High Freight Rates Has Engulfed Chinese Businesses

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  • Container rates from Asia to Europe and the US West Coast have fallen by more than 20 per cent since the lock down of Shenzhen in March.
  • Strict zero-Covid controls have slowed China’s export momentum in recent months, with cargo volumes from the world’s No 2 economy continuing to slide over May.

High shipping rates that have plagued Chinese businesses over the past year have tumbled more than 20 per cent since March, as export growth in the world’s No 2 economy stagnates due to stringent lockdowns in Shanghai and other parts of the country, says an article published in SCMP.

Lowest rate

Strict zero-Covid controls helped send China’s export growth to its lowest rate in almost two years in April, with hopes of recovery set to face multiple headwinds from prolonged lockdowns, global inflation and geopolitical tensions.

Although daily coronavirus cases have dropped to one tenth of their peak level in Shanghai, and some factories have resumed production, restrictions in many parts of the city are tightening. Manufacturing and trucking capacity has been restrained and there has been a significant drop in the availability of goods and port output.

Shanghai port

Shanghai Port, the world’s largest port in terms of container throughput and a major gateway for goods produced in nearby manufacturing hubs, has remained operational since the lockdown began six weeks ago, but export volume has been shifted to the nearby Port of Ningbo, said Xu, a shipping agent based in Jiangsu province who only gave his surname.

“Our business in the first half this year was so much worse compared with last year, we can hope for a better second half,” Xu said.

“The orders we got to Vietnam and Russia were fine. But the demand to Europe and the US has continued to decline.”

Weak export momentum

China’s overall exports grew by 3.9 per cent last month from a year earlier to $273.62 billion, compared with growth of 14.7 per cent in March, data released on Monday showed. It was the lowest growth rate since June 2020.

An air shipping agent based in Dalian in northeastern China, who asked not to be named, said demand for customs declarations from Chinese exporters had dropped by 30-40 per cent this year.

Export momentum is likely to remain weak in coming months, experts said, as lockdown measures are extended to more cities, including parts of Beijing.

“This has been reflected in the cargo volumes from China sliding over May, and shippers believe the situation will remain murky for a while,” said a report by freight forwarding platform Shifl on Monday.

“With Beijing teetering at the brink of a similar situation, the Chinese mainland might have problems returning to the previous smooth flow of cargo movement.”

Facing dwindling demand and keen to maintain historically high freight rates, the world’s major ocean carrier alliances have announced cancellations of at least a third of their scheduled sailings out of Asia through early June and implemented more blank sailings, a term used when a shipping company decides to skip a particular port or leg on a route.

“The removal of capacity could stabilise container rates out of Asia to Europe and the US West Coast, which have fallen by more than 20 per cent since the initial shutdown in Shenzhen in March,” said Judah Levine, head of research at Freightos.

Drop in transit time

The spot rate for 40-foot containers on the Asia-US west coast route decreased 3 per cent this week to $12,217, though the rate is still 67 per cent higher than the same time last year, according to Freightos Baltic Index.

While the price for the US east coast was stable at $12,217, it is 115 per cent higher than the same week in 2021.

As congestion mainly led by dry bulk carriers builds at ports across China due to containment measures, lower export volumes have provided respite for ports in the US, and resulted in a drop in total transit time, experts said.

“However, once Covid-19-related lockdown is lifted in mainland China along with seasonal recovery of shipments, the impact may pose another upside risk on port congestion and the discharging ports side over the coming peak season,” said Daejin Lee, lead shipping analyst at IHS Markit last month.

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Source: SCMP

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