MNI: Trade Friction To Weigh On China Shipping Rates
MNI (BEIJING) - Global and China shipping rates will continue to fall this year as the persistent oversupply of transport and trade tensions weigh on global trade, local analysts told MNI.
Rates on major Asia to Europe and North America routes could drop by about 50% from the current circa USD2,800 per forty-foot equivalent spot rate over the next few months, said Michael Zhong, Shanghai-based CEO of shipping consulting firm One Shipping.
“The market is currently oversupplied with vessels while existing and potential tariffs are inhibiting the recovery of trade,” Zhong noted, adding the China Containerized Freight Index (CCFI) will likely fall by a further 30-40% over the next few months, potentially below the 1,000-point handle after dropping about 15% to 1,318 points over the last month. But charges could rise as shipping allegiances reorganise, stoking port congestion, or new tariffs trigger a wave of advanced orders, Zhong continued.
Yu Du, general manager at Drewry, a maritime research firm based in China, warned new vessel supply will continue to suppress freight rates and “ships avoid the longer Cape of Good Hope route if the Red-Sea situation sees a lasting improvement.”
DE MINIMIS
The U.S.’s plans to end de minimis provisions that exempt small packages under USD800 from import taxes will incentivise certain China e-commerce sellers to ship in higher volume via sea routes and store goods in American warehouses as they attempt to anticipate orders, Zhong said.
“Overall this pushes down demand for the currently favoured air-freight to customer direct model for small packages,” he added, but warned the measure is likely to hurt some small-volume, low-profit trade with a number of firms going out of business.
However, the switch will fail to offset a wider fall in rates given sea freight accounts for 80% of trade volumes globally, Yu argued.
While the tariff changes will impact global trade patterns, some firms may choose to finish production in South East Asia before exporting to the U.S., Yu noted. “For goods shipped direct to the U.S., the majority fall under the [free-on-board] FOB-Incoterm, meaning the buyer pays for additional import charges,” Yu added.
U.S. PORT CHARGES
The U.S. Trade Representative's office recently proposed imposing a USD1.5 million fee on Chinese made ships and shipping companies operating Chinese made vessels entering U.S. ports, a move that would have a significant impact on global shipping, Zhong said.
“If it's applied to all shipping companies operating Chinese-made vessels, this would lead to a huge disruption to U.S. supply chains and higher costs for consumers,” he continued.
The office will hold a public consultation on the charges March 10, with submissions accepted until March 24.