Since the beginning of the year, the global shipping prices have continued to fall despite the high base in the previous two years. Since the third quarter, the downward trend has accelerated. The prices of some routes have fallen by more than 50% from the peak of last year.
Moreover, due to the high inflation data overseas and the reduction of consumer demand, the current freight rate in the global container shipping market has continued to weaken recently. It even fell below the spot price, and there was an upside-down phenomenon!
The drop in shipping prices can reduce freight costs for sellers, and some industry sellers even predict that their profit turning point is coming. But for the upcoming peak season, a sharp drop in sea freight prices may trigger a price war ahead of time, especially for large products.
01 The freight rates in Europe and America are upside down
According to data released by the Shanghai Shipping Exchange on September 9, the Shanghai Export Containerized Freight Index was 2,562.12 points, down 10% from the previous issue, recording a 13-week decline. The freight rate for exports from Shanghai Port to the West American base port market was US$3,484/FEU (40-foot container), a 12% decrease from the previous issue and a new low since August 2020. On September 2, the US-West freight rate fell by more than 20%, directly from the top of 5,000 US dollars to "3 prefix", from 5,134 US dollars / FEU on August 26 to 3,959 US dollars / FEU.
The Shanghai Shipping Exchange report pointed out that the recent performance of China's export container transportation market is relatively sluggish, and the transportation demand lacks growth momentum.
A new customer survey from European digital shipping platform Xeneta shows that if market conditions change significantly, 70% of respondents will try to renegotiate long-term contracts, 11% will be prepared to default and seek better deals, and only 18% will be surveyed Shippers say they will continue to honor existing contracts no matter how the market changes.
From the August performance disclosed by some listed shipping companies, the shipping market is indeed falling. In August, Wanhai’s revenue was NT$21.3 billion, the lowest level in the past year, down 13.58% from the same period last year; Yang Ming’s revenue reached NT$35.1 billion, a year-on-year increase of 7%. Zhang Shaofeng, business manager of Yangming Shipping, believes that in May, he was too optimistic about the stabilization of freight rates, and the market downturn exceeded expectations. Consolidation companies are indeed under pressure from shippers to renegotiate contract freight rates.
Regarding the continuous decline in shipping prices, some sellers said that a peer who made large-scale products originally signed an agreement price with the platform, and now it has started to hang upside down, so he can only be anxious.
02 Crazy discounts on big products
"The front desk is selling frantically at a discount, otherwise the goods with cheaper follow-up shipping will come in, and the tear will be even worse." Some sellers pointed out. One of the effects of the sharp drop in shipping prices is that some sellers of bulky products are stepping up discounts and promotions. Otherwise, they will be drawn into a more tragic price war later in the face of products that enter the market with low shipping costs.
An Amazon seller in Jiangsu who specializes in large-scale products told Hugo Cross-border that they encountered this problem. "The shipping cost of the goods sent earlier is at a high point, and it is not profitable to sell them." Now he is also dealing with low prices. A batch of high-priced goods is expected to be cleared by October.
Because the volume and weight of medium and large products are generally relatively large, the storage cost of cross-border e-commerce platform warehouses is very expensive, and many limit the size of the warehouse. Additional storage fees are incurred.
Moreover, during the peak season, both platforms and logistics service providers charge additional peak season surcharges. From October 15, 2022 to January 14, 2023, Amazon will charge a peak season logistics surcharge for products delivered by FBA in the United States and Canada, with an average charge of about 35 cents per order. The specific circumstances of the delivery order, such as volume and weight, will be charged in stages.
FedEx also recently announced a surcharge for the peak business season of 2022. Reports say this will put further pressure on shippers who have already experienced high fuel surcharges and tight optional capacity this year. Several of these peak season shipping surcharges exceed last year's levels, especially for larger customers and larger packages that ship more traffic during peak seasons. Most of the surcharges will take effect between October this year and January 2023.
03 The inflection point of seller profit may have come
As early as the beginning of August, a seller found that an old international express company had started to cut prices. "This is the first time in 3 years, and the rate is quite large. It shows that the market is seriously out of stock."
It was previously reported that inflation and a potential economic recession will have a huge impact on container shipping demand. Statistics show that from May 20, global freight volumes fell by 8%, and container bookings fell by 36%. From the perspective of the U.S. market, even though the U.S. is currently achieving full employment, U.S. consumers are under unbearable pressure on economic conditions and personal financial security. Inflation, stock market crashes, rising interest rates and economic instability have all weakened the benefits of full employment. Confidence.
According to industry analysts, the global container shipping market is not optimistic in the fourth quarter, and the market may not be prosperous in the peak season. On the other hand, if the orders of export enterprises continue to decrease, it may be transmitted to sea freight in 1-2 months, and it is estimated that the sea freight price will fall further.
At the same time, cross-border e-commerce sellers may benefit from this, so as to recover blood. Superstar Technology disclosed that it achieved a gross profit margin of 26% in the second quarter of this year, although there was still a year-on-year decline, but a month-on-month increase of 3%. It is worth noting that Superstar has raised prices for related products twice in the past year. In addition, the trend of exchange rates and raw materials is improving, and the turning point of profit has appeared.
Caitong Securities also pointed out in a recent research report that since July, cost-side factors such as freight have entered a year-on-year improvement cycle. The gross profit margin of the big seller Anker Innovation in the second quarter was 40.5%, an increase of 2.4% month-on-month, and cost control was significantly improved.
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