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Although freight rates continue to decline, the congestion of ports on the east and west coasts of the United States are becoming more and more serious. It reflects that the supply chain of U.S. ports and rail transportation is still very fragile.

04 Aug 2022

By Arthur Chen.     Photo : kaleb tapp 

The freight rates of major global routes have been in a down-turn trend recently, among which the freight rates of the West and East US routes have fallen significantly. The ocean rates exported from Shanghai Port to the West and East base ports of the USA are at US$6,700/FEU and US$9,400/FEU, down about 10.2% and 6.3% respectively compared with 7,400/FEU and US$10,000/FEU a month ago. In the short-term market in the past month, the spot freight rates of all major routes have continued to fall, but the market is gradually stabilizing. As long as the market can enter the peak season as expected, freight rates may stabilize. In the middle of 2022, the freight rate will show a downward trend because the global container volume has been on a downward trend, which has caused the freight rate to continue to decline. The severe drop of container demand is related to factors such as global monetary policy tightening, consumer spending shifting from merchandises to services, and increased retail inventories in the US and Europe. In addition, due to the increase in international inflation, the pressure on carriers will increase.

 

Although freight rates have fallen, the congestion of port logistics on the east and west coasts of the United States has become more and more serious. The number of ships outside the ports of Los Angeles and Long Beach, as of July 25, the number of ships waiting to enter the berth was 28. In January this year, the number was as high as 109. According to Dewey latest report on the global shipping market, the World Containerized Freight Index (WCI) has entered its 22nd consecutive week of decline, and the decline has expanded again compared to the past two weeks. This is interpreted as a signal that the supply chain is improving and the performance of shipping companies is about to turn into difficult gaining profit. However, some senior experts in the United States have seen the opposite situation. They pointed out that the port congestion caused by the supply chain disruption in the United States has never improved, and will become more severe in the short term. The trend of ocean freight rates is down, and the main factor is that the overall cargo volume is declining. In previous years, from the Chinese New Year to March, the volume of goods will increase again, but everyone waited from April to May, and even to June, the volume of goods has not been pulled back in this year. Everyone realized that this is not a supply side problem, but a demand side problem. There is a problem with the demand in the United States. This also reflects that the supply chain of U.S. ports and rail transportation is still very fragile. The current temporary relief cannot afford the volume of goods once the demand for commodities rebounds. As long as the demand increases, the situation of the port congestion can easily happen again.

 

However, for shipping companies, whether or not there is port congestion this year, it is still a year of super profits. The once-in-a-century shipping situation in 2021 started in June last year. The first four months of the year were signed in May 2020. At that time, the rate was only about 1,500 US dollars. Even so, the shipping lines in last year made a lot of money like gold mountain. It is clearly showing the shipping companies that have successfully signed new BCO contracts with sky-high rates this year are gaining gold mountain too. Even if the contract price in 2023 may not maintain as current high rates, but carriers still be at least half a year of high prices as the foundation. So there is no need to worry for the shipping companies, their profits for one year now are equivalent to the previous 10 or 20 years as long as new ships are not over-built and invested indiscriminately, this amount of money will be enough for decades. At present, the rate of most customers' long-term contracts in the west coast of US is around US$7,000/FEU or US$8,000/FEU, and some even exceed US$9,000. The freight covered by the long-term contract is a stable profit for the shipping companies. However, long-term market price in next year will reflect the real reasonable results in between supply and demand. In the rest of the second half of 2022, we are still have to endure and accept high shipping costs.

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