Ocean freight rates are expected to continue climbing through December. While export orders remain stable, a possible container space shortage looms.
Solid recovery among China's export manufacturing industries is driving up shipping fees, as ship owners are hoping to recoup margins by continuing to control capacity and in effect, raise freight costs. Even so, suppliers have not reported declining overseas demand due to higher shipping charges.
Customs statistics released in early April showed the country's overseas sales grew 28.7 percent year-on-year and 3.4 percent compared with the same period in 2008, before the financial downturn affected shipments.
As a result, the China Containerized Freight Index soared from 819.55 to 1115.87 on April 23, up 36 percent from a year ago and 12 percent from the start of 2010. The Shanghai Shipping Exchange updates the CCFI every Friday. The latest report released May 21 showed 41 percent year-on-year and 12 percent year-to-date growth to 1125.78.
April's Howe Robinson Containership Index likewise reflected an increase in shipping costs, rising from 330 in November to 400 that month. The HRCI comes from London's Howe Robinson.
Guojin Securities analyst Li Guanghua is positive charter rates will continue to strengthen through the second half. Many specialists also project fees to climb steadily for the rest of the year.
In an investment value analysis report of China Shipping Container Lines (CSCL) prepared by Li's team in February, the country's 2010 export growth is pegged at 15 to 20 percent. Transpacific lines are expected to be $800 and $1,000 more expensive for the US' West and East Coasts, respectively. Freight charges in general are estimated to increase 12 to 13 percent, except in the Asia-Pacific line where costs are forecast to rise by an average 40 percent.
Currently, ocean freight and adjustment fees from Shanghai to Europe and the Mediterranean countries are about $1,850 and $1,800 per TEU. Charges from Shanghai to the West and East Coasts are roughly $2,100 and $3,200 per FEU.
Even while shipping fees are on the rise, orders do not seem to be affected. Computer accessories manufacturer Wiretek Intl Investment Ltd said demand has not declined despite more expensive cargo charges.
Moreover, compared with shipping costs before the economic crisis, current levels are still relatively low. Despite improving 21 percent over a five-month period, April's HRCI has not breached its 10-year high of more than 2000 in 2005.
Parking large vessels may pose storage problems
Although some ports in India and South Korea have reported a shortage of containers, China is not experiencing this yet. But March and April are lean months for the shipping industry as orders are just being placed and are not yet scheduled for delivery. The peak season starts in late May. If freight companies continue to hold back capacity, there may be a deficit in container space in the months ahead.
Shipping companies, however, remain cautious about adding capacity. Maersk even said in March that the industry should slow down the pace of bringing parked ships back to service. Despite positive export figures, freight operators believe the increase in overseas sales is only temporary and do not think capacity needs to expand in the months ahead.
At present, about 500 ships with a combined capacity of approximately 1.3 million TEUs lie idle. Shenzhen freight forwarders said operators replaced larger vessels such as the Panmax class with a 3,900 to 5,100 TEU capacity with smaller versions, including the Handy Size class that can hold between 900 and 1,199 TEUs. This was done last year when shipping companies barely had any cargo and were forced to cut costs. As a result, they had to reduce capacity, cut lanes and slow speeds.
Guojin's Li pointed out that actual recovery for the shipping industry in February is better than projections. Further, a report from the China International Capital Corp. indicates the average containerized freights rose 13 percent in Q1 2010 compared with Q4 2009.
As for the major routes, lines to Europe are already posting profit. Tramp shipping to the US has posted gains as well, although freight liners are still in the red.
Corporate annual reports showed major marine lines recorded a deficit last year. CSCL lost 6.5 billion yuan ($950 million) and COSCO lost 7.54 billion yuan ($1.10 billion). Even industry giant Maersk reported losses amounting to $2.09 billion in its container shipping business, its first shortfall in nearly six decades.
This article was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.