High freight rates expected after Shanghai eases lockdown

Long delays at Shanghai Port.

China eased Covid-19 restrictions in Shanghai on June 1 after two months of lockdown.  As restrictions were lifted, the shipment of exports is expected to increase and freight rates, in tandem, are also expected to be raised.

Shanghai Containerized Freight Index (SCFI), an index of 15 different short-term routes departing from Shanghai, has been on the rise since the government eased restrictions, reaching 4,233.31p on June 10.

Shippers and carriers are facing long delays as the Port of Shanghai, and to a lesser extent Ningbo Port because of diverted cargoes from Shanghai, has a record-high volume of accumulated containers waiting to be transported.  Additionally, cargo truck drivers going into Shanghai have to show a negative Covid-19 test result, adding to the delay.

Of course, higher freight rates can be good news to some, especially for shipping companies. Sea Intelligence, a maritime research firm based in Denmark, said in a recent report that the shipping industry has seen the peak of sales earlier than expected this year, owing to shipping companies aggrandizing their shipping capacities, and expecting more cargo in the third quarter. The utilization of bottoms of containerships will be on a constant rise, it added.

Analysts predicted Korean shipping companies will see the highest-ever level of sales this year. For example, HMM, which transports the largest portion of South Korean exports, is expected to amass over 18 trillion won ($US14 billion) in sales and 10 trillion won ($US7.7 billion) in profit, which are 31.7 percent and 47.6 percent increase respectively, over the same period last year, according to FnGuide, a financial information service company based in Seoul.

Choi Go-woon, an analyst at Korea Investment & Securities, said in a report that the current level of freight rates is “unprecedentedly high” and the second-quarter sales of major shipping companies like Pan Ocean and HMM will be 10 to 20 percentage points higher than expectations.

However, the demand for transport outpacing the supply may not be good news for Korean exporters. When freight rates increase, container ships may not stop by Korean ports. For example, if the freight rate for the Shanghai to Los Angeles route is 50 percent lower than that of Busan to Los Angeles, shipping companies may skip the Busan Port and anchored at Shanghai instead.

With the ongoing strikes by truckers, which disrupted the transport of export containers to the Busan Port, and the increase in freight rates, Korean exporters have a lot to worry about right now. 

Nonetheless, while the SCFI may be on the rise for foreseeable future, analysts are seeing signs that the global freight rates may be easing.  For example, there are relatively fewer container ships waiting at the ports in the west of the United States, such as Los Angeles and Long Beach ports. The number of container ships waiting at those ports decreased from 109 on January 9 to 20 on June 10.  As such, analysts expected to see more operating container ships coming back into the market later this year. 

Kang Seong-jin, KB Securities analyst, said that the global logistics disruption may ease before the peak season in August. “Reduced disruption in logistics can also lead to a decrease in the containerized freight rates,” he added. 

However, the supply disruption will not resolve anytime soon in some regions, like Europe because of Russia’s invasion of Ukraine.  Also, even if the supply of container ships rises, it will be difficult to have the global freight rates go down to pre-Covid-19 level, according to the Baltic and International Maritime Council.

Photo credit: iStock/ AvigatorPhotographer

Sunny Um

Sunny Um

Sunny, our South Korea correspondent working out of Seoul, is a journalist with a passion for community journalism and an interest in economics and politics.

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