The Strategist

Container shipping spot rates are falling down as post-pandemic supply is growing


03/22/2021 - 05:13



Container shipping spot rates, which have soared several times in the past six months, have begun to fall as supply is increasing.



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pixabay
Container spot rates, which have soared several times in recent months, have started a slow decline. The World Container Index, calculated by Drewry, fell 1.7% to $4,94,000 per 40-foot container (FEU) in the week ended March 19. 

The price has been slowly declining for the fourth week in a row. According to Clarkson, spot rates on the Shanghai-Europe route fell below $4,000 per 20-foot container (TEU) in March. However, against the backdrop of a general price hike over the past six months, the drop is almost imperceptible. The average global rate index is still 233% higher than a year earlier and is at a 13-year high. They are being pushed up by a post-pandemic global economic recovery with a shortage of empty containers in China, where they are not returning at a sufficient rate due to congestion at ports caused by coronavirus restrictions.

New container output in China, which accounts for about 90% of global production, is also growing, but not enough to close the imbalance. According to Bloomberg, citing the vice president of the China Container Industry Association (CCIA), output rose to 300,000 TEUs in September 2020 and to 440,000 TEUs in January 2021. 

Before the pandemic, China had an oversupply of containers, with 3 million empty 20-foot containers in the country's ports and 1.2 million in factory warehouses. With this level of reserve and amid the pandemic, container orders in China have plummeted and have been almost non-existent for five months. Furthermore, due to stagnant demand and trade wars between the US and China, CIMC's net profit (60% of the global market) more than halved from 2018 results in 2019, and the world's second largest producer Singamas went into loss. But the situation has changed dramatically at the end of 2020. 

CIMC announced in January that it expects net profit for 2020 to rise 224-270% to RM5-5.7bn ($768-875m). Singamas also promises a profit for the year against a loss of $110 million a year earlier. 

Meanwhile, other countries are taking steps to ensure their independence from the Chinese container market: for example, Korea is discussing the possibility of establishing its own national manufacturer.

source: bloomberg.com




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