As we all know, ocean shipping rates have been at a peak in 2021. According to statistics, China's sea freight has increased tenfold since the coronavirus. In the past two years, the reasons for the increase in sea freight rates can be traced back to three stages. Although the factors that lead to the rise of ocean shipping rates are different at each stage, the driving force behind it is the most basic change in supply and demand.
In the first stage, the ocean shipping rates increased from $2,000 to $4,000, from the second to the third quarter of 2020. The characteristic of this stage is that there are not enough ships for shipping companies. The mode of major shipping companies is container transportation. Due to the sluggish shipping market since 2019 and the decline in shipping demand due to the coronavirus, shipping companies have begun to reduce shipping capacity. After the coronavirus in China was brought under control, ocean shipping rates skyrocketed. Shipping companies want to increase their capacity, but it is difficult for supply to catch up with demand.
In the second stage, the ocean shipping rates increased from $4,000 to $8,000, from the fourth quarter of 2020 to the first quarter of 2021. The characteristics of this stage are "out of the container" and "order return". Although the supply and demand situation for ocean shipping gradually stabilized at the end of 2020, the global container ship vacancy rate fell from 12% in the first quarter of 2020 to 1.5% in October. But with the global outbreak of the coronavirus, China's exports have surged and imports have decreased. The price difference of round-trip freight for each route has expanded from 1.3-1.5 times to 3-5 times. According to data from the China Container Industry Association, at that time, China could only return 1 container for every 3 containers it went out. Although new containers have been put into use, at this stage, the rate of increase in production capacity has not kept pace with the rate of container consumption.
The third stage of rising ocean shipping rates is also the craziest. The price went from $8,000 to $20,000 from the first to the fourth quarter of 2021. This stage is characterized by the "port blockage" not seen in a century, and the frenzied buying state of consumers stimulated by European and American policies. Through May 2021, consumers are already spending 25% more on durable goods than they did in 2019, before the coronavirus, according to the U.S. Bureau of Economic Analysis. Due to a new round of epidemic peaks caused by the delta virus overseas at the end of 2020, most of the world's ports have fallen into labor shortages because of unmanned work. Even from ports, cabins, and trucking, there are severe congestion and delays. The decline in the operating efficiency of the terminal has led to longer waiting times for cargo ships, and the single-vessel turnovers have dropped significantly. By July and August 2021, hard to find container has evolved into hard to find cabin. Coupled with the speculation of scalpers, the sea freight in 2021 will skyrocket.
All in all, the shortage of supply and the decline in effective shipping capacity are the main reasons for the skyrocketing ocean freight rate. Some people in the shipping industry describe this phenomenon as the "structural prosperity" of the shipping industry and infer from this that once the periodical problems brought about by the epidemic are over, part of the demand will naturally "disappear". At that time, the shipping industry may face the challenge of excess capacity.
By the middle of 2022, and with the gradual cooling of the global coronavirus, the sky-high ocean shipping rates have finally loosened, approaching the level of the same period last year. The resumption of work and production in European and American industrial chains and the adjustment of economic policies in various countries have led to a decline in the total demand for global sea transportation. This year, taking the US-West freight rate as an example, it has dropped from about $13,000 at the beginning of the year to $7,000. The Shanghai export container freight index has also fallen from a high level, falling by more than 17% during the year. On June 24, the Shanghai Shipping Containerized Freight Index (SCFI) for the latest week released by Shanghai Shipping Exchange has shown signs of falling from a high level. The drop in ocean shipping rates indicates that the demand side of the shipping market is declining. In January, Li Xingqian, director of the Department of Foreign Trade of the Chinese Ministry of Commerce, said frankly that in 2022, "the foreign trade situation is very severe, and the difficulties and pressures of stabilizing growth are unprecedented." In the second half of the year, August to October is the peak period of shipments in the foreign trade market. The overall shipping market may be better than in the first half of the year, but the increase should not be very large.
Although for the shipping industry, in the case of falling sea freight rates, it is impossible to achieve the prosperous development of shipping in recent years. But for foreign trade enterprises, it is beneficial to reduce transportation costs and shorten transportation time. This facilitates the docking of goods with international customers and the handling of some crises. Again, this means for Eastar that it will be convenient to connect with our customers. Under the adjustment of market supply and demand and policies, it can not only shorten the cycle of product docking but also reduce transportation costs. If you want to know more about Eastar, please click here.