Freight rates rebound more than 60 per cent? Temporary phenomenon, will fall back?

In the face of sluggish exports from Asian economies as a whole, the cost of transporting goods from Asia to the United States has quietly begun to rise rapidly, which is rather odd.

Freight Increases

Japan's exports fell for the first time in more than two years as demand in several key overseas markets sagged, data showed Tuesday, in a sign of the headwinds facing the economic recovery.

Around Japan, major Asian trading powers such as South Korea and Vietnam also reported dismal export figures.

In the freight market, however, a very different picture now appears to be unfolding.

The average spot freight rate for a 40-foot standard container shipped from China to the U.S. West Coast rose 61 percent to $2,075 in the six weeks ended Aug. 15, according to transportation data and sourcing firm Xeneta.

Industry insiders generally said that the main reason for the increase was due to the artificial adjustment of prices by large shipping companies.

Maersk, CMA and other shipping company giants, whose performance is still plummeting, have raised shipping fees such as comprehensive rate surcharges and package rates on some routes.

The price increases come after the price of a container shipped from China to the US West Coast plunged from nearly $10,000 a box in February 2022 to below $1,300 in late June as retailers' overstocking led to lower orders and weak demand cut into the profits of big shipping companies.

Peter Sand, chief analyst at Xeneta, points out that before the pandemic, a sharp spike in freight rates might have spooked importers. But now that people have witnessed the high shipping costs of last year, the $2,000 price is no longer intimidating.

A set of historical comparisons shows that container freight rates from China to the West Coast of the United States are still $600 higher than the same period in 2019, but 66% lower than the same period last year.

Or it will go back down

Importers and shipping industry experts expect the recent rise in spot rates to be short-lived as US container imports remain below year-ago levels, while some ocean lines have begun to take delivery of new container ships they ordered at peak demand, potentially injecting extra capacity into the market.

According to Bimco, the Danish shipping trade body, deliveries of new container ships in the first seven months of 2023 were equivalent to an additional 1.2 million containers of capacity, a record.

Ocean shipping giants such as Maersk have now reduced supply by grounding some container ships and slowing them down, effectively depleting capacity. But Philip Damas, managing director of Drewry Shipping Consulting Group, said more container ships are expected to come into service next year.

Damas said, "The wave of overcapacity will definitely affect the global shipping industry. As a result, we expect to see spot rates resume their downward trend this autumn."

Some shipping lines are now trying to squeeze more profit out of long-term contracts by adding peak season surcharges, as fixed rates tend to be higher than in the volatile spot market.

In the past, shipping companies have often resorted to this strategy to cope with strong demand for the fall and year-end holidays.

The overall performance of liner companies declined

In the first half of 2023, the operating income and net profit of the world's major liner companies fell sharply, although the decline was expected, but the decline is beyond imagination, and the liner companies that ate dividends in the previous two years are being severely tested by the market.

In terms of first-quarter results, in addition to Mediterranean shipping, which has not publicly released financial reports, the world's top 10 liner companies' revenue totaled about $41 billion, with an average decline of 53%.

Among them: Maersk revenue of $14.2 billion, down 26%, net profit down 68%; The revenue of CMA CGM was 12.72 billion US dollars, down 30.2% year-on-year, and the net profit was down 72.1% year-on-year.

Cosco Shipping Group revenue of $6.72 billion, down 45 percent, net profit down 77 percent; Hapag-lloyd's revenue was $6.028 billion, down 26 percent, and net income was down 68 percent.

The obvious decline in the performance of liner companies in the first quarter is directly related to the lack of demand in the current consolidation market and the decline in freight prices. Under the background of insufficient growth momentum in shipping demand and mass delivery of new ships, the container shipping market will gradually transform into a buyer's market.

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