Ocean shipping rates are collapsing!

Ocean shipping rates are collapsing!

Prices in the most volatile segment of ocean shipping are collapsing, but top retailers like Walmart and Home Depot should not expect relief until the spring contract renegotiation season, industry experts said.

Spot rates, which cover anywhere from 10% to 40% of ocean container shipments and are considered a key indicator of the industry's health, are in free fall as recession looms and the pandemic-fueled U.S. import bubble deflates.

The cost to send a container from Asia to the United States on the demand-sensitive spot market has tumbled more than 80% from its September peak above $20,000 for a 40-foot container, according to freight booking platform Freightos.

Major carriers like Mediterranean Shipping Co (MSC) and A.P. Moller-Maersk (MAERSKb.CO) also are expecting delivery of hundreds of new container ships, which amplifies risk as carriers already have more ships than they need to handle shrinking demand.

"There is sense of payback-time in the market after the COVID years, where carriers have been in absolute control," said Peter Sand, chief analyst at air and ocean freight rate benchmarking platform Xeneta.

Nonetheless, top customers like Walmart (WMT.N), Home Depot (HD.N) and Amazon.com (AMZN.O) will not necessarily dictate terms during contract talks that typically happen around May, experts said.

This is partly because shippers that move thousands of containers every year want predictable pricing. Big shippers "go into their buying season ... wanting to know what their freight is going to cost. They're not interested in playing the (spot) market" by shopping for lower rates, shipping expert John McCown said.

At the same time, Maersk and other carriers told investors they would continue to prop up rates by cancelling voyages to match shrinking demand. They are also scrapping small, old "rust buckets" to cut capacity.

That means shoppers will suffer from higher prices a bit longer, experts said.

"The American consumer should not be expecting that this is going to lead to massive price relief. That's just not going to happen," said Jason Miller, associate professor of supply chain management at Michigan State University.

Freight rates are Bottoming out

Carriers raised rates and reaped record profits during the pandemic shipping surge due to a spike in demand for shipping services. Many carriers prioritized loads with higher spot rates and bumped containers from overbooked ships, leading to an increase in the use of the spot market.

However, this trend began to shift toward the end of last year due to a drop in the import of retail goods such as furniture, appliances, and apparel.

The chief executive of container shipping company Ocean Network Express, Jeremy Nixon, said in December that short-term spot rates were "bottoming out."

Meanwhile, long-term contract rates finished 2022 about 20% lower than the pandemic peak of more than $8,000 per container, according to maritime consultancy Drewry, which expects contract rates to halve in 2023. That forecast would put rates at about $3,200, versus the pre-pandemic rate of around $1,500.

Several factors could support longer-term contract rates, including upheaval from China's COVID outbreak, war in Ukraine, and high labor costs.

Steve Schult, vice president for almond farming cooperative Blue Diamond Growers, bets contract rates will not revisit pre-COVID levels.

Chinese Electric vehicle Giants turn into Shipping Companies : Buy Own Ships to control Supply Chain

Are the Chinese electric vehicle giant, turning into a shipping company?

As it aggressively pushes into markets overseas, BYD has ordered at least six massive car carriers, ships that can transport thousands of cars at a time. In part, BYD’s move reflects a keen frustration of the Chinese auto industry. Over the past two years, just as China’s vehicle exports boomed, pandemic-related supply chain snarls led to acute shortages of space on cargo ships.

Now, BYD appears to be maneuvering not only to ship its own products but also to offer global shipping services to other car manufacturers. Think car company meets ship owner meets shipping logistics provider, all rolled into one.

The Tianyancha update

BYD has made no public statements about its foray into shipping. But a recent update to information about the company on Tianyancha, China’s database of companies, offers some clues. According to a time-stamped update (link in Chinese) last month, BYD Auto Industry, a subsidiary of the broader BYD group, expanded a paragraph on the scope of its commercial activities. The section now lists activities not usually associated with a car manufacturer: ocean carrier operations, freight forwarding, international shipping agency services, and port cargo handling. (BYD did not respond to a request for comment from Quartz.)

The Tianyancha update suggests that BYD is looking to establish a foothold in global shipping. And it represents yet another push by the company to establish its dominance up and down the automotive supply chain.

BYD is one of the most vertically integrated company 

BYD has honed its vertical integration strategy for years, having started out as a mobile phone battery maker before manufacturing other electronics, auto components, and finally electric vehicles. That playbook has served it well in the competitive EV field.

“[BYD] has mastered the core technologies of the whole industrial chain of new energy vehicles, such as batteries, motors and electronic controls,” Wang Chuanfu, BYD’s chairman

BYD is looking to buy lithium mines in Africa and has secured a contract for lithium extraction in Chile, since lithium is integral to EV batteries. BYD has become a leading producer of EV batteries, even supplying competitors like Tesla and Toyota, and is expanding its battery production capacity from about 285 Gigawatt hours (GWh) in 2022 to an estimated 445 GWh by the end of this year.

“BYD is probably the most vertically integrated [car] company,” said Lei Xing, a US-based auto analyst and co-host of the podcast China EVs and More. “There’s nowhere else to turn to vertically integrate more than to [buy] your own ships... And it’s not out of the question that BYD becomes a provider that they can ship for other people, competitors.”

BYD Co., which only makes electric and hybrid cars, is going the extra length to avoid any last mile supply chain snarls, ordering at least six ships in October, each with the capacity to carry 7,700 cars, for 5 billion yuan ($710 million). State-owned SAIC Motor Corp., which already operates the world’s fifth-largest shipping fleet via transport arm SAIC Anji Logistics Co., has a tender out for seven new carriers that can each hold 8,900 vehicles.

Acute Shortage of Car carrier ships for China’s car exports

BYD isn’t the only Chinese car maker that’s getting into the shipping business.

Last July, SAIC Motor, the state-owned automaker, partnered with the Chinese shipping giant COSCO and the port operator Shanghai International Port Group to set up Guangzhou Yuanhai Car Carrier Transportation, described as a “vehicle supply chain” company.

With all the last leg supply chain disruptions it makes sense for Chinese automakers to strike out on their own, according to Tobias Bartz, chairman and chief executive officer of Rhenus Logistics. Ships have become “such a scarcity,” he said on the sidelines of a conference in Singapore last month.

The shortage has meant that some vessels almost 30 years’ old are still operating instead of being scrapped, raising the risk of accidents. Trying to extinguish any lithium-ion battery fires that occur may also be harder.

Chinese automakers aren’t alone in their desire for more freighters. Tesla Inc., which uses Anji Logistics’ car carriers, has also had trouble transporting vehicles from its factories.

“There weren’t enough ships, there weren’t enough trains, there weren’t enough car carriers to actually support the wave” of vehicle deliveries at the end of the last quarter, CEO Elon Musk said during Tesla’s third-quarter earnings call. “Whether we like it or not, we actually have to smooth out the delivery of cars intra-quarter, because there just aren’t enough transportation objects to move them around.”

This latest pinch point may be new but BYD and SAIC aren’t the first automakers to run their own shipping fleets. Toyota Motor Corp. owns shipping company Toyofuji Shipping Co., while South Korea’s Hyundai Motor Co. has logistics group Hyundai Glovis Co.

It’s also a telling sign of how far Chinese automakers’ export ambitions go.

Just a few years ago, China was mainly selling cars to developing nations in Africa and the Middle East. But the rise in electric-vehicle production has boosted made-in-China cars in Europe, which is now the biggest market for Chinese auto exports. China exported over 852,000 EVs in the first 10 months of this year, up from almost nothing a short while back. Over a fifth of those were Tesla electric cars produced in the US automaker’s Shanghai gigafactory.

“Car shipping costs are set to come down as the risks shift from backlogs to a glut in the car market,” said Craig Fuller, founder and CEO of supply chain market intelligence provider FreightWaves. With supply chain bottlenecks easing, “the risk is more on the demand side of the equation,” he said.

Until that inflexion point, Chinese automakers appear keen to control as much of the process as they can. Electric vehicle maker Nio Inc. and Chery Automobile Co. are also eying ship orders, local media reported last week.

Among Chinese brands, SAIC is the furthest along overseas. It sold 697,000 vehicles abroad in 2021 -- bolstered by the success of MG Motor, the British brand it acquired -- and is aiming for 800,000 this year. That’s a way off from meeting its annual shipping capacity, which stands at around 10 million vehicles, but meanwhile SAIC’s ships can and do serve other carmakers too, including Nio.

Jawaharlal Nehru Port will max out capacity by 2028; Wadhavan port could be an alternative

Jawaharlal Ne Port will max out capacity by 2028; Wadhavan port could be an alternative

Jawaharlal Nehru Port in Nhava Sheva will reach its full capacity by 2028, an official said, emphasising the need to develop an alternative mega port in Wadhavan to handle the growing maritime traffic

Jawaharlal Nehru Port in Nhava Sheva will reach its full capacity by 2028, an official said, emphasising the need to develop an alternative mega port in Wadhavan to handle the growing maritime traffic. However, the controversial Wadhavan project in Palghar’s Dahanu taluka is yet to get an environmental clearance and is also facing opposition from local communities and environmentalists.

Unmesh Wagh, deputy chairman, Jawaharlal Nehru Port Authority (JNPA), said, “At present, we have five container berths, two liquid berths, and one shallow coastal berth. The liquid berths, which are used for petroleum, are badly congested. Ships are waiting for days before they can come in to dock. For this reason, we are opening up two additional berths for liquid cargo by May.”

He further said the port’s container terminals, which process the highest volume of cargo, have a capacity of 7.4 million TEUs (20-foot equivalent units) per year. The last expansion took place in 2018 when a new berth was commissioned with a capacity of 2.4 million TEUs, Wagh said. “We have already processed 5.94 million TEUs as of January 2, which is a record. The port is on track to process more than 6.1 million TEUs by March.”

This growth will continue, Wagh pointed out, adding there are plans to add one more container berth by April 2025, which will take the total capacity to 10.7 million TEUs.

“We expect to exceed this capacity by 2028, and after that there simply isn’t any more waterfront area left around Nhava Sheva for JNPA to expand. In the north, there are shallow mudflats and the Mumbai Trans Harbour Link, while in the south there is the rapidly expanding region of Uran. Hence, we are looking at Wadhavan where we expect to receive 6.5 million TEUs annually by 2026. If we don’t create this capacity, India will lose out to ports in Singapore, South Korea, Abu Dhabi, Dubai and Sri Lanka,” he said

For comparison, he said, Port of Shanghai (the world’s busiest container terminal) surpassed 47 million TEUs in 2021 alone. “This works out to about 1,124 million metric tonnes per annum at a single Chinese port, roughly equal to the capacity of India’s seven existing ports that can each handle more than 100 MMT annually.”

Another reason for the selection of Wadhavan, Wagh said, is the available draft in the region, which determines the minimum depth of water a ship or boat can safely navigate. “At JNPA, the maximum draft is 14.5 metres, whereas at Wadhavan it is 20 metres. In the next 5 to 10 years, most cargo ships will be much larger than they are now. They are expected to carry around 12,000-20,000 TEUs each, up from around 8,000 TEUs at present, and will need deeper water. The largest container ship in the world, MSC Irina, can transport 24,346 containers. Such a boat can never dock at JNPA.”

Fisherfolk, however, claimed that the proposed port at Wadhavan is fraught with danger.

“The demand for the country’s logistics sector might be legitimate but JNPA cannot use these numbers to pursue an illegal project. The DTEPA has already ruled that the port is ‘wholly impermissible and illegal’. An offshore port can be considered closer to JNP where fishing activities have already been destroyed. An alternative site analysis can also be done,” Devendra Tandel, president of Akhil Maharashtra Machimaar Kruti Samiti, said.

By wittingly setting up such a project in a region that is dominated by indigenous communities, the government is “telling us that our livelihoods can easily be sacrificed for national growth”, he said.

The port project is currently awaiting the approval of DTEPA (Dahanu Taluka Environment Protection Authority), a Supreme Court-appointed body set up to regulate industrial and other activities that could pose a threat to Dahanu eco-sensitive zone. The port, experts said, will pose a serious threat to marine biodiversity and affect the livelihoods of several thousands of fishermen, farmers and adivasis living in the region.