How Long Will the Increase in Shipping Prices for General Merchandise Products Continue?

The latest export container freight index shows that the Shanghai Export Container Index (SCFI), which represents the spot price, is 4,196.24 points, a record high and a 413% increase from the lowest point last year. Market participants predict that shipping prices will continue to rise in the future. What is the underlying reason for the sharp rise in shipping costs? What impact will the current situation of "hard to find a container" in the shipping market will bring to foreign trade?

1. Container freight has increased fivefold in more than a year

Shipping is the most important mode of transportation in international logistics. Due to the superposition of multiple factors such as the epidemic, container freight has continued to rise since this year. All foreign ports have implemented strict quarantine measures. At present, cargo ships arriving at the port need to queue up to enter the port. The port congestion is serious, resulting in a low ship turnover rate. In addition, the resumption rate of foreign terminals is not high, and the time for loading and unloading is increased. Inflation brought about by the release of the U.S. currency has pushed up shipping prices. The pricing of container transportation has also pushed up other shipping costs, such as fuel price costs, port fees, charter costs, and route operating costs. Among them, fuel price fluctuations have a greater impact on shipping prices, and fuel costs generally account for more than 30% of the operating costs of container shipping companies.

From the demand side, factors such as the recovery of global trade, the decline in port handling efficiency, the slowing of container turnover, the shortage of container shipping capacity and the tight space and other factors have jointly promoted the rise in container prices. Due to the impact of the epidemic in some overseas countries, the industrial chain and supply chain have been greatly impacted, and the economic recovery has been slow. The procurement demand for many general merchandise products has been concentrated in China, and the foreign trade market is booming, leading to a boom in the shipping market.

2. The contradiction between supply and demand of shipping capacity

Due to the large number of ships being delayed by quarantine, many containers have gone without return. Foreign containers cannot be transferred back to China, exacerbating the situation of "hard to find a container". The shortage of containers has become a common situation for major airlines and industries. According to the China Container Industry Association, the global epidemic has led to serious detention of empty containers overseas, reducing the efficiency of container turnover. At present, only 1 container can be returned for every 3 containers exported, and a large number of empty containers are backlogged in the United States, Europe and Oceania, which affects the efficiency of container turnover.

At present, the shipping of wholesale general merchandise products is already operating at full capacity. The shipping capacity of more than 20 million containers has been invested in shipping, and even some non-container ships and general cargo ships have also been invested in container transshipment. Since the first half of the year, the strong demand for import and export trade and the tight logistics of shipping containers have had an impact on the export business of some companies.

3. Shipping costs are still on the rise

Following the price fluctuations of general goods wholesale such as iron ore and steel, the sharp rise in shipping prices this round has also become the focus of attention of all parties. According to industry insiders, first of all, the freight cost of general merchandise has risen sharply, which has greatly increased the cost of imported goods. Besides, freight congestion has lengthened the time period and increased costs in disguised form.

So how long will port congestion and rising shipping prices continue? The agency believes that the unbalanced order of container turnover will experience three stages of limited return of empty containers, unbalanced import and export, and intensified shortage of containers, which significantly reduces effective supply. With progressive supply and demand tension, spot freight prices have risen sharply, and demand in Europe and the United States has continued, so the high freight rates may last until 2021. At present, the market price of wholesale general store products is in a rising range with a strong cycle. It is predicted that by the end of 2023, the entire market price may enter a correction range. The shipping market also has a cycle, generally a cycle of 3 to 5 years. The supply and demand sides of shipping are highly cyclical, and a strong recovery on the demand side usually drives supply-side shipping capacity into a growth cycle after two or three years.

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