By Arthur Chen

The Chinese government dropped a bomb on Monday, issuing a "dual energy consumption control" order to nine provinces to limit industrial electricity use. A large number of space between 39 and 40 weeks were cancelled. No one took over even in half of market price.

Since the beginning of this year, the crazy container shipping cost has been soaring. Some cargo owners believe that the high freight rates in the container transportation market have constituted huge profits and come from industry monopolies. Governments should intervene as soon as possible. Shipping lines responded with the usual caliber that high freight rates are a normal phenomenon arising from market supply and demand conditions, and there is none necessary for the governments to directly intervene in market prices. After the supply and demand return to balance, the invisible hand of the free market will naturally bring the freight to a reasonable price. Seriously, the position held from the shipping lines are not wrong. The deal prices of various commodities in the market are agreed by both parties, and based on the situation between supply and demand, they are willing to buy and sell. Just like you want to participate in a concert you like, you are willing to buy tickets for as much money as you want, even if you buy tickets through scalpers at high prices. Those who want it and don't mind. So in terms of commercial deal, this is reasonable. However, from a closer point of view, most shipping lines even though they do not "conspire" to raise prices together, they do "tacitly" by high freight rates which have brought them hundreds of billions of dollars in revenue in this year. The shortage of the supply end is not because of the increase in the demand end. The most important reason is that the covid-19 pandemic has caused a worldwide lockdown since the beginning of last year, which has affected labor and there is still a serious shortage of labor till now. Of course, the outdated infrastructure in ports of the United States have also been highlighted after pandemic outbreak. The manpower shortages and equipment shortages in supply end have dragged down the normal operations of shipping lines.  In short, It is entirely due to the covid-19. Compared with last year, the demand end has reduced its positions by 0.4%. Therefore, liners not to mention any word on pandemic but just blamed fault to demand & supply matter is totally not be acceptable. Never to say they have sprinkled the salt of crazy high rates on top of severely injured economy around the world. From my perspective, a 30-year-long in the transportation industry, shipping lines along with upstream and downstream suppliers should indeed have to be accused against morality of "taking advantage of the fire".

There are reports that some people use "crazy freight rates" to describe the high profits made by liners so as to question if it is a legal action to increase freight rates by their will ?  However, according to Chinese "Price Law", the prices of goods and services are divided into three types: market-adjusted prices, government-guided prices, and government-fixed prices. The freight rates in the container shipping market fall into the category of market-adjusted prices. However, it is necessary to examine whether there is hidden monopoly behavior or other improper behavior behind it. Negative evaluations should not be concluded directly. What to be concerned is not the amount of profit, but whether the means to obtain high profits are legitimate and legal. This also explains why the EU, the United States, and even the most strict Chinese regulatory agencies have not adopted judicial review power to affect freight rates. At present, it is at "seriously concerned" and warned liners with moral pressure (CMA and HPL have frozen up successionally !). The high profitable status of shipping lines are closely related to the characteristics of their cyclical industries. Since the shipping industry is at asset-heavy and investment-heavy field, high returns under the condition of market imbalances mean that companies will carry out the next round of new capacity investment in order to calm the current tensions. At the same time, it can be foreseen in the future, due to the oversupply brought about by the introduction of more capacity, the current relatively prosperous market will gradually fall into a trough. That's why the container transportation companies does not care about the bottom line of morality.

Judging from relevant information on the market, there are differences in the predictions of different agencies regarding the future trend of freight rates in the export market of container transportation. The Shanghai Shipping Exchange predicts that international container freight rates will continue to operate at a high level until the end of the year and may continue to hit new high prices. There are many uncertainties in the medium and long-term development. Dreary, a global shipping consulting company, predicts that the market peak shall move on until early February 2022. Maersk, Cosco, etc. predict that the market peak will be going on up to the first quarter of 2022. From the Shanghai International Shipping Research Center, it is estimated that the end of 2021 will usher in the "turning point" of the peak freight rate in the market! The market freight rate will gradually enter the space of retracement by then. From these speculations, we probably know that from now until the beginning or mid of next year is still a "seller's market" for shipping companies. Shipping lines still have the right to classify freight levels. From a personal point of view, the absolute majority of container shipping companies won’t give up the "easy money" of following half a year.

However, freight charge won’t at high level as always ! Just yesterday on Monday, the Chinese central government issued a "dual energy consumption control" order to nine provinces to restrict industrial electricity consumption, especially the three major producing provinces of Jiangsu, Fujian and Zhejiang. Started from yesterday to the end of September be in power rationed, companies were forced to directly enter the mode of shutting down like the long holiday to observe Chinese national day from Oct 1st – 7th. This reflects a shocked side-effect to the sailings in weeks between 39 and 40 in which large number of bookings were cancelled, because production cannot be started without electricity. The unexpected cancellation of bookings to push up lots of available spaces in these two weeks all of sudden thrown into the market with half of the market price only but not yet been taken over by the shippers. Don’t know if industrial power consumption will continue to be restricted after the long holiday. Based on past experience, shipping lines may immediately use "blank sailings" to reduce the supply end to control freight rates. So, all we have to do is facing the freight rate with a calm mind.  Don’t forget the sun will be end up down to sea level.

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