Soaring freight rates put pressure on exports in the second half of the year
"Although soaring freight rates have put some pressure on exports, the acceleration of the resumption of work and production at domestic ports, the effective control of the epidemic, and the recovery of capital expenditures and rapid increase in production of shipping companies will help increase my country's shipping capacity in the future."
Recently, global commodity prices have remained high, especially various inflation indicators in major trading countries have increased. The surge in shipping prices has attracted great attention and is regarded as the main driving force for the expansion of imported inflation and rising commodity prices. More than two-thirds of the total international trade volume and about 90% of China's total import and export freight volume are transported by sea. Changes in sea transport prices directly affect export supply capacity and import bargaining power. Since the global epidemic was controlled, trade resumed, and freight rates rose in the second quarter of last year, shipping prices have been judged to have reached a high point, and now shipping prices continue to "break records."
Dry bulk and container freight rates hit record highs
According to the type of transported goods, maritime transportation is divided into dry bulk transportation (coal, grain, iron ore, steel, etc.), oil transportation (crude oil, refined oil, etc.) and container transportation (manufactured goods and consumer goods). Among them, container shipping trade volume has the fastest growth rate, the growth is resilient, and the increase in freight rates is also the most representative of shipping.
On June 28, the Baltic Dry Index (BDI) reported 3,324 points, setting a new high since April 2010, with an increase of 728% over the same period. Crude oil freight prices have stopped falling and rebounded since the fourth quarter of 2020, and the crude oil transportation index (BDTI) has shown a recovery trend this year. On June 25, the Shanghai Shipping Exchange announced the latest Shanghai Export Container Index (SCFI) of 3785.4 points, a record high, an increase of 37 points or 0.99% from the previous week, and an increase of 278% from the same period last year. The China Export Container Index (CCFI) recorded 2591.41 points, which also broke the historical record. It increased by 64.76 points or 2.56% compared with the previous week and increased by 208% compared with the same period last year. In terms of actual freight rates, international shipping data in late June showed that using 20-foot standard containers as the calculation standard, the freight rates for routes from Shanghai to Europe and the United States increased 10 times compared to the same period last year, but it is still difficult to find a cabin.
Mismatch between supply and demand and insufficient transportation capacity
Global demand is picking up, and external demand from Europe and the United States has rebounded sharply. Since May 2020, countries have gradually shaken off epidemic restrictions and restarted trade, and the global economy has begun to recover. Among them, the epidemic prevention and control capabilities of major economies such as the United States and Europe continue to improve, and vaccination rates have increased. It is expected that vaccination in Europe and the United States will reach the level of herd immunity in the fourth quarter of this year. External demand from Europe and the United States continues to increase, and dependence on traditional commodities during the epidemic still plays a marginal role. The increase in fiscal stimulus subsidies in the United States has reduced workers' willingness to work. The employment rate in the United States and other places is still lower than expected. The domestic supply and demand gap still exists, and the mismatch between supply and demand still supports overseas demand. Since May 2020, the manufacturing PMI index, which reflects the global trade boom, has rebounded sharply from a low of 42.4 to 56.0. The U.S. manufacturing PMI index rebounded sharply from a low of 43.1 to 61.2, the Eurozone manufacturing PMI index rebounded sharply from a low of 39.4 to 63.1, and the Japanese manufacturing PMI index rebounded sharply from a low of 38.4 to a peak of 53.6.
Insufficient shipping capacity has contributed to rising freight rates. Since June 2020, the year-on-year growth rate of global container shipping capacity has only increased slightly from 2.6% to 4%, which does not match the degree of demand expansion. The shortage of shipping capacity is mainly caused by four factors: First, the shortage of shipping capacity, transportation equipment and containers are in short supply. Currently, the shipping ships are operating at full capacity, and the supply of new shipping ships is seriously insufficient. The blockage of the Suez Canal at the end of March resulted in a prolonged ship turnover cycle and the inability of containers to arrive and return to the port on time. There was a situation where it was "hard to find a container". Second, the COVID-19 epidemic has led to the loss of seafarers and high labor costs for enterprises. The global epidemic and virus mutations have increased the risk factor of seafarers' work and significantly reduced their willingness to work. Currently, the global seafarer shortage has exceeded 135,000, and there is a serious shortage of seafarer supply. 240,000 of the world's 1.6 million seafarers are from India. Since March 2021, the intensified rebound of the epidemic in India has led to a sharp decline in seafarers in Southeast Asian ports. Under the influence of wage rigidity, companies face the dilemma of high labor costs and labor shortages, which reduces their willingness to accept orders. Third, the trend of international oil prices rising sharply has increased shipping costs. Fuel costs generally account for more than 30% of the operating costs of container shipping companies. Since May 2020, oil prices have increased by more than 270%. Brent and WTI oil prices have now exceeded US$70/barrel, with the monthly average price reaching a new high in nearly 32 months, rising for five consecutive weeks. Fourth, port congestion and shutdowns constrain export supply capabilities. Since March this year, constant port congestion has become an important issue plaguing global shipping. Data shows that as of June 25, 101 ports around the world have reported congestion and other disruptions, with 304 ships waiting for berths in front of ports around the world.
Soaring freight rates will create headwinds for exports
The continued soaring freight rates may pose certain resistance to my country's exports in the second half of the year. The recovery of shipping capacity is cyclical. The increase in global container supply, the improvement of seafarers' employment willingness, and the recovery of facilities and employment after port shutdowns cannot be achieved overnight. According to historical data, soaring freight rates will exert a drag on export growth. First, it increases the costs of export enterprises and weakens the supply level of export commodities. On the basis of high shipping prices, rising raw material prices coupled with RMB appreciation, multiple cost pressures have squeezed the profits of export companies, thereby weakening the level of export supply. The second is to weaken the bargaining power of midstream and downstream export enterprises and reduce the competitiveness of export commodities. Rising freight costs not only increase export costs but also increase import prices, passing on the higher transportation costs to consumers. This reduces the international trade competitiveness of their products for small and medium-sized export companies that are in the middle and lower reaches of the value chain and are responsible for low-end processing and assembly links. Third, oil prices have been at a high level in a short period of time, which has increased costs and expenses. As the epidemic in the United States and Europe gradually comes under control, demand recovers. On the supply side, OPEC+ decides to continue to maintain a high implementation rate of production cuts, and U.S. shale oil companies are unwilling to increase capital expenditures. Global oil prices are still on an upward path, pushing up the costs of export companies. expenditure. Fourth, it will take time to restore shipping capacity and supply capacity after port dredging. In the past 10 years, the growth center of global container shipping capacity has declined sharply. The delivery cycle of new ships generally takes two years, the recruitment and training cycle of seafarers and port workers requires at least one year, and it takes three months to dredge channels and restore warehousing after port shutdowns. . Therefore, it is difficult to increase shipping capacity to meet export demand in a short period of time.
Many of our customers have made prepayments before the increase in sea freight prices to purchase flatbed semi-trailers, low-bed semi-trailers and dump semi-trailers, which at the same time saves customers a lot of money.