When will the skyrocketing global sea freight rate usher in a turnaround?

When will the skyrocketing global sea freight rate usher in a turnaround?

01 Jun 2022 / View: 83

China News Agency, Beijing, January 15 (Pang Wuji, Liu Wenwen) For a long time, shipping has been an important part of the international trade and transportation market with its low prices.

However, since the outbreak of the epidemic, global shipping costs have started a crazy price increase model. In just one year, shipping costs have skyrocketed 10 times.Why are shipping costs soaring? What kind of crisis is the global supply chain in? How long will this situation continue? Jens Eskelund, President of Maersk (China) Co., Ltd., a global container shipping and logistics giant, accepted an exclusive interview with China News Agency to analyze and answer these questions.

In recent months, tens of thousands of containers full of imported goods have been stranded at U.S. ports, and a large number of ships have lined up beside the port, waiting for weeks.

Freightos, a logistics platform, showed that the cost of shipping a 40-foot container from China to the U.S. West Coast hit $20,000 in August last year and fell back to $14,600 as of Jan. 14. Although lower than the summer peak, it is still more than 10 times the pre-pandemic level.

Poor shipping has exposed deep-seated problems in the supply chain.

Yan Ci believes that the blockage of the global supply chain and the imbalance between supply and demand in the market are the direct reasons for the rise in freight rates. In addition, factors such as reduced terminal efficiency of ships, sharp rise in ship and container leasing costs, and increased costs associated with providing customers with alternative supply chain solutions have also contributed to the rise in freight rates.

However, he pointed out that the freight rates mentioned here are all spot freight rates (short-term freight rates within three months), and Maersk currently arranges transportation for most (over 64%) of its cargo volumes based on signed long-term contracts, "We The freight rates agreed with customers remain stable during the contract period and are not affected by large market fluctuations.”

Yan Ci said that, in fact, the poor supply chain has now largely become an inland transportation bottleneck.

He pointed out that the port turnover efficiency has been reduced, resulting in slow container entry and exit and vessel delays. The efficiency of the port is dragged down by factors such as labor shortage, insufficient collection trucks, and insufficient storage space.

Nowadays, many ports have extremely high storage yard density. When trucks arrive, they can only "dig out" a container to load them. How low the efficiency can be imagined.

He said that the worst cases are in Los Angeles and Seattle on the west coast of the United States. The waiting time is as long as 4 weeks, coupled with the shorter delays in northern European and Asian ports, so that the originally designed 12-week loop will take 13 or even 14 weeks to complete. round trip.

Yan Ci said that in stark contrast to the phenomenon of congestion and empty containers in overseas ports, China's ports are operating smoothly and orderly.

In Yanci's view, China's ports operate with extremely high efficiency. They not only widely apply new technologies, but also attach importance to strengthening cooperation with all parties in the port ecosystem. Because of this, after the outbreak of the epidemic, the focus of global trade is China, and even with the sharp increase in cargo volume, Chinese ports can still maintain order.

"It can be said that China has a world-class port system."

Analysis believes that, on the one hand, China has effectively controlled the epidemic in a timely manner, and the speed of resumption of work and production has exceeded expectations. In the global industrial chain, China's manufacturing industry plays an important role. On the other hand, with the recovery of the global economy, the demand for Asian products in Europe and the United States has surged, and the demand for import replenishment is strong, so a large number of goods flow from China to overseas, supporting the continuous growth of trade volume.

Sea freight continues to soar, when will the turnaround come?

Yan Ci believes that the pressure on the supply chain is unlikely to improve significantly in the first quarter of this year, and this situation may continue after the Chinese New Year. Even, in North America, it is likely to last longer.

"The key to unblocking maritime trade arteries and unblocking the international supply chain is to establish supply chain flexibility and reduce volatility." He said that the current supply chain is not strong enough to withstand the disruption of the epidemic. The international trade system urgently needs an intuitive and transparent digital supply chain. On the one hand, scientific planning and system optimization are required, and on the other hand, a buffer zone needs to be created to cope with any uncertainties.

Yan Ci believes that another factor that causes the current shortage of containers, lack of cargo space, and rising freight costs is structural problems.

Carriers such as shipping companies pay too much attention to cost management and focus on short-term freight rate optimization. This has also prompted a speculative cooperation model between shipping companies and cargo owners, putting freight rates under great downward pressure and reducing the flexibility and resilience of the supply chain. Once faced with a "black swan" event like the new crown epidemic, there is not much room for buffering.

Yanci expressed the hope that all parties can learn from it, and hope to reduce the fluctuation of freight rates and achieve more stable income. The volatile market makes it difficult for companies to make long-term investment decisions and planning.

"Although this requires a certain price, it will bring huge long-term benefits to foreign trade companies." He said

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