By Arthur Chen.      Photo：Felix Haumann

Even though the authorizations in various countries comprehensively investigate the high ocean freight, carriers have reason to keep high ocean freight in 2022.

There are several news worthy for everyone to note in the maritime market.

1. The container market shall be resumed until 2024. Freight rates will remain at high level this year ---

The latest report released by McKinsey shows that the normalization of the global container shipping market may be delayed to 2024, and the freight rate will remain at high level this year. Even if the market returns to normal, the ocean freight in 2024 may be still higher than before pandemic outbreak around 50%. Since mid-2020, due to the high demand consumption in the United States, coupled with the congestion in seaports, container shortages, the container market has been in a tight state. Combined with the soaring container freight rates, the revenue and profits of container shipping lines have shown historic growth in the past two years. Last year, the total revenue of the top ten shipping lines exceeded 100 billion US dollars, but the quality of customer service and sailings punctuality fell to the lowest level in more than a decade. Although carriers have been ordering a large number of new vessels in these two years to expand their capacity, the resume of the container shipping industry may take until after 2024.

Container freight rates will remain at high for most of the year, while disruptions to the logistics supply chain will continue. The most optimistic scenario is that the market may return to resume in the third quarter of 2022, but China has once again imposed lockdown due to the omicron virus outbreak in several cities, and ports in various countries are under pressure of congestion again. With over-heat logistic market and continued growth of demand in the U.S., both in purchases and consumption segments, the most optimistic forecasts shall be unlikely happen. The current critical container shipping market is likely to persist for longer, although inventories are currently at record highs. McKinsey predicts that freight rates in 2024 could be 50% higher than in 2019.

U.S. President Joe Biden recently announced that he is planning to impose pressure on major maritime alliances to ensure big ocean carriers don’t take advantage of U.S. businesses and consumers. But it is uncertain how it affect the solution to the container market. McKinsey analyzed and analyzed that the pandemic has caused a shortage of manpower in the market, both upstream and downstream logistics systems, and has also increased workers’ wages levels. This trend may attract new laborers to join, but potential labor disputes will also bring the shipping market in unpredictable effects. In addition, in upcoming May and June, U.S. West Coast port workers will renew their labor contracts. If the negotiation fails to satisfy the workers, the strike may on. There is a risk of supply chain disruptions that cause longer delays. 

2. The drop down in freight rate is a temporary situation ----

Flexport pointed out that the spot freight rates in Europe and North America have declined in recent weeks, especially after the Chinese New Year. In 2022, the average freight rate for the Asia-Europe route in January was US$15,000/FEU, and the freight rate as of April 1st had down 18%. Affected by geopolitical conflicts and the pandemic, freight rate may adjust in the next few weeks, but this is only a temporary phenomenon, not the beginning of a long-term adjustment. Spot freight rates on trans-Pacific routes have declined since peaking in early January this year. Compared with January, freight rates on the US Westbound route fell by 52% in March, and the US Eastbound route decreased by 50%. Since the Chinese Lunar New Year, due to the reduction in cargo volume and overflow of inventory, the freight rate in the past three months has dropped sharply. Although the spot freight rate from China to the West of the United States has dropped significantly, it is still significantly higher than the pre-pandemic level. Geopolitical conflicts and the impact of the pandemic will delay the recovery of the supply chain. At present, the operating efficiency of European ports is reduced, and ships delay are increasing. And rail services across the Eurasian continent have also been affected, with volumes having dropped significantly due to market uncertainty. The impact has pulled cargo to be diverted to sea and some to air. Due to the change of high-value goods to sea, the transportation of low-value goods has been greatly affected. In addition, rising oil prices will bring higher fuel prices, which in turn will increase the cost of shipping. The rising oil prices in the short term will have an impact on container lines. When freight costs rise, coupled with supply chain congestion and rising market demand, freight rates are bound to rise again. 

3. The ocean freight pricing survey began to be carried out globally ----

The U.S. Senate has passed the Ocean Shipping Reform Act, bringing the bill one step closer to implementation. The bill would give the authority, the Federal Maritime Commission, greater powers to hold container carriers accountable. However, this bill only affects the export freight rate and import port charges in the U.S.. Exports to the United States from global production sites are still regulated by each countries authorities. With major shipping lines reporting record, multi-billion-dollar profits while flight reliability remains at historic lows, an inquiry into shipping companies pricing is unfolding around the world. It was reported earlier this week that Maersk, CMA CGM and the German-controlled United Africa Feeder Company are being investigated by Africa's competition watchdog, the Competition Commission (CCC), for allegedly coordinating higher freight rate. The Common Market for Eastern and Southern Africa (COMESA) consists of 21 African member countries from Tunisia to Swatini. In West Africa, Nigeria's Federal Competition and Consumer Protection Commission (FCCPC) raided the local offices of five companies as it conducted its own price-fixing investigation. Meanwhile, in Asia, the Korea Fair Trading Commission (KFTC) revealed that it had launched an investigation into the pricing practices of 20 domestic and foreign liner operators. The investigation concerns possible pricing practices on routes between South Korea and neighboring Japan and China. In January, the Korea Trade Commission fined a group of liners totaling $81 million for manipulating historic prices on routes from South Korea to Southeast Asia.

But, no matter how the authorities of various countries investigate, as explained in points 1, 2, carriers have good reason to keep high freight rate in 2022.

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