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Global Economy Flashes Red As China Shipping Rates Collapse

January 17, 2019

Global Economy Flashes Red As China Shipping Rates Collapse

A dramatic and sudden slowdown in the rate at which numerous commodities are being shipped to China suggests slowing demand for raw materials in the world’s second-largest economy, and signals a wider economic slowdown globally looms.

“Recent shipping data has turned negative with charter rates across all sectors notably weaker compared to late November levels,” Morgan Stanley analysts Fotis Giannakoulis, Qianlei Fan, and Max Yaras wrote.

“While such moves are common, the synchronized decline may be a warning for Chinese commodity demand.”

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 Morgan Stanley continues:

During the last six weeks almost all shipping sectors have seen charter rates move lower, raising concerns about the health of underlying demand.

  • The Baltic Dry Index is down 17% since mid-December (Exhibit 6) with all vessel types earning lower rates compared to a year ago despite the sharp drop in dry bulk supply growth.

  • Meanwhile, data from China Customs show that iron ore imports shrunk by 3.2% in the last three months through November (Exhibit 7), while steel margins have recently turned negative.

  • On the crude side, VLCC rates to Asia have also seen a notable decline, falling from $60 in November down to $30k currently (Exhibit 8) with crude flows to China showing signs of decelerating momentum. According to ClipperData, in 2018 crude flows to China remained strong, growing by 7.6%, but below the 10.1% growth rate seen in 2017. Over the last four weeks data shows further declines, although this is mostly attributed to the slowdown in supply due to the OPEC+ cuts, as well as delays at Chinese ports.

…click on the above link to read the rest of the article…

First Ocean Freight Rates Collapse to “Zero,” China Freight Index Plunges to Record Low, Bailouts Loom

March 30, 2016

First Ocean Freight Rates Collapse to “Zero,” China Freight Index Plunges to Record Low, Bailouts Loom

The next stage of “Moral Hazard?”

The amount it costs to ship containers from China to ports around the world has plunged to historic lows. As container carriers are sinking deeper into trouble, whipped by lackluster global demand and rampant oversupply of container ships, they’re escalating a brutal price war with absurd consequences.

Maritime research and advisory firm Drewry (emphasis mine):

Recent news stories, backed up by anecdotal stories told to Drewry, report that carriers have quoted zero dollar freight rates to some forwarders on certain lanes out of Asia. Whether these are merely isolated cases or something more widespread is difficult to judge at the present time, but whatever the exact quantum, there is no denying the container rates are now close to the historic lows as seen in 2009.

The World Container Index, an average of spot freight rates on 11 global East-West routes connecting Asia, Europe, and the US, plunged last week to a record low of $666 per 40-foot equivalent unit container (FEU), down 73% from mid-2012!

The China Containerized Freight Index (CCFI) tells a similar story. It tracks contractual and spot-market rates for shipping containers from major ports in China to 14 regions around the world. On Friday, the index dropped 1.6% to 659.19, its lowest level ever!

It has plunged 39% from February last year and 34% since its inception in 1998 when it was set at 1,000:

China-Containerized-Freight-Index-2016-03-25

Shippers and their customers are rejoicing for the moment. But the collapse in shipping rates – to “zero” in some cases, as Drewry reported – is taking its toll on the industry.

The risk of carrier bankruptcies – with the awkward side effect of stranded cargo – increases, according to Drewry, “the longer rates remain non-remunerative, while carriers will likely intensify practices such as void sailings in order to minimize the chance of that eventuality.”

…click on the above link to read the rest of the article…

Global Trade Just Snapped: Container Freight Rates Plummet 70% In 3 Weeks

November 21, 2015

Global Trade Just Snapped: Container Freight Rates Plummet 70% In 3 Weeks

“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines – having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”

Baltic Dry at record lows…

And Shanghai Containerized Freight collapsing…

As Reuters reports,

 Shipping freight rates for transporting containers from ports in Asia to Northern Europe plunged by 27.9 percent to $295 per 20-foot container (TEU) in the week ending on Friday, one source with access to data from the Shanghai Containerized Freight Index told Reuters.

The drop came after spot freight rates on the world’s busiest route dropped 39.3 percent last week, and the current rates are widely seen as loss-making levels for container shipping companies.

The spot freight rates for transporting containers, carrying anything from flat-screen TVs to sportswear from Asia to Northern Europe, has fallen 70 percent in three weeks.

In the week to Friday, container freight rates fell 22.5 percent from Asia to ports in the Mediterranean, dropped 8.6 percent to ports on the U.S. West Coast and were down 8.0 percent to ports on the U.S. East Coast.

But even more concerning is this collapse is occurring just as the containerized freight industry enters its golden seasonal period…

…click on the above link to read the rest of the article…

Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks

August 23, 2015

Global Trade In Freefall: Container Freight Rates From Asia To Europe Crash 60% In Three Weeks

Three weeks ago, when we last looked at the collapse in trade along what may be the most trafficked route involving China, i.e., from Asia to Northern Europe, we noted that while that particular shipping freight rate Europe had crashed some 23% on just one week, there was some good news: at least the Baltic Dry index was still inexplicably rising, and at last check it was hovering just above 1,100.

That is no longer the case, and just as with everything else in recent months, the Baltic Dry dead cat bounce is now over, with the BDIY topping out just above 1200 on August 4, and now back in triple digit territory, rapidly sliding back to the reality of recent record lows which a few months ago we suggested hinted that much more is wrong with global trade, and the global economy, than artificially manipulated stock markets would admit.

More importantly, a major source of confusion appears to have been resolved. Recall that as we noted on August 3, “many were wondering how it was possible that with accelerating deterioration across all Chinese asset classes, not to mention the bursting of various asset bubbles, could global shippers demand increasingly higher freight rates, an indication of either a tight transportation market or a jump in commodity demand, neither of which seemed credible. We may have the answer.”

We did. To wit:

“Should the dead cat bounce in shipping rates indeed be over, and if the accelerate slide continues at the current pace, not only will shippers mothball key transit lanes, but the biggest concern for global economy, the unprecedented slowdown in world trade volumes, which we flagged a week ago, will be not only confirmed but is likely to unleash yet another global recession.“

…click on the above link to read the rest of the article…

 

 

Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week

August 2, 2015

Something Just Snapped: Container Freight Rates From Asia To Europe Crash 23% In One Week

One of the few silver linings surrounding the hard-landing Chinese economy in recent weeks has been the surprising resilience and strength of the Baltic Dry Index: even as Chinese commodity demand has cratered in 2015, this “index” has more than doubled in the past few months from all time lows, and at last check was hovering just over 1,100.

Many were wondering how it was possible that with accelerating deterioration across all Chinese asset classes, not to mention the bursting of various asset bubbles, could global shippers demand increasingly higher freight rates, an indication of either a tight transportation market or a jump in commodity demand, neither of which seemed credible.

We may have the answer.

It appears that the recent spike in shipping rates was analogous to the dead cat bounce in crude oil prices: a speculator-driven anticipation for a sustainable rebound that never took place. And now, just like with crude prices, it is all crashing down…. again.

According to Reuters, shipping freight rates for transporting containers from ports in Asia to Northern Europe dropped 22.8 per cent to $400 per 20-foot container (TEU) in the week ended last Friday, data from the Shanghai Containerized Freight Index showed.

Freight rates on the world’s busiest shipping route have tanked this year due to overcapacity in available vessels and sluggish demand for transported goods. Rates generally deemed profitable for shipping companies on the route are at about US$800-US$1,000 per TEU. In other words, at current prices shippers are losing half a dollar on every booked contractual dollar at current rates.

According to Shanghai data, it was the third consecutive week of falling freight rates on the world’s busiest route. Container freight rates have so far increased in 5 weeks this year but fallen in 23 weeks.

…click on the above link to read the rest of the article…

China Containerized Freight Index Plunges to Multi-Year Low, Shanghai-EU Rates Totally Collapse, US Rates Morose

May 5, 2015

China Containerized Freight Index Plunges to Multi-Year Low, Shanghai-EU Rates Totally Collapse, US Rates Morose

If trade is a reflection of global demand, and if shipping rates are a reflection of the supply of ships by carriers and the demand for those ships by exporters to meet that global demand for goods – well then, we’ve got a situation on our hands.

Two weeks ago, when I wrote about the Shanghai Containerized Freight Index (SCFI), the index had fallen so far so fast that it seemed to be a statistical fluke, something that would instantly bounce back. The SCFI tracks the spot rates from Shanghai to various destinations around the world. At the time, the SCFI component for Northern Europe had plunged 14% from the prior week to $399 per twenty-foot container equivalent unit (TEU), down 67% from a year ago. An all-time low.

There was a lot of handwringing because, even with the lower bunker fuel costs, the break-even rates for these routes were $800 per TEU, according to a report by Drewry Maritime Research. Over twice the spot shipping rates!

The question was how much lower could rates drop?

A lot lower. Over the two weeks since, the SCFI for Northern Europe plunged another 14% to $343, setting a new all-time low. A terrific 68% collapse from the same week a year ago. Something big is going on in the China-Europe trade.

Carriers have tried to impose big rate increases, with UASC pushing for an increase of $1,300 per TEU, and a gaggle of others going for an increase of $1,000 per TEU, according to the Journal of Commerce. None of them were able to make them stick.

 

…click on the above link to read the rest of the article…

Shanghai Containerized Freight Index Collapses: China-US Rates Hit Hard, China-Europe Rates Plunge to All-Time Low

April 21, 2015

Shanghai Containerized Freight Index Collapses: China-US Rates Hit Hard, China-Europe Rates Plunge to All-Time Low

First was the Baltic Dry Index, which tracks rates for transporting the major raw materials in bulk by sea. Reflecting the totally battered global commodities market, it crashed to an all-time low in February, though it has since edged up a tiny bit.

Now, containerized shipping rates are taking a majestic drubbing, and those from China to Europe have collapsed to all-time lows.

The Shanghai Containerized Freight Index (SCFI) that tracks shipping rates from Shanghai to Northern European ports plunged 14% from last week to $399 per twenty-foot container equivalent unit (TEU), down a vertigo-inducing 67% from the glory days just a year ago. It was the 11th week in a row of declines, and it set a new all-time low.

The index is now half of the key rate of $800 per TEU that a report by Drewry Maritime Research, released on April 19, considers the break-even rate for these routes even at the currently lower fuel costs. This leaves carriers deeply in the red.

The Asia-Mediterranean routes have experienced a similar collapse in shipping rates. The SCFI for these routes plunged 11% from a week ago to $540 per TEU, down 60% year over year, also setting a new all-time low.

The link between the global economy, external trade, and the shipping industry is clearly felt in the freight market, explained Peter Sand, chief shipping analyst at the Baltic and International Maritime Council (BIMCO), the world’s largest international shipping association.

He blamed an oversupply of ships, including “the continued inflow of new ultra-large container ships on the Far East to Europe trades,” and the deteriorating exports from China so far this year.

 

 

…click on the above link to read the rest of the article…

 

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