How The Maritime Sector Was Left With A Hangover

Credit: Albin Berlin/Pexels
  • Traffic at the Hengpu and Beilun parking lots, which primarily serve the port, has dropped dramatically over the last two years, several truck drivers told Caixin.
  • During the shipping boom in 2021, some drivers would make 27 cargo deliveries per month on average, they said.
  • Now they are happy if they can do two a week.

Since early March, two of China’s largest container truck yards near the major port city of Ningbo in Zhejiang province have been filled with nearly 3,000 idle vehicles with no cargo to haul, as reported by Nikkie Asia.

Weak consumer demand

During the shipping boom in 2021, some drivers would make 27 cargo deliveries per month on average, they said.

Now they are happy if they can do two a week.

“The change only becomes more apparent in the port, where there are so many idle cargo containers that workers have nearly run out of places to stack them. “

A combination of factors has led to these mountains of metal boxes piling up at Chinese ports — the low cost of storing containers in China, a surge in their supply during the pandemic export boom, and the immense number of them returning home once the boom faded — said Yu Jianhua, head of the General Administration of Customs, at a March 21 press briefing.

The container pileup in China is one of the more visible symptoms of the problems in the shipping industry caused by a downshift in foreign trade amid weakened consumer demand and slowing global growth.

Demand sinks

In Shanghai, more forty-foot containers have come into the port than have departed each week since the beginning of the year, according to the monitoring platform Container xChange.

Container xChange’s Container Availability Index (CAx) has remained elevated at more than 0.6 compared with readings over the last three years in ports across China, including those in Ningbo and Tianjin, according to a report the platform put out in early February.

A reading over 0.5 means that more containers have entered a port than departed over a given period.

Globally, about 6% of container capacity is idle, with a large number of ships filled with empty containers sitting anchored at sea, a person working at a large freight forwarder previously told Caixin in February.

For China, the problem is with its exports, whose growth began slowing in mid-2021 due to shrinking demand from its major trade partners and the recovery of supply chains elsewhere that has met some of the demand for goods.

While that figure beat estimates and narrowed from December’s 9.9% year-on-year decline, it is far from a sign that a trade recovery is around the corner.

Exports to the European Union declined 12.2% while those to the United States fell 21.8% year over year. High inflation reduced American households’ purchasing power, and overcrowded warehouses pushed businesses to cancel orders. Inflation caused by Europe’s skyrocketing energy costs has made customers less likely to take out their wallets.

According to research firm Sea-Intelligence, the decline in demand has caused ocean freight rates, which are mostly influenced by variations in ship utilisation, to plummet. The spot and contractual freight prices exiting the main Chinese container ports on 12 shipping routes are tracked by the China Containerized Freight Index, which started declining in August. The Shanghai Shipping Exchange’s index fell 8.5% month over month in February after falling an even greater 11.2% in January.

Speedshift made things worse 

As of March 30, the cost of sending a container from Shanghai to New York was down 78% from a year earlier, while the figure for Shanghai to Los Angeles had plunged 81%, according to data published by Drewry Shipping Consultants, a maritime research consultancy.

In less than two years, the ocean freight market went from one extreme to the other as resources including ships, containers, trucks and warehouses went from shortage to glut, said Zhang Huafeng, Los Angeles chief representative at Transfar Shipping.

The speed of that shift has only made things worse.

During the boom of 2021, ocean carriers ordered a record number of shipping containers while retiring fewer ageing ones, Drewry Shipping said in a July report.

The situation is only going to get worse as new ships get delivered, Zhang said.

A price war

Ship owners have found themselves in a predicament that is similar to that of container buyers.

When freight rates were surging during the export boom, they spent a lot of their profits on new ships.

That has led to some 2.6 million TEUs worth of newly built capacity expected to hit the water in 2023, Drewry analysts said in an October report. 

However, these measures may not be enough, because more shipping capacity is in the pipeline.

Some carriers did not adjust their business to the drop-off in demand last year, Container xChange said in a February report. “This is a behaviour we know by a different word: A price war.”

The world economy is recovering 

Some industry observers were also worried that the market downturn could trigger a price war similar to the one that occurred in 2015 and 2016, which led to the bankruptcy of South Korea’s Hanjin Shipping, once the world’s seventh-largest container shipper.

However, some analysts see things getting better as China’s export outlook recovers.

The world economy is recovering, wrote Li Zongguang, chief economist at China Renaissance Holdings in an opinion piece last month.

But China’s official manufacturing PMI survey, new export orders started growing in February again for the first time in nearly two years, with the reading reaching 52.4, he said.

Xu at SISI also believes that global trade demand is set to recover in 2023, and the turmoil seen in the shipping industry will not worsen.

According to him, the recovery could be expected in the third quarter of this year, when exports usually tend to rise in anticipation of the Christmas season.


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Source: Nikkie Asia


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