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The surprise of sudden drastically ocean rate dropped in early October, could it be the “turn point” ?

21 Oct 2021

By Arthur Chen 

If the port congestion along with heavy delay in transportation keep on, under the manipulated of carriers and scalpers, the space of supply won’t be meet the demand.

Just before the start of the seven-day long holiday on October 1st, China's National Day, China suddenly launched a nationwide industrial power rationing measure, causing Chinese factories suddenly be unable to produce goods. This created a chain reaction of freezing on the supply side, and no goods could be shipped. The freight forwarding master dealers (commonly known as scalpers) who keep a large number space that have soldi to co-loading market in anxious mind. A large number of previously bookings withdrawal, and the space that the scalpers had confirmed with the carriers suddenly became hot potatoes and had to be auctioned off to the real-time freight market. The price down, even drop the original freight rate to 50%. Their mentality is "losing less is winning."  In the sensitive market, such an action just like a large meteorite hit a peaceful lake, which aroused the public expectation for a wave of price cuts. In the first two weeks of October, there were constant inquiries about price cuts which lead all freight forwarders can't help but wonder if the wave of price cuts has really come? 

In fact, the price of shipping from China to the US has suddenly fallen sharply, mainly because of the approach of the traditional slow season in the fourth quarter, coupled with the sudden drop in China's manufacturing capacity, and the "speculative scalpers" are eager to sell their hoarded spaces. Although the real-time market freight rate dropped, the long-term freight rate provided by the carriers remained unchanged, and no price cut was actually announced. Freight scalpers have dumped space is the main reason for the sharp drop in ocean freight. The future level of ocean freight will still depend on the balance of supply and demand. According to the shipping lines booking records, starting from October, all capacity are fully loaded. The space has not been cancelled so as to no price  reduced.  And the ocean freight, which has been rising for 15 consecutive months, just declined at the beginning of October, but the real-time freight rate has rebounded from the 42nd week!  It seems that the big sale by the freight scalpers is only  for 40th and 41st weeks after the long holiday. If a customer has secured a reduced price in the past 2 weeks,  I really congratulate them as same as they won the lottery. In the past few days, the freight scalpers has adjusted rate in the rest days of October and they have returned to the level of September, but there may be a small room of bargaining. This also express that Chinese product supply chain does significantly turning down in October.

 

From the perspective of the upstream position of supply side, the shipping lines are stably anchoring in high price level. They are not worried on ocean freight might fall from the high-priced altar to the low-price abyss. They use their old script -- "Freight is determined by market supply and demand." However, what the shipping company did not explore is that the supply side of the capacity is controlled by the shipping lines ! Good example is, in October, the three major maritime alliances cancelled a total of 40 sailing schedules. Their excuse to do so due to the long holiday in China, the demand for shipping pace has decreased, plus the most vessels are still stuck in US ports waiting for unloading.  Therefore, the market will always balance in supply and demand, but end up in space supply will always be lower than the demand. People expect a wave of sharp price cuts to come out but it may probably has to wait until the end of 2022. If the congestion of American ports is not resolved and ships cannot operate normally, the “gray zone”  on supply side for shipping lines can definitely be manipulated. The "balance of supply and demand" seems to be an illusion.

According to the Nihon Keizai Shimbun, in the past four days, the freight rate for 40 foot containers from China to the West Coast of the United States has dropped from about US$15,000 to just over US$8,000, a drop of nearly half, while the shipping cost to the east coast has dropped from 20,000 usd to less than 15,000 U.S. dollars, a drop of more than a quarter. According to the Baltic Shipping Price Index (FBX) (including surcharges), the spot freight rate from Asia to the US West dropped to USD 13,025/FEU from last Friday which compared to FBX historical high of US$20,586/FEU has down 37%. Last Friday, the Asia-US East Coast freight rate shown by the FBX index was $19,392/FEU, a 13% drop from the record high of $22,289/FEU set on September 15. Basically, starting from mid-October, real-time shipping rates can be predicted to run back quickly towards the FBX index in September. This foretells all cargo owners that the big rate cuts in first two weeks of October are unique. If you got low rate space in these few days then it is your lucky money. Everyone should be mentally prepared that the high freight charges in November will return to your daily life. Accept it! Otherwise, reject it.  And pray to God that the shipping lines and freight scalpers will be merciful to release their hands from high rate.

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