SCFI fell below the thousand-point mark! The liner shipping industry has started a price war

Due to the continuous impact of the sluggish cargo volume, the latest data of the Shanghai Export Containerized Freight Index (SCFI) has fallen below the 1,000-point confidence level and returned to the level before the outbreak of the epidemic in 2019. Freight rates on major European and American routes continued to drop. The US East and US West routes both fell by more than 5%, and the European route continued to fall by more than 3%.

According to the latest SCFI data released by the Shanghai Airlines Exchange, the comprehensive freight index was 995.16 points, down 1.2% from the previous period. Among them, the freight rate from Shanghai to the European market was US5/TEU, a weekly decrease of 3.7%; the freight rate to the US West market was US,293/TEU, a weekly decrease of 5.1%; the freight rate to the US East was US,553/FEU, a weekly decrease of 5.7% %; the freight rate to the Mediterranean Sea was US,724/TEU, a weekly drop of 1.7%.

Freight forwarders revealed that for many shipping companies, the US-West and European lines have fallen below the cost line, and the US-East line is also struggling near the cost line. The off-season is originally around the Spring Festival, but due to the economic downturn since the second half of last year, the demand in Europe and the United States has dropped sharply, the inventory has been digested slowly, new orders have decreased, and shipping companies have insufficient ship loading rates, and they are scrambling for goods and bargaining. And due to the large size of the ship, the filling pressure is greater when the cargo volume is small.

Some analysts say that the liner shipping industry has entered into a price war, which has been characteristic of almost every cycle of the industry in the past 50 years.

Sea Intelligence reports that in 2020 container liners proved that when demand fell, they could respond by reducing capacity. But in the second half of 2022 they chose not to.

In the first half of 2020, the epidemic blockade led to a sharp drop in demand, and shipping companies quickly canceled sailings in order to avoid empty ships operating at sea. Unlike then, although demand on the transpacific and Asia-Europe routes has fallen in a similar fashion since September 2022,Shipping companies have only canceled voyages to a relatively limited extent.

“The data clearly shows that shipping lines are choosing not to use this capability,” Sea Intelligence said.This can only be seen as an option for shipping companies, an option to allow excess capacity to continue, and an option to allow freight rates to continue to decline. And such a choice has a description: price war. "

Simon Heaney, senior manager of container research at Drewry, commented: “Over the past few months, it has become clear that shipping lines have reverted to their old ways, where the instinct to aggressively drive down prices to secure short-term bookings and maintain volumes has taken hold. Upwind."

Today's price cuts will mean shipping rates and margins will be closer to pre-pandemic levels, Heaney predicts. Drewry estimates,Liner shipping's total operating profit, which hit a record 0 billion last year, will slip to billion by 2023.

"Carriers have no choice because price wars are going to happen whether they want to or not," said Hua Joo Tan, founder of Asian liner data provider Linerlytica. No major shipping line is willing or able to exit the market."

Commenting on how market dynamics might develop, Lars Jensen, chief executive of shipping consultancy Vespucci Maritime, said today's price war could be temporary, with more capacity to stabilize the market later. "However, it should be noted that the market is entering a cyclical downturn at the same time, which itself adds to the negative pressure."

South Korean liner HMM, which recently posted a record annual profit of .9 billion, is the latest shipping company to warn that 2023 will be a challenging year. "Unfavorable market conditions are expected to persist due to prevailing inflation and weak economic growth, weighing on demand," it said.

Global securities and investment banking group Jefferies noted in a recent note to clients that container freight rates have fallen sharply over the past six months, with rates hovering around 2020 lows on several routes. It called for a "significant supply response" to properly size the market.