Since 2020, affected by the growth of overseas demand, the decline of ship turnover rate, port congestion, logistics and other factors, the international container sea freight has been soaring, and the market has become “unbalanced”. Since the beginning of this year, the international container sea freight since the high shock and some correction. Data from Shanghai Shipping Exchange showed that on November 18, 2022, the Shanghai export container freight index closed at 1306.84 points, continuing the downward trend since the third quarter. In the third quarter, as the traditional peak season of global container shipping trade, shipping freight rates did not show high growth, but showed a sharp decline. What are the reasons behind this, and how do you see future market trends?

Falling demand affects expectations
At present, the GDP growth of the world’s major economies has slowed down significantly, and the US dollar has raised interest rates rapidly, causing the tightening of global monetary liquidity. Combined with the impact of the COVID-19 pandemic and high inflation, external demand growth has been sluggish and even started to shrink. At the same time, challenges to domestic economic growth have increased. Growing expectations of a global recession are putting pressure on global trade and consumer demand.
From the perspective of product structure, since 2020, the epidemic prevention materials represented by textiles, drugs and medical equipment and the “home economy” represented by furniture, home appliances, electronic products and entertainment facilities have witnessed rapid consumption growth. Coupled with the characteristics of the “home economy” consumer goods, such as low value, large volume and large container volume, the growth rate of container exports has reached a new stage high.
Due to changes in the external environment, the export of quarantine supplies and “home economy” products has decreased since 2022. Since July, the growth trend of container export value and export volume has even reversed.
From the perspective of the inventory in Europe and the United States, the world’s major buyers, retailers and manufacturers have experienced a process from short supply, global scramble for goods, goods on the way to high inventory in just over two years. In the United States, for example, some large retailers such as Wal-Mart, Best Buy and Target have severe inventory problems, especially in TVS, kitchen appliances, furniture and clothing. “High inventory, difficult to sell” has become a common problem for retailers in Europe and the US, and this change is dampening the import incentive for buyers, retailers and manufacturers.
In terms of exports, from 2020 to 2021, affected by the global spread of the epidemic and China’s targeted and effective prevention and control, China’s exports have provided an important support for the economic recovery of all countries. China’s share of the global total exports of goods increased from 13% in 2019 to 15% by the end of 2021. Since 2022, the previously contracted capacity in the United States, Germany, Japan, South Korea and Southeast Asia has recovered rapidly. Coupled with the impact of the “decoupling” of some industries, the share of China’s export commodities has begun to decline, which also indirectly affects the growth of China’s container export trade demand.

Effective capacity is being released while demand is weakening, seaborne supply is increasing.
As the leader of the continuous high freight rate of global container shipping, the Far East-America route is also an important “blocking point” of the global container shipping route. Due to surging U.S. demand from 2020 to 2021, delayed port infrastructure upgrades and a lack of suitable ship sizes, U.S. ports have experienced severe congestion.
For example, container ships in the Port of Los Angeles once spent an average of more than 10 days berthing, and some even queued for more than 30 days alone. At the same time, the soaring freight rates and strong demand attracted a large number of ships and boxes from other routes to this route, which also indirectly intensified the supply and demand tension of other routes, once causing the imbalance of “one container is difficult to obtain” and “one cabin is difficult to obtain”.
As demand has slowed and port responses have become more deliberate, scientific and orderly, congestion at overseas ports has improved significantly. Global container routes have gradually returned to the original layout, and a large number of overseas empty containers have returned, making it difficult to return to the former phenomenon of “one container is difficult to find” and “one container is difficult to find”.
With the improvement of the imbalance between supply and demand on major routes, the ship punctuality rate of the world’s major liner companies has also begun to gradually rise, and the effective shipping capacity of ships has been continuously released. From March to June 2022, the major liner companies controlled about 10 percent of their capacity idle due to the rapid decline in the load ratio of the major lines, but did not stop the continuous decline in freight rates.
At the same time, the competitive strategies of shipping enterprises also began to diverge. Some enterprises began to strengthen onshore infrastructure investment, acquisition of some customs brokers and logistics companies, accelerate digital reform; Some enterprises are strengthening the transformation of new energy vessels, exploring new energy vessels powered by LNG fuel, methanol and electric power. Some companies also continued to increase orders for new ships.
Affected by the recent structural changes in the market, the lack of confidence continues to spread, and the global container liner freight rate has been declining rapidly, and the spot market has even fallen by more than 80% at its peak relative to the peak. Carriers, freight forwarders and owners of freight for the game of increasing strength. The carrier’s relatively strong position is beginning to compress forwarders’ profit margins. At the same time, the spot price and long-haul tie-in price of some main routes are inverted. Some enterprises have proposed to seek to renegotiate the long-haul tie-in price, which may even lead to some breach of transport contract. However, as a market-oriented agreement, it is not easy to modify the agreement, and even faces huge risk of compensation.

What about future price trends
From the current situation, the future container sea freight drop or narrow.
From the perspective of demand, due to the tightening of global monetary liquidity caused by the acceleration of US dollar interest rate hike, the decline of consumer demand and expenditure caused by high inflation in Europe and the United States, high commodity inventory and the reduction of import demand in Europe and the United States and other adverse factors, the demand for container transportation may continue to be depressed. However, the recent bottoming out of the U.S. consumer Information index and the recovery of Chinese exports such as small household appliances may narrow the decline in demand.
From the perspective of supply, the congestion of overseas ports will be further eased, the turnover efficiency of ships is expected to be further improved, and the delivery speed of shipping capacity in the fourth quarter may be accelerated, so the market is faced with great oversupply pressure.
However, at present, major liner companies have begun to brew a new round of suspension measures, and the growth of effective capacity in the market is relatively controllable. At the same time, the Russia-Ukraine conflict and the rise in global energy prices have also brought many uncertainties to the future market trend. Overall judgment, the fourth quarter container industry is still in the “ebb tide” stage, upward expectations are still lack of strong support, shipping freight overall downward pressure, the decline or narrow.
From the perspective of shipping companies, it is necessary to make adequate preparations for the impact of “ebb tide” in the container industry. Ship investment can be more cautious, better grasp the current ship value and market freight cyclical impact, choose better investment opportunities; We should pay attention to the new changes in the RCEP agreement, regional trade, express shipping and the cold chain to get closer to cargo owners and enhance our end-to-end integrated supply chain service capabilities and competitive advantages. Conform to the current trend of port resources integration, strengthen integrated development with ports, and promote the coordinated development of primary and secondary branches. At the same time, increase the digital transformation and upgrading of business and improve the platform management ability.
From the perspective of shippers, we should pay close attention to the changes of overseas consumption structure and strive for more export orders. We will properly control the rising costs of raw materials, effectively control the inventory costs of finished products, promote the upgrading of export products and technological innovation, and increase the added value of goods exported. Pay close attention to the national policy support for promoting foreign trade and integrate into the development mode of cross-border e-commerce.
From the perspective of freight forwarder, it is necessary to control the capital cost, improve the whole logistics service ability, and prevent the supply chain crisis that may be caused by the rupture of the capital chain.