China is a major player in the maritime container market

By Marek Grzybowski

 

Container transshipment in Chinese ports rose to 161.8 million TEU in the first half of 2024, up 8.5% year-on-year. Records were recorded in Shanghai’s container terminals, where cranes handled 25.5 million TEU, up 7.5% year-on-year. Similarly, container supply increased in the Ningbo Zhoushan port. Here, 19.2 million TEU were transshipped, up 8.4% year-on-year. Among the most successful Chinese ports, Beibu Gulf achieved significant year-on-year growth of 19.8%. Here, the total container volume reached 4.3 million TEU in the first half of this year.

As for container freight, it varied depending on demand in individual markets. The average value of the Ningbo Containerized Freight Index (NCFI) was 2,780.2 points in July 2024, up 2.2% from the previous month. In annual terms, the NCFI increased by a shocking 308.9%. Out of the 21 routes, the NCFI for 16 routes increased month-on-month, while the freight index for 5 routes decreased month-on-month.

August this year was another record month in terms of demand for container shipping from China to North America and Northern Europe. This was despite the weak dynamics of the economies of both regions. Perhaps entrepreneurs were building up stocks to ensure continuity of production in the event of further disruptions on the sea routes. In turn, retail chains were filling warehouses to ensure continuity of sales, as the consumer market slowed down to a lesser extent than the industrial market. In July and August, the first signals were noticed that volumes may have already reached the peak.

Record volumes, record freight
Record volumes in June coincided with a spiralling increase in average spot rates from the Far East to the US and Northern Europe. Xenet data shows that spot rates on the US West and East Coasts rose by 144% and 139% respectively between April 30 and July 1. Spot rates rose by 166% in Northern Europe during the same period. Sand said: “Shippers wanted to protect their supply chains, and that came at a high price. The huge volumes shipped in May and June contributed to serious congestion at ports in Asia and the sharp rise in rates.

“Cargo handlers who expedited imports may have spent much more than they wanted to, but they clearly felt that this was a price worth paying to reduce the level of risk in their supply chains later in the year. We saw carriers importing holiday goods as early as May because knowing what was happening is a luxury they don’t have – they had to take immediate action,” Sand said.

This summer, it was noted that record levels of demand for container shipping from China to North America and Northern Europe may have peaked. Average spot rates from the Far East to the US West and East Coast are currently softening, down 17% and 3.2% respectively since July 1.

Average spot rates from the Far East to Northern Europe have remained slightly higher, but are now down a small 1.6% since July 31. Sand said: “There is a clear correlation between record volumes and spot market developments for major trades from China to North America and Northern Europe.
“If we are now seeing a weakening of spot rates in August, it would suggest that we have already peaked in ocean container demand, and volumes should be lower in July and August, which would normally be the peak season,” Sand said. The strong growth in the ocean container market peaked in the summer as importers push back against rising spot rates. Data released by Xenet shows that average spot rates from the Far East to the US East Coast rose 3.7% on July 15 to $10,045 per FEU (40-foot container). On the US West Coast, spot rates rose 2.0% to $8,045 per FEU. These declines were seen in the China Containerized Freight Index in early August across all markets except liner services to Australia.

Shippers reluctant to pay
Liner operators are, however, coming under pressure from cargo managers and freight forwarders to optimise their sea freight costs. Emily Stausbøll, senior shipping analyst at Xeneta, said: “Xeneta data shows that some container carriers are still pushing for higher spot rates in mid-July, but for the first time in a long time, some carriers are offering lower spot rates.”
At the same time, cargo space is on the rise as shipowners bring new vessels into service every day. Many of them are mega container ships, such as the Antonia Maersk. The container ship is 351 metres long and 54 metres wide. We wrote about it here.
Commenting on the pressure from freight forwarders and shippers on liner operators, Stausbøll emphasises: “Most importantly, it suggests that there is increasing available capacity in the market, and that carriers may once again be playing carriers off against each other – rather than feeling they have to pay whatever price they are offered to secure space. As the balance of negotiating power starts to shift in favour of shippers, we should see spot rates start to fall.” The clearest sign of a peak is Xeneta’s ‘medium-high’ market data, which identifies the spot rates paid by shippers.

Flat freights
For Far East to US trade, mid-high (and high) spot market rates remained almost flat in July, indicating that the upper end of the market is no longer spiraling down. Stausbøll said: “The flattened mid-high market means that a growing number of shippers and carriers no longer feel the need to pay spot rates at the upper end to get their containers moving.”
“This is the first crack in the dam, because it means that carriers are no longer dictating which containers to load – but are having to lower rates to secure volumes. If these carriers want to compete and maintain market share, they need to lower their own prices,” Stausbøll noted. The market is also peaking in fronthaul from the Far East to Northern Europe and the Mediterranean, with average spot rates rising 4.7% and 3.5% on July 15, reaching $8,480/FEU and $8,150/FEU respectively. This is down from the 17% and 10% increases that occurred on July 1.

Stausbøll said that “it has been a painful time for shippers who have been forced to pay rising spot rates and faced with the prospect of having to reduce their shipments on existing long-term contracts.”

A positive observation from the market is that “port congestion is easing at a large proportion of container terminals, with more ocean container capacity available and it looks like the earlier import peaks seen this year will mean a looser traditional peak season in the third quarter.”

So we have positive signals from the liner market in August. Container ship operators made up for the losses incurred in 2023 in the first half of this year. Cargo managers and forwarders are no longer willing to pay any price for freight from the Far East to Europe and the United States. Things were already bad. So there is hope that things will only get better in the second half of this year. Liner operators will offer more cargo space and lower freight than in the first half of this year, and ships will stick to their planned port calls more precisely. However, China will remain the undisputed player in the market for the supply of full containers.