By Arthur Chen.                                                         

High ocean freight going on till 2022. Low-priced products and small, 
medium-sized enterprises are the severe victims of this wave of high ocean freight.

Last week, CMA announced the suspension of spot rate increases, HPL followed by "freezing up". Suddenly, everyone began to speculate that ocean freight would go down from the top. But within a week of joy, the fire of rising freight rates has been ignited again. Market news pointed out that MSC, the world second-largest container shipping line, issued two successive price increase notices and launched three major price increase items in one go: freight increase (GRI), peak season surcharge (PSS) and port congestion charge (CGS)! From the three fees (GRI, PSS and CGS) that will increase on October 15th, the freight rate will be more than US$10,000 per 40’ on “table rate” after the price increase! The scope of the increase in freight rates is particularly from South Chinese Ports and Hong Kong to the destinations in the East and West coast of US ports. I thought that after the CMA freeze up last week, other shipping lines would also start to stop raising prices. The market freight level has the opportunity to maintain the quo. I did not expect that this time MSC will break everyone's dream! According to news released by several other Asian shipping lines, GRI, PSS and other attachment fees will also be increased in mid-October, about an average of US$2,000 per 40’. These Asian shipping companies seem to ignore the CMA and HPL’s “freezing up” and continue to racing forward. The continuous port congestion in the United States caused sailings delay, the on-going ineffective turnover of empty containers and the average waiting time for vessels to enter the ports up to 7.5 days as well as Increasing cost caused by the ever longest time by railway transportation all put these carriers in good reason to rise up freight rates even after last week CMA & HPL deeds.  In addition, they commented that the European shipping company CMA, HPL's spot freight on table are inherently high. Even after the freeze, they are still higher than their prices. So that self-righteous statement is not enough to limit the October boom. Some carriers are more optimistic about the future shipping market. Quoting Deutsche Bank (Deutsche Bank) issued a report that is extremely optimistic about the container shipping market. "We are turning to the view that the revenue of shipping companies shat at peak in 2022, not this year." So in the minds of most shipping companies, "freezing up" is not the time yet.

There is a voice from some logistics experts that the freezing rise of several European shipping lines have done the job of "self-explanatory " to maritime regulatory agencies such as the United States, the European Union, and China, which might avoid pressure from regulatory agencies and public opinion. The most important thing is to "stabilize ocean freight rates in the high level” until the new contracts will be negotiated in March next year. Those new contracts build milestone of the sea freight rates in high level entire 2022.  Some experts predict the ocean rate from China to the West Coast of the United States in 2022, the one-year FIX rate long-term contract rates may exceed 6000-8000 US dollars a 40’ or even higher. Looking back the trans-Pacific routes, the long-term contract price in 2019 was 1,500 US dollars a 40’. I have to admire that these shipping giants really have smart business mind and vision.

From the perspective of cargo owners, the current high freight rates have different impacts on different industries. Basically, super-large cargo owners have a long-term contract (Fix Rate) with the carriers, and can get at least the support of the considered equivalent space and price. Small, medium-sized cargo owners are the deepest sufferers of this crazy price hike, and they could get space only by taking high spot freight rates. Even if the cargo owners also have  contracts with the carriers, of course, including Fix Rate, FAK, etc. but because of the limited shipping space, the shipping lines could just sacrifice the rights and interests of small and medium-sized cargo owners without option. During the time of covid-19 pandemic, the original spirit of contracting with carriers has ruined.  The failure of shipping lines to the contract content is a “vigilance“ for all small and medium-sized cargo owners. They must be prepared for more back-up plans B, C…, and no longer put themselves in jeopardized by giving all cargo to lines. Better to maintain certain cooperative relationship with the freight forwarders to avoid be a group of sacrifices. You never know when the pandemic shall be gone. Uncertainty future is a certainty.　　

If it is the FOB trade term, many shippers will be less directly affected by the high freight rate. As many countries around the world are mired in the pandemic, China is relatively well controlled. Although production in Southeast Asia is compared cheaper, but the factories have stopped working by delta virus spreading now. Therefore, many garment orders have returned to China. The textile and garment manufacturing industry has become a "seller's market." Many companies gross sale have increased by 30-50% compared to last year. Since the ocean freight is borne by the purchasers, the high ocean freight price has little impact on them but just slightly longer paid dates to 7-15 days additionally.  Compared with the garment industry, the business of stainless steel kitchenware is much impacted. Because products with low value are more difficult to ship. High freight rates have made business more difficult. For these low price products, the cargo value a container is not more than 10,000 U.S. dollars made the freight charge is higher than the price of the goods. The procurement volume has been drastically reduced. For industries with low prices, not only are manufacturers complaining, but foreign buyers are also unable to handle the high freight rates. For example, cosmetic tool manufacturers in Shenzhen be requested on price cuts from US importers due to high shipping prices. They used to earn 10% gross margin, but now it may only down to 2~3% gross profit. Low-priced products caused by high shipping costs are also victims.

We can briefly summarize that high ocean freight rates will continue until 2022, and low-priced products and small and medium-sized enterprises are the direct victims of this wave of high ocean freight rates. It is a possible that some companies will be vanished at post-pandemic. When you consider to deal with shipping lines again in next year, if you are small and medium-sized enterprises then there are potential chance to be rejected by carriers in supporting both contract rate and space when once again facing same scenario as 2021. Better to learn lesson and to be smart next year.  Do not put all eggs in a shipping lines basket. It is time to establish solid partnership with freight forwarders, because they have more options and solutions in logistics field and more flexible than shipping lines.

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