Recently, global container shipping prices have been adjusted and freight rates on some routes have declined to some extent. According to the FBX index released by the Baltic Shipping Exchange, on May 26, the average FBX container shipping price was US$7,846, which was 29.5% lower than the historical high in September last year. Among them, the China/Far East-North America West Coast shipping rate fell 45.9% from the highest rate level last year, the China/Far East-North America East Coast shipping rate fell 34.3% and the China/Far East-North Europe shipping rate fell 29.7%. Have previously high ocean freight prices fallen across the board? What does the future hold? How should the companies concerned respond?

Supply and demand adjustment has prompted a correction in freight rates

At present, the global container shipping prices compared with the same period last year still increased by nearly 50%, still at a historically high level. There are three main reasons for this.

Let's look at the rhythm of demand first. After the outbreak of the new crown pneumonia, global container shipping demand was rapidly suppressed, but wait until the first phase of the epidemic after the past, there is a strong demand for inventory replenishment in various countries, coupled with the traditional peak season of container shipping, as well as the United States and other regions of the fiscal subsidies, to promote the concentration of container shipping demand outbreak, the United States line freight rates were the first to rebound sharply, and then the world's major container shipping routes began to rise sharply.

In addition, due to the relative integrity of China's manufacturing industry chain and the relatively effective control of the epidemic, the global manufacturing industry further concentrated on China. In this case, more capacity was needed on the China-Europe route, and more containers were transported from China to Europe and the United States and other parts of the world. However, the first quarter is supposed to be the traditional low season for container shipping, and a brief adjustment in market demand prompted a pullback in freight rates.

Then look at the effective supply. Container shipping is more standardized, the volume of goods, logistics chain is long, more vulnerable to the impact of the epidemic. Before the outbreak of the epidemic, the container shipping market had a relative surplus of capacity, and after the epidemic, the effective supply of capacity was insufficient due to the decline in ship turnover.

Currently, with seasonal off-season shipments adjusting, as well as demurrage and other measures to ease port congestion beginning to take effect, some port ship congestion has begun to show improvement, and with the placement of new build boxes and shipping companies' efforts, the container shortage problem has been significantly alleviated. Therefore, the increase in effective supply levels is also an important reason for the push back in freight rates.

Finally, look at the market structure. The container shipping market is a highly concentrated market, with the top ten liner companies having a market share of over 80%. The high concentration of the container shipping market makes the current round of market peaks present certain peculiarities: firstly, at the beginning of the epidemic, when there was a sharp decline in the demand of the container shipping market, the idle level of container vessels was at the highest level in history leading to higher container freight rates than the level in the same period in 2018 and 2019; secondly, there was a large difference in prices between actual carriers and actual shippers. For example, according to the FBX (mainly shipper quotes), the Far East - North America route freight prices fell about 45%, but the SCFI (mainly shipping company quotes) released by the Shanghai Shipping Exchange on May 20 showed that the Shanghai - U.S. West route freight prices fell only 2.8% from the highest point.

Short-term freight prices will still run high

Next, container shipping prices will rise or fall?

According to the current performance of the container shipping market, when the demand concentration release and effective supply shortage appear one moment, the market freight prices will remain high; when both appear at the same time, the market freight prices may appear to rise sharply.

Looking at the current pace of demand. Although the global adaptation and control of the epidemic continues to increase, the epidemic will still be repeated, demand will still show intermittent collection and release, domestic exports are still relatively strong, but the rhythm of demand impact has entered the second half of the process.

Looking at effective supply development. The global logistics supply chain capacity is recovering, and the ship turnover rate, etc. is improving. According to the Shanghai International Shipping Research Centre's China Shipping Sentiment Survey, 65% of container liner companies believe that the ship turnover rate will further improve in the second quarter. Therefore, if there are no other sudden factors, the container shipping market should be difficult to appear large-scale rise. Coupled with the rapid growth of ship orders in the past two years, the effective capacity of ships is gradually released, and there is a greater challenge for high freight rates in the future market.

In the first half of this year, the container shipping market concentration is high, ship rent, fuel costs and crew wages, etc. significantly increased, shipping company operating costs than in previous years, a significant increase. In addition, the ship operating rate in the past two years continued to be at a high level, there is a lot of ship overhaul and other aspects of demand, shipping companies in the stabilization of freight and a large operating space, container shipping prices are more difficult to appear a substantial adjustment. At the same time, although the repeated epidemic and Russia-Ukraine conflict and other reasons, northern Europe and related routes downward pressure, but the container shipping prices are less likely to drop sharply.

With the control of this round of the epidemic, as well as the early arrival of the peak season of shipping, the rhythm of demand and effective supply still exist stage risk, and in the current supply and demand balance is still relatively fragile situation, the market price of freight is likely to rebound. Therefore, market freight rates will remain high in the short term.