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Port Report: Box freight rates out of China have ‘gone to hell in a handbasket’

Port of Shanghai ( Photo: Shutterstock )

Pre-tariff front loading to the U.S. and seasonal slowdown contribute to weakness in ocean freight rates from world’s largest exporter.

Containerized freight rates from China continue to show signs of decline, according to the latest data from the Shanghai Shipping Exchange. Industry sources say the market has “gone to hell in a handbasket” and warn that shipping lines will likely have to remove whole service loops.

The China Containerized Freight Index (CCFI) measures container freight rate data from all of China’s ports to various destinations across the world.

The CCFI as of April 4 stands at 797.14, which is the lowest level since November 2017. The CCFI has crept lower each week for the last five weeks and the average percentage change each week during that time is minus 1.28 percent. The CCFI is clearly trending downward.

The CCFI hit a two-year peak of 890 at the end of January. That coincided with the tail-end of the great U.S. container import boom, precipitated by the great pull-forward of 2018.

The China-import side of the equation does not look healthy either, potentially driven by signals that China’s economy is slowing. As of April 3, the comprehensive index on the China Import Containerized Freight Index (CICFI) stands at 785.39 points. That is down 2.8 percent from the previous week. The three-week average doesn’t look good though – on average, the comprehensive index fell by 0.74 percent.

Of the five backhaul routes from around the world to China, only one route, the Mediterranean to China, shows any sign of recovery – and only marginally at that. The Med-China route stands at 938.80 points, 16.44 points higher than the previous week. That’s a 1.9 percent increase. On average the percentage change on this index is 0.83 percent, which indicates that rates over the last three weeks on this route are creeping up albeit ever-so-slowly.

As for the other four routes, they’re all down. Northern Europe to China is 779.94, down by 0.55 percent. West Coast U.S. to China is down by a whopping 7.01 percent to stand at 827.39 points. East Coast U.S. to China is down by a hefty 5.16 percent to stand at 566.36. And, finally, the route from Australia and New Zealand back to China is down by 0.30 percent to stand at 614.12 points.

“Southbound volumes have definitely softened and potentially we’re still suffering the after-effects of Chinese New Year,” said Travis Brooks-Garrett, director at Australia-based Freight & Trade Alliance.  “As a result of the softer volumes we’re also seeing the downsizing of vessels and a suspension of services. Freight rates have reflected that.”

One Asia-based maritime executive, who asked to remain anonymous, put it more bluntly.

“The market’s gone to hell in a handbasket.” Because of the tense nature of the tariff disputes between China and the U.S., “everyone shipped massive volumes last year.”

“The warehouses are full. We shipped last year. We’re all sitting on stock. There’s a cost to that, but money is cheap,” the executive said.

The source pointed out that the spot market had “fallen through the floor” adding that “what tends to happen is that Australia goes down, then Europe, then America. China to Australia last year was $3,000 per forty-foot equivalent unit (FEU). Now it’s $700. Asia to Europe was $1,500 for an FEU; now it’s $900. Australia has fallen. Europe is falling. The U.S. is falling.”

There is potentially some upside as, the executive argues, the U.S. economy is trucking along and it is expected that all the previously shipped cargo will sell by about the middle of this year.

However, it’s not just the current lack of cargo that’s doing damage to the spot market. There is also an oversupply of ships, the executive says.

“The Asia-to-Europe trade lane takes these massive ships. And more capacity is being hammered into the Europe trade. But the U.S. can’t take such big vessels – they can take about 13,000 to 14,000 twenty-foot equivalent unit (TEU),” the executive said.

Meanwhile, the lines are eliminating sailings of some vessels, the executive said, adding that shipping lines will likely have to take out whole loops.

And, next year, there’s likely to be strong cost pressures on the container shipping lines. The executive noted that the shipping lines have to comply with IMO 2020 and so they are trying to pass on the higher bunker costs to cargo owners in the yearly contract market “which is fair and reasonable,” the executive said.

But, the source added, that will only be effective in the run-up to the end of this year as the IMO 2020 low-sulfur regulations begin on January 1, 2020. At that point they’ll be burning expensive fuel with the contract rates running through to May.

“They (shipping lines) will be partially successful; it depends on how opportunistic they will be. Some are going to be desperate.”

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Jim Wilson, Australia Correspondent

Sydney-based journalist and photojournalist, Jim Wilson, is the Australia Correspondent for FreightWaves. Since beginning his journalism career in 2000, Jim has primarily worked as a business reporter, editor, and manager for maritime publications in Europe, the Middle East, Asia, and Australia. He has won several awards for logistics-related journalism and has had photography published in the global maritime press. Jim has also run publications focused on human resources management, workplace health and safety, venture capital, and law. He holds a degree in law and legal practice.

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