“The current container transportation market has a different price every day, and the price is rising every day. In the morning, we quoted the price to the customer and confirmed the order. In the afternoon, the shipping company notified the price increase, and we need to update the price to the customer again.” A freight forwarder in Jiangsu responsible for China-Europe business told the reporter of China Business News.
In this traditional shipping off-season, tight space, soaring freight rates, and off-season are not off-season, which have become market keywords. Data released by the Shanghai Shipping Exchange show that from the end of March 2024 to the present, the freight rate of Shanghai Port to the basic port market in South America has increased by 95.88%, and the freight rate of Shanghai Port to the basic port market in Europe has increased by 43.88%.
Industry insiders analyzed that the improvement of demand in the European and American markets and the prolongation of the Red Sea conflict are the main reasons for the current increase in freight rates. With the arrival of the traditional peak shipping season, container transportation prices may continue to rise in the future.
European freight rates rose by more than 20% in a week.
Since early April 2024, the Shanghai Export Container Comprehensive Freight Index released by the Shanghai Shipping Exchange has continued to rise. Data released on May 10 showed that the Shanghai Export Container Comprehensive Freight Index was 2305.79 points, up 18.8% from the previous week, up 33.21% from 1730.98 points on March 29, and up 132.16% from November 2023 before the Red Sea crisis broke out.
Among them, the South American and European routes had the highest increase. The freight rate (sea freight and sea freight surcharge) from Shanghai Port to the South American basic port market was US$5,461/TEU (20-foot container, also known as standard container), up 18.1% from the previous period and 95.88% from the end of March. The freight rate (sea freight and sea freight surcharge) from Shanghai Port to the European basic port market is US$2,869/TEU, a sharp increase of 24.7% from the previous week, 43.88% from the end of March, and 305.8% from November 2023.
The person in charge of the shipping business of Yunquna Logistics Technology Group (hereinafter referred to as “Yunquna”), a global digital logistics service provider, said in an interview with reporters that since late April this year, it can be felt that the freight rates to Latin America, Europe, North America, the Middle East, India and Pakistan have risen, and the increase in May is more obvious.
The data released by Drewry, a shipping research and consulting agency on May 10 also showed that the Drewry World Container Index (WCI) rose to US$3,159/FEU (40-foot container) this week (as of May 9), an increase of 81% compared with the same period in 2022, and 122% higher than the average level of US$1,420/FEU before the epidemic in 2019.
Recently, several shipping companies including Mediterranean Shipping Company (MSC), Maersk, CMA CGM and Hapag-Lloyd announced price increases. Taking CMA CGM as an example, at the end of April, CMA CGM announced that from May 15, the new FAK (Freight All Kinds, unified freight rate) standards for the Asia-Northern Europe route will be adjusted to US$2,700/TEU and US$5,000/FEU, an increase of US$500/TEU and US$1,000/FEU respectively; On May 10, CMA CGM announced that from June 1, the FAK rate for goods shipped from Asia to Northern European ports will be increased to US$6,000/FEU, an increase of US$1,000/FEU again.
Ke Wensheng, CEO of global shipping giant Maersk, said in a recent conference call that Maersk’s cargo volume on European routes has increased by 9%, mainly due to the strong demand of European importers to replenish inventory. However, the problem of tight space has also followed, and many shippers have to pay higher freight rates to avoid cargo delays.
While shipping prices are rising, China-Europe train prices are also rising. A freight forwarder responsible for China-Europe trains told reporters that the current demand for China-Europe train freight has increased significantly, and the freight rates of some routes have risen by 200-300 US dollars, and it is likely to continue to rise in the future. “The rise in shipping prices, the space and time efficiency cannot meet customer needs, resulting in some goods being transferred to railway shipments, and the railway transportation volume is limited. The demand for space will increase sharply in the short term, which will definitely affect the freight rates.”
The container shortage problem reappears.
“Whether it is shipping or railway, there is a shortage of containers. Some regions have already encountered the situation of not being able to order containers. The cost of renting containers in the market is greater than the increase in freight rates.” A container industry insider in Guangdong revealed to reporters.
He gave an example that the cost of using a 40HQ (40-foot high container) on the China-Europe route was 500-600 US dollars last year, and it rose to 1,000-1,200 US dollars in January this year. Now it has risen to more than 1,500 US dollars, and in some regions it has exceeded 2,000 US dollars.
A freight forwarder at Shanghai Port also told reporters that some foreign container yards are now full, and there is a serious shortage of containers in China. The price of picking up containers in Shanghai and returning empty containers in Duisburg, Germany, has risen from US$1,450 in March to the current US$1,900.
The person in charge of the above-mentioned Yunquna shipping business said that an important reason for the sharp increase in container rental fees is that due to the conflict in the Red Sea, a large number of shipowners detoured to the Cape of Good Hope, resulting in a container turnover of at least 2-3 weeks longer than the usual time, resulting in slower liquidity of empty containers.
The global shipping market dynamics (early May to mid-May) released by Deutsche Post Logistics on May 9 pointed out that after the “May 1” holiday, the overall tight supply of containers has not improved significantly.
Major shipping companies have varying degrees of shortage of containers at major ports of origin, especially large and high containers. Some shipping companies continue to strengthen the control of containers on Latin American routes. By the end of June, new containers made in China had been booked out.
In 2021, affected by the COVID-19 pandemic, the foreign trade market “first suppressed and then rose”, and a series of unexpected extreme conditions appeared in the international logistics chain. The containers scattered around the world are not flowing back smoothly, the global distribution of containers is seriously unbalanced, a large number of empty containers are backlogged in the United States, Europe, Australia and other places, and my country’s export containers are in short supply.
Therefore, container companies are full of orders and full production capacity. It was not until the end of 2021 that the shortage of containers was gradually alleviated.
With the increase in container supply and the recovery of operating efficiency in the global shipping market, there was an excessive backlog of empty containers in the domestic market from 2022 to 2023, until a shortage of containers occurred again this year.
Freight rates may continue to rise.
Regarding the reasons for the recent sharp increase in freight rates, the person in charge of the above-mentioned shipping business of Yunquna analyzed to reporters that, first, the United States has basically ended the destocking stage and entered the inventory replenishment stage, and the volume level of trans-Pacific routes has gradually recovered, driving up freight rates. Second, in order to avoid possible tariff adjustments by the United States, companies going to the US market, including the automobile manufacturing industry and infrastructure industry, have transferred their production lines to Latin America through the Latin American market, resulting in a concentrated outbreak of demand for Latin American routes. Many shipping companies have added routes to Mexico to meet the growth in demand. Third, the situation in the Red Sea has caused a shortage of resources on European routes, and European freight rates are also rising from space to empty containers. Fourth, the peak season of traditional international trade has come earlier than in previous years. Usually, the overseas summer sales peak season begins in June each year, and freight rates will rise accordingly. This year’s freight rate increase is one month earlier than in previous years, which means that this year’s sales peak season has arrived earlier.
On May 11, Zhejiang Securities released a research report titled “How to view the recent counterintuitive surge in container shipping prices?” stating that the long-term conflict in the Red Sea has led to supply chain tensions. On the one hand, the detour of ships has led to an increase in shipping distances. On the other hand, the decline in ship turnover efficiency has led to tight container turnover at ports, further exacerbating supply chain tensions. In addition, the demand side is marginally improving, and the macroeconomic data in Europe and the United States have improved marginally. Coupled with the expectation of rising peak season freight rates, cargo owners are preparing in advance. Moreover, the US line has entered a critical period for long-term contract signing, and shipping companies have the motivation to raise prices.
At the same time, the research report believes that the high concentration of the container shipping industry and the industry alliance have formed a driving force for price support. Zhejiang Securities said that foreign trade container liner companies have a high degree of concentration. As of May 10, 2024, the top ten container liner companies accounted for 84.2% of the capacity. In addition, the companies formed industry alliances and cooperation. On the one hand, it will help to slow down vicious price competition by stopping sailing to control capacity in the context of a deteriorating supply and demand environment. On the other hand, it is expected to achieve higher freight rates through joint price support in the context of improved supply and demand relations.
Since November 2023, the Houthi armed forces in Yemen have repeatedly attacked ships in the Red Sea and nearby waters. Many global shipping giants have been forced to suspend their container ships from sailing in the Red Sea and its adjacent waters and diverted around the Cape of Good Hope in Africa. This year, the situation in the Red Sea is still escalating, and the main arteries of shipping are blocked, especially the Asia-Europe supply chain, which has been greatly affected.
Regarding the future trend of the container shipping market, Deutsche Post said that in view of the current situation, freight rates will remain strong in the near future, and shipping companies are already planning a new round of freight rate increases.
“Container freight rates will continue to rise in the future. First, the traditional overseas sales peak season is still continuing, and Europe will host the Olympic Games in July this year, both of which may push up freight rates. Second, inventory reduction in Europe and the United States has basically ended, and the United States is also constantly raising its expectations for the development of the country’s retail formats. With the increase in demand and the tight shipping capacity, it is expected that freight rates will continue to rise in the short term.” said the above-mentioned freight forwarding practitioner.
