Causes And Effects Of Sea Freight Soaring

Views: 10     Author: Site Editor     Publish Time: 2021-06-30      Origin: Site


Causes And Effects Of Sea Freight Soaring

Why has ocean freight rates soared?

Since May 2020, ocean freight rates have continued to rise sharply, and consolidated freight rates have frequently set new historical highs. From May 2020 to present, the global container freight index has risen sharply by 381%. China's export container freight rates and sub-divided freight rates to Europe have also increased by more than 200%, hitting record highs.

The soaring ocean freight rates have significantly pushed up imported inflationary pressures, prompting the United States and Europe to decide to suspend trade frictions that lasted for several years. The high dependence of the domestic economy on imports makes ocean freight rates continue to be reflected in the inflation readings of the United States, Europe and other economies through the import price channel. In order to reduce import costs and ease the pressure of domestic price increases, the United States and the European Union announced in March that they would suspend a multi-year trade dispute and mutually cancel billions of dollars in punitive tariffs.

Behind the soaring ocean freight rates, the United States and Europe have emerged from the epidemic and demand continues to be repaired. At the same time, global ocean shipping capacity "is in short supply." Since May 2020, with the continuous improvement of epidemic prevention and control capabilities and the introduction and promotion of vaccines, the economic activities of major economies such as the United States and Europe have continued to heat up and import demand has expanded significantly. However, during the same period, the year-on-year growth rate of global container shipping capacity only rebounded slightly from 2.6% to 4%, completely "not keeping up" with the pace of repairing the global trade chain.

The shortage of global shipping capacity is closely related to the close to full shipping capacity, the serious shortage of new capacity, the "labor shortage" in many important ports, and the drastic reduction in the number of seafarers. On the one hand, the idle rate of global shipping capacity has dropped to 4.7%, a historical low, while the new capacity in the same period is still less than 4% of the existing capacity. At the same time, affected by the epidemic and strikes, many ports in the United States and Europe have experienced labor shortages, and seafarers of Indian and Filipino origin have also been lost on a large scale.  

What is the impact of the surge in sea freight on global inflation?

In the past 10 years, due to the downturn in the industry, major shipping companies have reduced capital expenditures on a large scale, resulting in a sharp drop in the growth center of global shipping capacity. While the existing capacity is insufficient, the delivery cycle of new ships of at least two years will make the production capacity of the centralized operation industry almost inelastic in the next two years.

Due to the long training period and the reduced work attractiveness caused by the superimposed epidemic, the shortage of seafarers will further restrict the release of shipping capacity. Experience shows that the training and internship time for ordinary seafarers and senior seafarers requires at least 10 months and 2 years, respectively. As the epidemic has caused the loss of some seafarers, and the frequent mutation of the virus has greatly reduced the attractiveness of seafarers' work, the loss of seafarers, especially senior seafarers in the world, is high, and the gap continues to expand.

The trend of oil prices has risen sharply, which has also greatly increased the pressure on shipping prices from the cost side. Fuel costs generally account for more than 30% of the operating costs of the shipping company. As of June 25, the absolute level of oil prices has been nearly 30% higher than before the epidemic. With the gradual end of the epidemic in the United States and Europe, the accelerated restart of the economy, and the reluctance of U.S. shale oil companies to increase capital expenditures, oil prices are still in the upward channel, which will continue to push up the pressure on shipping prices.

On the whole, with the large-scale promotion of vaccines, driving import demand from the United States and Europe to maintain high levels, as well as the serious shortage of new capacity in the industry, the continuous expansion of the seafarer gap, and the trend of superimposed oil prices, ocean freight rates may continue to remain high. For the United States and Europe, it will add fuel to the domestic inflationary pressures.

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