Recently, the continuous skyrocketing of container shipping prices on China-US routes has been the focus of attention. The container freight from Shanghai to the base port on the West Coast of the US reached the highest level in eight years, which was double the rate at the beginning of this year.
According to data from the Shanghai Shipping Exchange, as of September 11 2020, the Shanghai export container freight index for the US West Coast route was reported at 3,813 US dollars. Compared with the freight rate a week ago, each container price has increased by 55 US dollars, even doubled the rate at the beginning of the year. The US East Coast route freight index is 4,534 US dollars, an increase of about 77% compared with the beginning of the year.
On September 16 2020, local time in the US, the Federal Maritime Commission (FMC) held a closed-door meeting to focus on the recent surge in freight rates across the Pacific and investigate possible violations of competition laws by liner companies. After the meeting, FMC stated in an announcement that if there is evidence to prove the liner companies’ violation of the Shipping Law, FMC will immediately seek to resolve these issues.
Meanwhile, the Ministry of Transport of China also invited 14 liner companies operating trans-Pacific routes to hold consultation meetings with the purpose of stabilizing the international container shipping market. According to the executives attending the meeting, the Ministry of Transport mainly inquired about the suspension arrangement mechanism between July and October, and the current rapid increase in the freight rate of trans-Pacific routes, and put forward improvement requirements regarding the freight rate recording regulation.
All of the above illustrates a problem, i.e., the container freight rates for China’s exports to the US are rising all the way, which is really incomprehensible. The following article will list 4 major reasons.
1.Effective measures taken by shipping companiesto reduce supply of container space from China to USA
After the outbreak of the epidemic, the shipping company adopted a strategy of controlling availability to ensure that the ocean freight price did not fall sharply, which seemed very successful. When the shipping company realized that the cargo volume would shrink significantly, it controlled the amount of space available on the market. This is equivalent to the supply-side reform of shipping companies. Greatly protect the profit margin of the shipping company.
2.The outbreak of alternative needs after the outbreak
After the outbreak, the demand for masks and other anti-epidemic materials in the US market has increased significantly. As a result, the resources of anti-epidemic materials made in China are continuously sent to the US, which increases the demand for container capacity to a certain extent. In addition, with the in-depth development of the epidemic, quarantine measures have been continuously strengthened, and people’s social activities have been forcibly compressed, and many people can only be restricted to homes. Therefore, the demand for online shopping has increased. For example, after the outbreak, the US demand for children’s toys and other products has increased a lot. These will also be reflected in the demand for container transportation. Significant increase in demand, coupled with the shipping company’s supply control, can only result in increased prices.
3.The US distribution of coronavirus stimulus money
After the outbreak of the epidemic, the Trump administration has repeatedly issued money directly to the American people. The money was not saved but used for shopping. In this way, a large part of the printed and issued dollar bills have become shopping expenditure. So where are the purchased items produced? Of course, most of them are MADE IN CHINA. Therefore, the China export logistics demand has pushed up the freight rate.
4.The Chinese government’s strong epidemic prevention and control measures ensure the strong capabilities of Made-in-China
The Chinese government is simply unique in terms of epidemic prevention and control. In just one to two months after the Spring Festival, many factories have fully resumed production. These have effectively ensured the output of products made in China. All these have actually made great contributions to the fight against the epidemic worldwide. It also objectively benefits the shipping companies.
Through more than half a year of observation and practical work experience, we can see that the foreign trade industry presents two very different situations. On the one hand, the foreign trade of semi-finished products is in a downturn. For example, raw materials such as textile fabrics are nowhere to be used. After the outbreak, factories in many places outside China were paralyzed. The demand for these raw materials is very low.
But on the other hand, foreign trade companies that deal with toys, pet products, and personal hygiene products are indescribably busy and earn a lot of money.These are situations that were unimaginable before the epidemic.
The conclusion that this freight price cannot be maintained in the long run. But a fall back in the short term is impossible. At present, the above factors will continue to affect the price of container freight on China-US routes, although the Chinese and US governments have already noticed this problem. I expect this price will continue to run at a high level. Obviously, it will take a long time for the shipping company to completely abandon the space control measures. Coupled with the approaching Christmas season, the volume of Chinese exports to the US will continue to be strong. So we can only wait for a while. If the covid-19 epidemic can be controlled as soon as possible in the world within 2020 and the world economy can get back on track, then by 2021, container freight rates on China-US routes will slowly return to a normal level.
This Post Has One Comment
Ubaldo Jimenez28 Jan 2021
I am surprised that no mention is giving to crew rotation problem and availability in your analizis.