When will the skyrocketing global sea freight rate usher in a turnaround?

Sea freight has always been an important part of the international trade transportation market with its low price.

However, since the outbreak of the epidemic, global shipping costs have started a frantic price hike mode. In just one year, shipping costs have skyrocketed 10 times.

Tens of thousands of containers full of imported goods have been stranded at U.S. ports in recent months, with ships lining up at the ports for weeks.

Freightos, a logistics platform, showed that the cost of shipping a 40-foot container from China to the U.S. West Coast hit $20,000 in August last year and fell back to $14,600 as of Jan. 14. Although lower than the summer peak, it is still more than 10 times the pre-pandemic level.

Poor shipping has exposed deep-seated problems in the supply chain.

The blockage of the global supply chain and the imbalance of supply and demand in the market are the direct reasons for the rise in freight rates. In addition, factors such as reduced terminal efficiency of ships, sharp rise in ship and container leasing costs, and increased costs associated with providing customers with alternative supply chain solutions have also contributed to the rise in freight rates.

A poor supply chain has now largely become an inland transport bottleneck.

Reduced port turnover efficiency has resulted in slow container flows in and out and vessel delays. The efficiency of the port is dragged down by factors such as labor shortage, insufficient collection trucks, and insufficient storage space.

Chinese ports operate with high efficiency, not only widely applying new technologies, but also attaching importance to strengthening cooperation with all parties in the port ecosystem. Because of this, after the outbreak of the epidemic, the focus of global trade is China, and even with the sharp increase in cargo volume, Chinese ports can still maintain order.

On the one hand, China has brought the epidemic under control in a timely and effective manner, and the speed of resumption of work and production has exceeded expectations. In the global industrial chain, China's manufacturing industry plays an important role. On the other hand, with the recovery of the global economy, the demand for Asian products in Europe and the United States has surged, and the demand for import replenishment is strong, so a large number of goods flow from China to overseas, supporting the continuous growth of trade volume.

Another factor contributing to the current shortage of containers, cargo space, and rising freight rates is structural issues.

Carriers such as shipping companies place too much emphasis on cost management and focus on short-term freight rate optimization. This has also prompted a speculative cooperation model between shipping companies and cargo owners, putting freight rates under great downward pressure and reducing the flexibility and resilience of the supply chain. Once faced with a "black swan" event like the new crown epidemic, there is not much room for buffering.