[Epoch Times, June 15, 2021]Many of my friends may be unfamiliar with the international shipping industry. Today’s international shipping industry can be described as “two heavens of ice and fire.” Many overseas countries have a pile of containers, but China’s major ports are “hard to find”. The prices of some shipping routes have increased over the same period last year. It is about 10 times higher, but foreign trade companies still can’t grab the container.
So, what does this have to do with ordinary people like us? The relationship is not small, because higher transportation costs are likely to bring inflation, and the final buyer is the consumer.
So, let’s talk about it today, why is there a shortage of global containers? When will this situation be relieved? And why is it said that the Indian epidemic is impacting the global shipping industry?
“One box is hard to find” freight soars
The problem of shortage of containers in China actually started as early as the second half of last year, but it has become more serious this year. According to media reports, the price of a 20-foot container has risen from US$1,600 in the first half of last year to the current US$3,600; and the price of a popular 40-foot container has risen to US$5,950, which not only doubled the price, but also hit a record. A record high.
This is accompanied by a surge in container freight rates and a rapid increase in transportation costs. For example, data from Drewry Shipping Company shows that the current average freight rate of a 40-foot sea container from Shanghai to Rotterdam in the Netherlands has risen to a record high of US$10,522, which is 547% higher than the average freight rate in the past five years.
Moreover, the current freight rates are still soaring, one price per day, all routes are rising, and freight rates continue to hit historical highs. China’s freight forwarders are not only busy robbing the boxes, but also busy robbing the positions of the freighters. Under the current situation, if it is not a VVIP, the money may not be able to grab it.
Because 80% of the world‘s trade products are shipped by sea, soaring ocean freight rates will inevitably increase the prices of items such as furniture, toys, auto parts, coffee, sugar and so on. Retailers can only choose to stop trading and increase prices. Maybe some friends overseas have already felt it, and now all kinds of goods are rising in price. In the past, ocean freight had a small impact on inflation, because freight only accounted for a small part of the cost of exporting products, but now it’s different because freight has continued to hit new highs.
So, what caused the shortage of containers? There are two main reasons.
On the one hand, because freight demand around the world is very strong, but the supply chain has not fully recovered, because China is the first to resume work and production, which has led to an increase in global dependence on Chinese exports.
For example, in the United States, the government’s epidemic subsidies and monetary easing policies have stimulated consumer demand, but Americans who cannot go out and travel can only stay at home and turn to home consumption and online shopping. A research company analyzed that from September to November last year, the number of sports equipment shipped from Asia to North America in containers more than doubled over the same period last year. The freight volume of gas stoves, electric stoves and cooking equipment has almost doubled compared with the same period last year. The transportation volume of disinfectants is even more frantic, increasing by more than 6,800%.
We know that most of these goods are manufactured in Asia or China, so a large number of goods are shipped from China or Asia to the United States. This situation has led to a shortage of containers in Asia, but they are piling up in ports such as the United States, Australia, or the United Kingdom.
But on the other hand, due to the impact of the epidemic, many countries have experienced labor shortages, especially port operators, trailer truck drivers, and related logistics personnel. Therefore, ports around the world are still unable to operate normally. Therefore, after Chinese goods are shipped to ports in European and American countries, no one comes to unload the goods, and they can only stay at the ports.
From a global perspective, many containers have been severely delayed due to port congestion and the Suez Canal accident in the previous period. In addition, various epidemic prevention and control measures have also lengthened the time for customs clearance and unloading, which slowed the turnover of container transportation. Speed has caused delays in freight shipments around the world. Usually, it takes 14 days for cargo to ship from Shanghai to Los Angeles, but now it takes 33 days, but the sailing time has not changed, and the extra time is waiting for unloading.
Not only that, due to tight schedules, Chinese ships often need to quickly turn around and return after unloading at overseas ports, so there is no way to wait until all empty containers are loaded and they have to leave. According to media reports, at present, for every 3 containers exported by China, only one returns. Therefore, there is a large backlog of empty containers in the United States, Europe, Australia and other regions.
Everyone knows that in the early days of the outbreak, the global demand for masks was very large, but now, the containers of millions of masks shipped to countries in Africa and South America are still vacant and no one takes them back because the shipping companies have already put their cargo ships. Concentrated on the most demanding routes connecting Asia and North America, Asia and Europe.
In other words, there is a serious imbalance in the global distribution of containers, which is mainly caused by the poor return of containers scattered around the world. At present, many shipping companies are also actively deploying empty containers back to China, Vietnam and other Asian countries with strong export demand. Many shipping companies have made it clear that they will try not to take back the cargo and speed up the return to the ports of Asian countries. Of course, the current high freight rates can already cover the return cost of empty containers.
This wave of container shortages is not a good thing for all countries, and it has also brought great difficulties to the operation of many foreign trade companies, causing many companies to dare not take orders rashly. The suppliers of containers and major shipping companies may benefit from it. So, can this situation be alleviated?
China’s leading container manufacturing companies are expanding production
China is the world‘s largest container manufacturing country. Data shows that at present, more than 96% of global dry cargo containers and 100% of refrigerated containers are produced by Chinese factories. The three largest container manufacturing companies in China are CIMC (CIMC), Oriental International (DFIC) and New Huachang Group Co., Ltd. (CXIC). In the first quarter of this year, only these three companies produced approximately 82% of the world‘s containers.
In order to cope with the shortage of containers, China’s container manufacturers are also increasing supply. At present, CIMC’s container production schedule is “611”, which is 6 days a week and 11 hours a shift. A few days ago, CIMC Group also stated that the order is full and production has been scheduled to the third quarter.
According to CIMC, the monthly maximum output of the entire container industry can reach more than 400,000 TEUs. This TEU refers to a 20-foot standard container. That means that the industry’s annual output this year can reach 4.8 million TEUs, which is about 60% higher than the highest annual output of previous years.
Although the output of containers is increasing, Mai Boliang, chairman of CIMC Group, believes that the “difficult to find one container” situation in the container industry this year is still difficult to solve. From the demand side, it is likely to hit a record high, and it is likely to maintain Production and prices have risen at the same time.
Similar to CIMC’s forecast, the two top public container leasing companies in the United States, Triton and CAI, also believe that the tight container supply may continue until 2022, because some of the containers produced this year are used to make up for 2019 and Low production in the first half of 2020; and CAI also believes that Chinese factories may be controlling production in order to maintain a relatively high price of new boxes.
So, what is the profit for manufacturers from the shortage of containers? Judging from the financial report, last year, the net profit of CIMC’s container segment for the whole year was approximately 2 billion yuan, a year-on-year increase of 1350%, reaching the highest level in recent years. It seems that the shortage of containers has indeed benefited manufacturers.
At present, it seems that the problem of container shortage may be difficult to solve in the short term. Moreover, to solve this shortage fundamentally, it depends to a large extent on the global epidemic situation. Only when all countries’ production and trade activities resume. Only after being normal can they return to a relatively stable state, and among them, the epidemic in India plays a big role. Why do you say that?
COVID-19 in India and Southeast Asia impacts manufacturing supply chain
Many people may not know that India is one of the world‘s largest sources of seafarers, but the current epidemic in India is impacting the global shipping industry.
According to statistics from the International Chamber of Shipping, of the total approximately 1.6 million seafarers in the world, approximately 240,000 are from India, accounting for 15%. For example, on the Long Grant, which blocked the Suez Canal, all 25 seafarers on board were of Indian nationality. In February last year, all 132 seafarers on the “Diamond Princess” in Japan, where the epidemic broke out, were also from India.
Because of the outbreak in India, shipowners across the country insist that seafarers must be vaccinated with two doses before signing the contract to board the ship. However, due to the shortage of vaccines and other issues, the Indian government has to postpone the vaccination time several times, which increases Uncertainty of Indian seafarers’ work.
Moreover, some Indian seafarers may also test negative before boarding the ship, but become positive after boarding, which also brings a lot of trouble to management. Therefore, many shipping companies have begun to refuse Indian seafarers to board the ship.
To make matters worse, many ports have restricted Indian seafarers from changing shifts and even refused to enter the port. The Port of Singapore and the Port of Fujairah in the UAE are both very important maritime hubs, but at present they have banned seafarers from India from changing shifts.
However, the “Maritime Labour Convention” stipulates that seafarers cannot work continuously at sea for more than 11 months. However, during the epidemic, many seafarers have been stranded at sea for more than 15 months. Being trapped at sea for a long time will undoubtedly have a great impact on seafarers’ psychology, supplies, medical care, etc., and may even trigger a global maritime labor crisis. Moreover, the shortage of seafarers will also affect the schedule of freighters. , It will have an impact on the supply chain.
In addition, India is also a rising manufacturing country. However, due to the repeated epidemics, the industrial chain of India and some countries in Southeast Asia was impacted. Many tasks could not be completed as scheduled. Some orders had to be cancelled and flowed back to China.
For example, India’s textile industry is relatively developed, but because of the high infection rate in textile factories before, most of the work stoppage and production reduction were caused. Many workers have returned to their hometowns. The boss wanted to start but couldn’t find anyone, which caused a large number of textile orders to return to China.
However, although these orders have increased China’s exports, because most of these return orders produce low-end products, their own profits are not high. In addition, the prices of raw materials are also rising all the way, which has also led to grey fabrics, fabrics, printing and dyeing. Links increase, so companies may not be able to make money. Moreover, the industry generally believes that the current return of orders is only a temporary phenomenon and will not last forever. Once the epidemic is under control, orders will return to India and Southeast Asia, where costs are more advantageous and profit margins are higher.
Are China’s exports improving for a long time?
We see that since the beginning of this year, China’s export data has remained strong. However, Mr. Tokuyama, the investment consultant of our financial management team, believes that China’s exports will face great downward pressure in the future.
Because China’s current exports benefit more from the growth in demand brought about by the economic recovery of the world’s major economies, as well as the export substitution effect brought about by the impact of the epidemic in the supply chains of countries such as India and Southeast Asia. One is cheap”. However, there are many factors that have a negative impact on China’s exports, including rising commodity prices and the appreciation of the RMB exchange rate.
According to the latest customs data, China’s exports in the first five months of this year have increased by 30.1% year-on-year. However, the export growth rate in May has fallen, with a year-on-year growth of only 18.1%.
Moreover, the official data released by the Chinese Communist Party on May 31 showed that China’s manufacturing purchasing managers’ index (PMI) in May was 51%, which was 0.1 percentage point lower than the previous month, and it has fallen for the second consecutive month. Some analysts believe that the increase in bulk prices has had a negative impact on corporate orders and inventory behavior. From the detailed data, it can be seen that the order index continues to decline, and export orders fall faster.
In addition, the global economy is improving. The PMI of the United States has risen to a record high of 61.5%, and the PMI of the EU’s manufacturing industry has risen to 63.1%, both of which are record highs. In addition, South Korea and Vietnam’s export growth rate in May was more than 40%. It is foreseeable that as the epidemic in other economies subsides, orders will gradually shift from China to other countries.
And more importantly, we have seen that since May, the epidemic in Guangdong, China has spread again and has affected the operations of Yantian Port and Shekou Port in Shenzhen. Yantian Port is the third largest port in China and the fourth largest port in the world, and its role is quite heavy. In other words, China’s future exports also need to pay special attention to the potential risks of the spread of the epidemic.
Planning: Yu Wenming
Written by: Li Songyun, Wei Ran, Yu Wenming
Editing: Songs
Drawing: R1
Producer: Wen Jing
Financial and Business World: http://bit.ly/3hvUfr7
Editor in charge: Lian Shuhua
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