Mounting pressure on China exporters with soaring US shipping costs
SHIPPING freight rates from Shanghai to the west coast of the US have more than doubled to US$3,639 per FEU between May to August, making it the highest it's been since 2009
SHIPPING freight rates from Shanghai to the west coast of the US have more than doubled to US$3,639 per FEU between May to August, making it the highest it's been since 2009.
During the same period freight rates from Shanghai to the US east coast increased by more than 65 per cent to US$4,207 per FEU, at a time when shipping firms are cutting back their operations due to Covid and are also struggling to meet demand as exporters worry about the escalating trade conflict.
Exports to the US by sea started growing in June from a year earlier and in July, exports to the US rose by 7.8 per cent year on year, while imports increased by 16 per cent, the SCMP reported.
Aside from trade conflict between the US and China, shipping firms have not been able to re-adjust their capacities as quickly as the demand has returned, causing them to eliminate routes during the height of the pandemic to lower operating costs.
The US government said they will extend exclusions to its trade war tariffs for a range of Chinese goods, including smartwatches, respirators, and medical masks. However, the promise will only go to the end of the year rather than the one-year extension granted by Washington previously.
The third quarter is typically a peak season for Chinese exports, as many importers start stocking up on goods for the festive holidays at the end of the year, including Christmas.
The volume of cargo on containers from Shanghai to the west coast of the US was still down by double digits from a year earlier in May, but reversed to growth rates of 2.8 per cent and 1.9 per cent respectively in the following two months, while containers hauling cargo to the US east coast grew 4 per cent in July.
'Based on my current orders, we are at full production capacity until the Chinese New Year in 2021,' said general manager of Shanghai General Sports Ge Lei.
Stefan Holmqvist, managing director of freight forwarding agency Norman Global Logistics in Hong Kong, calculated that around five per cent of sea cargoes from China to the US consists of personal protection equipment (PPE). Most of the PPE products that were delivered by air earlier this year are now being shipped by sea, increasing demand for shipping capacity.
'The demand in the US has rebounded strongly, more than we expected. And I think for a lot of carriers, it's hard for them to adjust as fast as the market is adjusting,' said Mr Holmqvist.
'Uncertainty over the tariff exclusion extension also drove US importers to restock even more. Also, we have now come to the last month before the long holiday week in October in China, when factories are closed. All of these things are reasons why we have record-high rates at present,' said Mr Holmqvist.
Ships docked at Shanghai ports heading to the US and Europe are currently nearly fully packed, with delays possible due to overbooking.
'Because of better-than-expected market performance, even if shipping companies increase their capacities, they will not be able to completely ease the pressure from a shortage of [shipping] supply,' said Shanghai Shipping Exchange analyst Zhu Pengzhou.