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Following the collective plunge of shipping stocks on June 11th, on the 12th, individual stocks in related sectors showed mixed performance with gains and losses, but the majority were still in a downward trend.

On the 11th, the main European container shipping index fell by more than 5%, while the long-dated contracts for EC2410, 2412, 2502, and 2504 all saw declines of over 13%. On the 12th, the European container shipping main index and EC2410 rebounded somewhat, but the rest continued to decline.

From publicly available information, the fluctuations in the secondary market are not unrelated to the current dynamics of the international situation and market sentiment.

The United Nations Security Council voted to pass a resolution submitted by the United States on June 10th, which is related to the Gaza Strip, calling on Hamas and Israel to accept a ceasefire agreement. Consistent with the logic that the escalation of the situation in the Red Sea led to an increase in freight rates, a de-escalation will also have a counter-effect, exerting significant pressure on the container shipping index (European line) futures long-dated contracts in the rapid release of supply, thereby dragging down the recent contract trends.

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Chen Yang from the professional shipping information consulting platform Maritime Network told Yicai, "Once the ceasefire between Palestine and Israel is in place, the container shipping market will definitely undergo drastic changes." Song Bin, Vice President of Sales and Marketing for the Greater China region of the global freight forwarding giant Kuehne + Nagel, also told Yicai that if the ceasefire between Palestine and Israel is achieved, the Suez Canal, an important waterway connecting the Mediterranean and the Red Sea and a vital channel for global trade, will resume smooth operations, thereby shifting the market's perception of the supply-demand relationship for maritime transport from a supply shortage to a supply surplus. "Although shipping companies may adjust their routes at that time, such expectations will arise."

Deviation of freight rates from actual supply and demand

The intensified fluctuations in the secondary market correspond to the high risks in the container shipping market, which have also attracted the attention of industry insiders.

"We have noticed (the collective decline of shipping stocks), but the exact reasons are unknown," said Ji Sen (a pseudonym), the head of a large freight forwarding company in Shanghai, to Yicai. Currently, international ocean freight rates are still rising, and the prices have deviated from the supply and demand relationship, making the future trend difficult to predict.

Liang Yichang, General Manager of the multinational logistics company Shanghai Dongqing Express, told Yicai that the challenges caused by the situation in the Red Sea, such as the increase in maritime transport costs due to detours, increased port delays, and extended empty container return cycles, are still ongoing. "Port congestion is still quite obvious, freight rates are high, and there is a shortage of containers." Although there have been localized fluctuations and downward adjustments, the overall freight rates are still rising, "highly irrationally."

Shi Jiaqi, Head of the First Mile Operations at Raccoon (Shanghai) International Logistics Co., Ltd. (hereinafter referred to as "Raccoon Logistics"), told Yicai that since May of this year, the 40-foot high-cube container for the North American route has increased every 15 days, with an average increase of about 1,000 USD. Currently, the freight rates to the ports of Los Angeles and New York are around 6,300 and 7,300 USD, respectively. "On June 15th, the shipping companies have also clearly indicated that they will raise prices, but the extent of the increase is still uncertain." The European route has also seen an increase of about 2,000 to 3,000 USD since May, with the freight rate to the port of Rotterdam being approximately 6,800 USD.In addition to the detour issues caused by the situation in the Red Sea, the increase in freight rates since May this year is also related to a series of chain reactions. Song Bin believes that due to the longer voyage, the originally planned inventory was consumed more quickly. Considering the extended voyage in the future, it triggered a wave of advance operations in the supply chain orders. Coupled with concerns about the United States' additional tariffs, it further stimulated a batch of advance orders, thereby boosting the freight rate increase. However, in his view, the cycle of this wave of advance orders has ended, and the summer freight volume of photovoltaic-related products has shown a downward trend.

From Shi Jiaqi's perspective, looking at the supply side, the overall freight volume that shipping companies can undertake is entirely manageable. The rise in freight rates this time, apart from the impact of detours, to some extent, has an intentional regulatory component from the shipping companies. They hope to create a sense of supply tension in the post-pandemic downward channel to "stop the fall with a rise," which means that the increase in ocean freight is not simply determined by the actual supply and demand relationship. At the same time, regarding the North American route, it has also been affected by the surge in demand in the South American market. "At first, it was the South American route that started to increase in price due to the significant increase in demand, so shipping companies began to withdraw ships from the American route to support the South American route, leading to chaos in the American route." Coupled with the impact of detours and large-scale strikes at European and American ports, more and more ships and containers are unable to return to the port on time.

Raccoon Logistics mainly undertakes the business of cross-border e-commerce. According to her observation, from the demand side, there is no obvious rush for basic products, as the impact of additional tariffs on categories such as furniture and fitness equipment is expected to be not too significant. The main concern is still the worry about the increase in ocean freight and the extension of the transportation cycle, which has prompted customers to choose to load goods into containers or transport them to overseas warehouses in advance in May, in order to reduce the impact of price increases by rushing out.

Regarding advance orders, she believes that after a wave of rush in May, the continued rise in freight rates in June has led more customers to wait and see. The decline in demand may allow freight rates in July to "stabilize." "Many big-selling customers on various platforms already feel that they can't afford ocean freight," and the influx of a large number of Chinese cross-border e-commerce platforms has made the overseas market increasingly competitive. Sellers dare not raise prices and find it difficult to bear the burden of rising freight rates. "Our business volume in June has obviously decreased. Some customers originally planned to ship 10 containers, but now they only ship 2 to 3 containers. Domestic factories are also intentionally slowing down the production pace."

How long can ocean freight rates continue to rise?

According to data from the Shanghai Shipping Exchange, as of June 7, the Shanghai Export Container Freight Index (comprehensive index) reported 3,184.87 points, an increase of 140.10 points compared to the previous period; the China Export Container Freight Comprehensive Index reported 1,592.57 points, an increase of 6.5% compared to the previous period.

Although ocean freight rates are considered to have deviated from the actual supply and demand, their long-term trend still depends on the supply and demand relationship.

In the post-pandemic era, affected by insufficient market demand and oversupply, the ocean freight prices that soared during the pandemic have experienced a significant drop, basically returning to the pre-pandemic level. According to data from June 25, 2023, the Baltic Freight Index (FBX), which reflects global container freight rates, fell by 7% to $1,297/FEU (40-foot container) for the week, hitting a new low since November 2019. Among them, the China/East Asia to North America West Coast route index price (FBX1) fell by 15% to $1,209/FEU; the China/East Asia to North America East Coast route index price (FBX3) fell by 8% to $2,298/FEU.

In terms of supply capacity, as the situation in the Red Sea gradually eases and new ship orders placed during the pandemic are delivered, the supply of the shipping industry is bound to continue to increase. However, factors such as the U.S. election, large-scale strikes at ports, and increased tariffs in Europe and America will still bring uncertainty to the supply.

Shi Jiaqi mentioned a detail, which is that the inspection rate of Chinese e-commerce goods by the United States is getting higher and higher. "We have a large volume of containers, and the inspection rate in the United States used to be no more than 5%. The inspection volume in the past two to three months has already been the volume of last year." The focus of the inspection is the customs clearance amount and the increasingly strict related certifications. This also makes Chinese goods face a longer inspection cycle, "which originally took 7 to 10 days, but now it takes two weeks," which will further lead to the accumulation of containers and a slower return flow. These detailed changes are a microcosm of the still significant uncertainty in China-U.S. economic and trade relations.In terms of market demand, the US market has recently entered a new inventory restocking cycle, coupled with Chinese foreign traders actively exploring emerging markets such as South America, the Middle East, and Southeast Asia. This has helped maintain an upward trend in China's foreign trade this year.

Customs data indicates that in the first five months of this year, the total value of China's goods trade in imports and exports grew by 6.3% year-on-year. Exports increased by 6.1%, while imports rose by 6.4%. In May alone, China's imports and exports grew by 8.6%, with the monthly growth rate further accelerating. During the first five months, the total trade value with ASEAN, China's largest trading partner, increased by 10.8% year-on-year, accounting for 15.8% of the total foreign trade value of the country. China's combined imports and exports to countries involved in the "Belt and Road" initiative reached 8.31 trillion yuan, a year-on-year increase of 7.2%. Concurrently, mechanical and electrical products, which account for nearly 60% of exports, grew by 7.9% year-on-year. Among them, automatic data processing equipment and its components increased by 9.9%, integrated circuits by 25.5%, and automobiles by 23.8%. Labor-intensive product exports grew by 7.1%.

"There are indeed clients who are waiting to see whether to place orders due to the rise in sea freight costs, especially clients from South America, but the impact on the overall orders is not that significant," said Liu Youling, the person in charge of Shanghai Jia Jing Environmental Technology Co., Ltd., to Yicai. The overall demand is showing a trend of recovery, "almost everyone around me who does exports has seen an increase in orders this year." Due to a smaller base last year, the company's exports in the first five months of this year have increased by about 100%.

For foreign trade person Ding Yandong, since the main customers are from Europe and emerging markets such as the Middle East and Africa, the continuous increase in sea freight costs has led to severe delays in the company's shipments. "The first batch of customers in May has been delayed for a long time, and later we came up with a solution by reducing prices to help them share some of the costs," Ding Yandong told Yicai. Now, the goods for the second batch of customers have also been completed, "a Middle Eastern customer, the goods are ready, but they have not been shipped yet." In terms of performance, the export growth in the first half of this year is more than 50%. While continuing to explore emerging markets, they also plan to focus on the US business this year.

Liu Youling is not sure whether the growth rate of the second half of the year can continue that of the first half, but she estimates that the company's annual exports should be able to grow by about 50%, with the profit margin basically the same as last year. In the next one or two months, sea freight costs are expected to continue to rise and then stabilize, "the demand in some countries, such as Africa and Southeast Asia, is expected to stabilize for a period of time." During this year's National Day, they will continue to explore the market in the Middle East.

Shi Jiaqi believes that the off-season in the first half of this year was not weak, and it is better to say that the peak season has come earlier. The overall demand in the second half of this year is still expected to increase. In terms of her company, the overall freight volume has increased by about 20% compared to last year. Faced with the replenishment demand for the e-commerce peak season in August and September, and the promotional seasons of Black Friday and Christmas, after a brief stability in July, the freight rate may still rise. However, according to the current increase in sea freight, the rise in costs has severely squeezed profits, "it is possible that after the peak season in the fourth quarter, both sea freight prices and shipment volumes will fall."

In Chen Yang's view, the decline in freight rates is inevitable, it's just a matter of time, but no one can say exactly when.

For foreign trade, a favorable factor is that the ecosystem and infrastructure of cross-border e-commerce are more complete than before the pandemic. This has made cross-border e-commerce an important engine for the growth of foreign trade and will maintain strong momentum for a longer period in the future. In addition, uncertainties in the international economic situation and geopolitical fields are still intensifying and remain a huge challenge that shipping and foreign trade recovery must face.