By Arthur Chen

On September 9, CMA CGM, the world’s third largest shipping line, announced a official statement to freeze the “spot rate” until February 1, 2022. At the same time, Hapag-Lloyd also stated it has been no further increased in freight rates in recent weeks.

Yesterday’s article has already reported that the day before the CMA’s announcement, on September 8th, the maritime regulatory agencies of China, the United States and the European Union held the Global Shipping Regulatory Summit. According to reports, the meeting discussed a number of issues of concern. The chairman of the US FMC pointed out ocean rates are at an abnormal high level, which has aroused serious concern from global regulators, legislators and the public. Did this have anything to do with the rush "freezing up" of CMA? Personally think the possibility is very high.

In the past year, short of containers, short of space, lack of labor, lack of ships, port congestion, railways problem, etc. provided various reasons caused by the covid pandemic had all reasons for shipping lines price increases. Currently, ocean market scalpers selling at double high price on top of shipping lines "table price". Shipping lines have preferable allowance for scalpers to operate, and some shipping lines have reserved certain amount of space to scalpers for selling much higher rate in the market than their “ table price”.  In fact, the shipping supervisory unit cannot control these preferable freight forwarders which also named as scalpers. No wonder when you check from published data the “table price” have been kept at 11,000 U.S. dollars/FEU or so from Asia to the West Coast of the United States. But the market guarantee space rate is around 17,000-20000 U.S. dollars/FEU.  Would such cooperative behavior one day be likely to arouse moral accusations from the public? Or the maritime authorities bring them to court ? The most smartest way is clean the table and leave at once.

A tricky view can be seen from the comments of some shipping lines. They pointed out that CMA CGM spot rate already stood much higher than most liners. If CMA CGM keep the current high spot rate, they already made huge money for sure. Some freight forwarders pointed out that CMA CGM's spot rates were kind of transparent to public. They can booked through the website directly. Unlike some shipping lines, closed customers always could get big favor in price and space from the sales guys.  The fact of spot rate is ---"The space has already fully booked in October, and it doesn't make much sense to increase the price anymore"! In additionally, China, the US and the European Union have focused high ocean freight rates, which should be the driving force of the company's decision to freeze spot rate until February 1 next year.

Under the collective action of maritime regulatory agencies and the "freezing up" of leading shipping companies, are the sky-high shipping prices expected to usher in a "cooling-off period"?

Obviously, this move of CMA CGM has kicked the ball to its competitors. Will they follow by CMA CGM action? Will other shipping companies freeze freight rates?

Quoted from a media who adopted Bjorn Vang Jensen, Vice President of Ocean Intelligence Global Supply Chain Consulting Services, in an article on LinkedIn, --- “The worst scenario is that CMA CGM fights on its own and looks like a hero! The best case is all competitors in the ocean industry to follow up same path and reduce freight rates. ! In this case, CMA CGM still looks like a hero. But the most important thing is: freight will continue to maintain the sky-high price, but will not rise further!”  On the other hand, Hapag-Lloyd did not specify when to stop the price increase. It only means that this measure is "temporarily" effective. They should think that the spot freight at peak and the market is slowly beginning to calm down. This has indeed caused tremendous pressure on other liners. But at least we have seen the fact that today (September 15) the new GRI, which most liners originally chanted for price increases, remained "unchanged" until the end of September. However, this does not mean that the market freight rates remain unchanged! This can only be said that the "table price" remains unchanged. As for the freight rate of the guaranteed space, it still depends on the market supply and demand situation so as to subject to accessary surcharges.

Some general economic indicators have indeed drag the attention of scholars, cargo owners, shipping lines, and logistics companies. They are the US producer price index announced the day before yesterday that an increase of 8% over the previous month represents an increase in production costs; The consumer price index has been around 5% for four consecutive months, which means that prices are expensive; However, China's purchasing managers' index dropped to 49.7 this month, which means that China's orders have fallen and it has entered the beginning of recession.  All these indicate that inflation in the United States may have exceeded expectations, and consumers have apparently reduced their purchases in response to rising prices. We may have seen the curve on the demand side start to reverse downward, which also implies the supply side of shipping capacity will gradually increase. Smart shipping lines took the initiative to stop rising spot rates. It seems that short-term benefits are damaged, but long-term benefits are actually taken. This may effectively avoid the risk of a sharp fall in the later highs. The question is, are most shipping companies smart enough? Or is it the greedy desire that prevents them from seeing economic phenomena?  I can prove whether CMA is a pioneer in a few month. Unless there are new black swans in the market? For example, the "new virus" or regional political disputes that everyone is afraid of.

Appreciate if you could share TGL Blog among your friends who are interested in first-hand market information of supply chain and updated economic incidents.