border e-commerce platform Muchen International, said: “Even at the lowest level in 2021, shipping prices have increased by 30% to 40% compared with last year. The Brazilian route has even seen a 10-fold increase.”
Regarding the skyrocketing freight rates, some people in the shipping industry analyzed to reporters: “There are many factors that contribute to the rise in freight rates. For example, freight forwarders raise prices, the cost of container and ship loss increases due to queues at ports, and container loading and unloading costs due to port hopping, etc. The increase in surcharges has led to a sharp rise in freight rates.”
“In addition, in order to alleviate the shortage of containers, some ships return empty containers without waiting for loading, which increases transportation costs and increases freight rates when various costs are superimposed.” The person added.
Foreign trade companies are doing everything possible to reduce costs, but still face losses
Faced with the rising freight prices, foreign trade companies claim that they cannot afford the freight.
A person in charge of a mobile e-commerce platform said: “After the price of shipping increased, we had no choice but to adjust the selling price of the goods, otherwise we would lose money.”
He also revealed: “Most of our goods are shipped abroad by sea, and a very small part of them are transported by air and land. If the price of sea freight cannot be reduced, it will be difficult to break the situation of increasing revenue without increasing profits in the future.”
Although some companies choose air cargo and European trains, foreign trade companies still prefer sea transportation.
It is reported that some small cargo owners in foreign trade adopt the method of grouping and combining containers to save costs, while large cargo owners and agents think of chartering ships. However, the high costs brought about by rising freight rates have caused foreign trade companies to face low profits or even losses.
A secretary-general of the board of directors of an A-share listed trading company said: “The most cost-effective method is sea transportation. A ship can transport tens of thousands of tons of containers. Due to congestion at overseas ports, the uncertainty of return time has increased, so we have opened European trains. However, the quantity of goods shipped this way is limited, and there is no more imported goods to load on the return journey, so the cost of one trip is still relatively high.”
The person also said: “Some European and American orders will not increase in price due to the increase in freight rates. Even if we don’t accept them, many foreign trade companies in Southeast Asia can accept them. In order to save costs, we can only open factories in Southeast Asian countries where labor is cheap. Appropriately hedge some of the costs.”
Freight prices skyrocketed, and many countries intervened
Faced with skyrocketing freight prices, many countries have begun to take intervention measures.
In September 2021, maritime regulatory agencies from China, the United States and the European Union held a global shipping regulatory summit. FMC Chairman Daniel Maffei spoke at the meeting about “the abnormally high levels of shipping prices and container prices.”
At the same time, in order to solve the problem of shortage of containers and cabins for foreign trade companies, a large number of container companies began to expand production, and shipping companies also significantly increased their shipping capacity and placed orders for new ships.
According to Clarkson statistics, from January to October 2021, a total of 110.08 million deadweight tons of new ship orders were transacted globally, a year-on-year increase of 156.1%.
However, the expansion of container and ship production has also caused industry insiders to worry about whether the new shipping capacity will cause overcapacity.
A shipping source said: “The port has been in a state of congestion for a long time and the poor turnover of ships is an important reason for the imbalance of the current container shipping supply chain. Once the supply chain is restored, container manufacturers and shipping companies will consider issues such as overcapacity.”
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