High sea freight retreats recently, while container tightness remains

The resumption of work and production in China is rapid after the Spring Festival holiday, while supply of containers fails to chase up accordingly. The container circulation is slow worldwide now, especially in Europe and the United States, as the control of pandemic outside is not as good as that in China. Due to the pandemic, labor cost and logistics cost hike outside China and customs clearance efficiency has been substantially lowered. In addition, massive empty boxes were shipped to Europe and US amid the outbreak of COVID-19 in China, ending up with heavy port congestion. To satisfy booming export demand in China, many local shipping companies are aggressively trying to get boxes back to China faster and cut down sea freight.

Source: Shanghai Shipping Exchange

Sea freight skyrocketed amid the container tightness. The container freight rates from China to North America were near $1,000-2,000 in the past but soared to more than $10,000 to US by late-Jan, 2021, which was almost 10 times higher than the pre-pandemic level.

Source: Shanghai Shipping Exchange

Source: Shanghai Shipping Exchange

In fact, many Chinese enterprises witnessed surging export orders since the second half of 2020 but their profit was snatched by boosting sea freight. If orders were taken under CIF term, companies would see narrowing profit and might even suffer losses. If orders were concluded under FOB basis, jumping sea freight seemed to be unrelated with exporters, while some customers might require sellers to cut price or bear partial freight. That meant the profit of exporters would be eroded. If exporters refuse to afford freight, the delivery would be required to suspend. Once sea freight fell back, exporters would be heavily pressed by inventory and capital issue. In order to avoid default amid container tightness, some exporters were even forced to pay extra 1,000-2,000yuan/mt to scalpers to accelerate delivering.

Actually, government also released some intervention policies such as accelerating the production of containers, providing tax subsidies for small and medium-sized enterprises, optimizing the customs clearance process for empty containers and improving the circulation efficiency of empty box etc.

According to the data from Shanghai Shipping Exchange, recent sea freight has slightly retreated in China from the previous period, but the schedule remains tight. On Mar 12, in terms of European routes, the average utilization rate of seats at Shanghai port was at 90-95%. On Mediterranean routes, the shipping situation was slightly better than that in Europe. The average utilization rate of seats in W/C America Service and E/C America Service was near 100%. Taking the container freight rate of PET bottle chip as an example, Chinese mainland’s export price to Western Europe was $3,600-4,000/TEU recently and that to North America was near $4,100-4,400/TPU. It meant the freight rate per unit was at $160-220/tons, which has reduced compared with the peak in Q4 2020 but still doubled compared with the past years.

Source: Shanghai Shipping Exchange

Source: Shanghai Shipping Exchange

Port congestion and unsmooth circulation of containers do not show signs to alleviate much. The average utilization rate of seats is near 100% on European routes. Overall market is still in dilemma. All in all, based on the turnover rate of containers worldwide, the container tightness and high freight rates that’s accompanying it may extend into Jun 2021 and even afterward.