Under the stimulation of the Red Sea crisis, the abnormal peak season of international shipping
"It was originally the off-season, but now it feels like the peak season," Zhang Jiulin sighed as he talked about the Red Sea crisis that the international shipping and logistics market has experienced since December last year.
Zhang Jiulin is a sales manager at an international logistics company in Shenzhen. The peak season of international shipping business is usually from June to September each year, and the time of the Red Sea crisis is not the peak of freight rates. Before December last year, Zhang Jiulin was responsible for the shipping price of $3000/FEU per 40 foot container on the US East route (from China to the US East).
However, by early February this year, it had risen to around $7500, and after the Spring Festival, it had fallen back to $5000. But the Red Sea crisis has not yet subsided, and shipping companies continue to bypass this transportation artery.
The Red Sea crisis originated from the Israel Hamas war that broke out in October 2023. On November 9, the Galaxy Leader, an automobile transport ship operated by the Japan Mail (NYK) and owned by an Israeli businessman, was detained in the Red Sea by the Yemeni Shiite armed group "Husei Armed Forces" on the way from Türkiye to India. In December, the ships of shipping giants Maersk and Herbert were attacked in the Red Sea, announcing the suspension of all container ship routes passing through the Red Sea. These two shipping companies together account for 27% of the capacity of the Asia Europe route. Soon, the world's top five shipping companies announced a suspension of their ships passing through the Red Sea Suez Canal route, forcing some routes to be diverted to Cape of Good Hope, which has a huge impact on international shipping logistics.
According to the "Global Container Market Monthly Report" released by German company ASG in February this year, freight rates from China and East Asia to Northern Europe have significantly increased since October 2023.
The freight rate for this route in the second week of January 2024 was $4757/FEU, an increase of 350% from $1057 in October 2023.
The Housai armed forces control most of the western coast of Yemen, adjacent to the Red Sea and the southern Mand Strait, both of which are important channels for global shipping. The Suez Canal in the northern part of the Red Sea leads to the Mediterranean and is a fortress connecting Asian and European shipping. Every year, 30% of the world's containers are transported through this canal.
（ On March 4, 2024, in Felixstowe, UK, the MSC Luciana container ship (left) approached the port of Felixstowe under the Yangtze River and Hutchison. Iran supported Yemeni Hussai rebels attacked ships sailing in the Red Sea, causing the most serious damage to global trade since the COVID-19 pandemic, and triggered military reactions, including air strikes by the United States and Britain against Yemen
China Before and after this year's Lunar New Year, although the United States and some European countries expressed their intention to launch military escorts for ships on the Asia Europe route, the safety of the Red Sea did not quickly return to normal.
A merchant ship departing from China and arriving in Western Europe heads south through the Strait of Malacca into the Indian Ocean, then enters the Red Sea through the Strait of Mandela, crosses the Suez Canal to reach the Mediterranean, and finally reaches various ports in Europe.
To reach the eastern United States, you can choose the same path and head west through the Atlantic Ocean after reaching Europe. Once bypassing the Cape of Good Hope, it will be about 7 days later than the original route, and the freight rate will also increase accordingly.Originally, there was a second option for the Asia US East route, which was to cross the Pacific, reach the Atlantic through the Panama Canal in Central America, and then reach ports in the eastern United States. But the bad news is that the Panama Canal will continue to experience drought at the end of 2023, with a significant decrease in traffic.
Maersk has even planned to use a 47 mile railway transportation route to bypass the arid Panama Canal.During the period from 2020 to 2022 during the COVID-19 pandemic, the increase of shipping prices hit a new high for nearly 30 years.
One year later, due to the Red Sea crisis, shipping prices once again experienced a peak, with freight forwarders and foreign traders fluctuating and uncertain again.
In the second week of January this year, anxiety among foreign traders erupted.
On January 11th, Maersk once again announced the suspension of flights in the Red Sea as the trigger.
Maersk CEO Vincent Clerc said that reopening the Red Sea trade route may take several months, and bypassing the Cape of Good Hope will increase the freight rate per container by several hundred dollars.Previously, Maersk had attempted to briefly restore the Red Sea route.
However, the military escort effect of the "Operation Guardians of Prosperity" initiated by the United States did not meet expectations, and commercial ships passing through the Strait of Mandate were once again attacked. In the week of January 18th alone, the global average transportation cost increased by 23%, reaching $3777.
The increase in shipping prices and the extension of transportation time have forced foreign trade enterprises to increase logistics budgets and prolong payment cycles. Faced with the high uncertainty of the Asia Europe route, foreign traders are starting to scramble for booking space.Ye Siyuan, Deputy General Manager of Yuehai Supply Chain (Shanghai) Co., Ltd., observed that in the second week of January, some foreign trade associations competed for booking space in advance due to concerns about further increases in freight rates or competitive considerations, but ultimately withdrew due to having no goods to be shipped."Occupation" has intensified the anxiety atmosphere in the entire industry. At the end of January, the Red Sea crisis has not yet been resolved, coupled with China's Spring Festival holiday.
In order to minimize the risk of logistics delays, retailers selling and stocking goods in the spring have accelerated the transportation of goods in advance.
This wave of concentrated shipments has further pushed up the freight rates of international commercial ships.The main business of Wuxi Shangbai Global E-commerce Co., Ltd. (hereinafter referred to as "Shangbai Global") is to sell home textiles, pet furniture and other household products on Amazon in Europe and America, with 80% of the market in the United States.
The COO of this company, Chen Qi, told YiMagazine that relying on early signing of fixed contracts with shipping companies, the skyrocketing freight rates during the Spring Festival period have little impact on them.
But next, they are about to enter the peak shipping season, and if prices continue to rise, it will be difficult for the company to continue locking in prices on a large scale.
Faced with the uncertainty of increased logistics costs, Shangbai Global also needs to tighten its budget in marketing investment and accelerate the elimination of low profit products.Shangbai Global originally planned to transport more goods directly through the Red Sea and Atlantic to the east coast of the United States in 2024 to improve efficiency. The Red Sea crisis directly affected this plan as well.
At present, they still need to first transport the goods through the Pacific to the West United States, and then transport them by railway to the East United States through the Amazon platform.Some shipping research institutions have suggested that the next impact of the Red Sea crisis may be a shortage of goods in spring sales in the European and American markets (April and May), such as sellers on the Amazon platform facing the risk of stockouts. Last December, the Amazon platform announced that sellers would maintain sufficient inventory in their FBA warehouse (a customer service and shipping service warehouse completed by Amazon) to sell for more than 28 days starting from April 2024.
For standard item items with inventory less than 4 weeks (28 days) of sales, a low inventory fee will be charged.The dual pressure has put higher demands on Shangbai Global's overseas warehousing, and it is imperative to increase investment in overseas warehouses. In addition, in order to share the pressure of increasing sea freight prices, they have also begun to pay attention to international railways
After experiencing high freight rates during the pandemic, international shipping prices continued to remain low in 2023. This makes foreign trade enterprises feel that the freight forwarders who provide intermediary services in international logistics have performed a bit of "taking advantage of the situation" in this round of the Red Sea crisis.
More than half of the Chinese foreign trade companies that Zhang Jiulin serves in electronic products and furniture have seen a decline in orders placed in 2023.
The changes in fare data reflect this kind of change.
According to data from the Ningbo Shipping Exchange, the average market price for 40 foot TEUs on China to Europe routes for the entire year of 2023 was $1361/FEU, a year-on-year decrease of 84.2% and a 6.6% decrease compared to the same period in 2019.The average value of Ningbo Export Container Freight Index (NCFI) is 708.5 points, a year-on-year decrease of 74.1%, almost returning to the level of 2019. However, at the end of December last year, the composite index rose significantly to 1451.
3 points, with a single week on month increase of 58.8%, a year-on-year increase of 90.0%, and a 49.4% increase compared to the same period in 2019.
Faced with this sudden peak season, the feelings of freight forwarders are complex. Some ocean freight forwarders are losing money due to negotiating rates with foreign traders in advance, while others are experiencing reduced business due to foreign traders suspending shipments.
However, there are indeed some people who are excited about the Red Sea crisis. Especially in the early stages of the Red Sea crisis, some freight forwarders believed that this price increase was beneficial for a sluggish market and could help digest the originally redundant transportation capacity. "If the price is high, there is always a chance to make money," Zhang Jiulin said bluntly, saying that he likes the feeling of "explosion".
Some freight forwarders and shipping companies acknowledge that the Red Sea crisis has brought business opportunities. Ye Siyuan's Yuehai Supply Chain has represented some shipping companies that still navigate the Red Sea during the crisis, such as CStar Line, Hong Kong OVP Shipping, and Safetrans Line. These companies are mostly Chinese or Russian funded enterprises responsible for the transportation of goods in Sino Russian trade, and their establishment time is not long. Their business in recent years is mainly due to the growth of Sino Russian trade under the influence of the Russia-Ukraine conflict, among which routes to ports such as Novorossisk and St. Petersburg on the western coast of Russia need to pass through the Red Sea.
Due to changes in trade, this already existing route has become more emerging and visible.During the Red Sea crisis, due to a decrease in transportation capacity from Asia to Europe, these companies that had made some sense of war profits boldly launched the "Red Sea Special Line" between Asia and Europe through the China Russia route - once goods arrived in Europe, they no longer headed north to Russia. Even if they do not incur additional costs due to detours, due to the high risk of traversal, freight rates have also risen along with other shipping companies.
No matter how long the Red Sea crisis continues, foreign trade and shipping industries will eventually have to break away from topics such as "opportunities" and "courage" and return to a rational judgment of the long-term development trend of global trade.
The current uncertainty will accelerate the reshuffle of the domestic freight forwarding industry, which has become a consensus among almost all respondents.
It is widely recognized in the industry that the further slowdown of foreign trade in 2023 is the main reason for the sluggish international shipping prices.
According to customs statistics, China's total import and export value in 2023 was 41.76 trillion yuan, a year-on-year increase of 0.2%. Among them, exports reached 23.77 trillion yuan, an increase of 0.6%; Imports amounted to 17.99 trillion yuan, a decrease of 0.3%. In US dollars, China's imports and exports, exports, and imports in 2023 decreased by 5.0%, 4.6%, and 5.5% year-on-year, respectively.
In the context of high freight rates during the epidemic, a large number of ship owners around the world have bought new ships, at the cost of excess capacity in the shipping field in 2023, when "more monks than porridge".
According to data from French shipping consulting firm Alphaliner, the global container fleet capacity increased by about 8% year-on-year in 2023, which is twice the growth rate of 2022.Due to the inertia of development, the expansion of transportation capacity will continue in 2024.
According to data from Gartner, a research institution in the United States, Maersk's transportation capacity will increase by 9% by the end of 2024, while Mediterranean shipping will increase by 39%.
So, there is also a voice in the industry that believes that the increase in freight rates caused by the Red Sea crisis should only be temporary.
Ye Siyuan pointed out that shipowners traveling through the Red Sea will still expand their investment on this route. However, referring to the ups and downs and uncertainties of the shipping market in recent years, he believes that shipowners should replace shipbuilding with chartering to prevent losses caused by excessive investment."Nowadays, with the high freight rates, people are focusing on short-term business to make a living, which is very unhealthy." Shu Bin, the Managing Director of Sixi International Logistics (Shanghai) Co., Ltd., believes that in the overall downturn of foreign trade business, the abnormal peak season caused by the Red Sea crisis actually worries him because short-term high freight rates will only empty the long-term budget of foreign trade customers. 80% of this company's business is air freight forwarding, while the rest is sea freight.
The logistics price increase brought about by the maritime war has also affected international air logistics. Although it has increased revenue, actual profits are still declining, and Shubin remains cautious about this.
International logistics companies need to seek relatively stable ways of survival in turbulent times, and one option is to resist risks by transporting high-value goods.After the Red Sea crisis, companies with low value products such as shoes, socks, and clothing among the shipping customers of Sixi International have temporarily suspended shipments. However, some companies that originally transported relatively high value products such as automotive parts by sea have chosen to replace them with air freight, making up for some of the losses caused by the former.
In addition, when a single transportation channel faces the risk of being impacted, the ability to find alternative solutions has become a selling point for some logistics companies.
UBI Litong Logistics told YiMagazine that during the Red Sea Crisis, in addition to shipping logistics, they also provided railway and air freight forwarding services to customers. They believe that the Red Sea Crisis tests whether freight forwarding logistics companies have rich service products and can flexibly mobilize them.
This is also a measure taken by freight forwarding companies themselves to resist risks. Guo Lingyun, Deputy General Manager of Shanghai Ougao International Freight Forwarding Co., Ltd., stated that in the face of uncertainty, their approach is to expand transportation services for international trade, including customs declaration, domestic transportation, railway transportation, and other services into the group's business.
After the Spring Festival, the peak period of freight transportation faced by Chinese enterprises before the holiday has briefly subsided.
But the crisis is still ongoing, just like the epidemic a few years ago, its duration is unknown, but it is constantly changing the foreign trade and international logistics industry.
