1. Tracking of the Red Sea this week:

1) More companies announced detours/suspensions through the Red Sea area.

According to Clarkson Research, major container shipowners around the world have announced the suspension of traffic on the Red Sea route. Some tankers and energy companies have joined the ranks.

2) Judging from the number of ships passing through: the number of ships arriving in the Gulf of Aden has dropped sharply, with container ships experiencing the most obvious decline.

3) Freight rate tracking: SCFI European line surged by 46% this week, and container shipping European line futures EC2404 rose by more than 50% this week.

Refined oil MR Middle East-Europe route has increased significantly.

2. Focus on the consumption of effective transportation capacity by detours.

According to static calculations by Clarksons, detouring around the Cape of Good Hope will cause a loss of nearly 29% in container transportation efficiency from the Far East to Europe (one-way lengthening of 8 days), while the detour of the oil tanker route from the Middle East Gulf to Europe will increase the time distance by up to 120%. , the transportation efficiency is more than doubled.

We believe that the price level pushed up by the loss of time will significantly exceed the price pushed up by the increase in costs.

3. The shipping market may usher in comprehensive investment opportunities under the premise of the continued influence of the Red Sea.

1) Judging from the recent situation: container freight rates are expected to still be on an upward trend. [COSCO SHIPPING Holdings] will usher in a catalyst.

2) Combined with the general supply and demand logic of the industry in 2024 and beyond, we emphasize the allocation opportunities for oil transportation targets.

We strongly recommend [China Merchants Shipping, COSCO Shipping Energy], and it is recommended to pay attention to [China Merchants Nanyou] from the perspective of ship type for refined oil transportation.

4. If the market extends from the shipping industry to concerns about the global trade supply chain, the relevant chain will be further extended.

We expect to spread to:

1) Air cargo logistics: As an urgent and timely alternative to consolidated cargo, combined with the booming development of cross-border e-commerce platforms, air freight prices may be expected to be supported in the off-season, and the beneficiary target is [Eastern Airlines Logistics];

2) Freight forwarding: Under the tense regional situation, cargo space and delivery have once again become the focus of customers' concerns. Freight forwarding companies [Huamao Logistics and Sinotrans] that are upgrading towards integrated logistics are expected to benefit;

3) China-Europe freight trains: As an alternative route, you can focus on targets with certain relevance.

Such as [Tielong Logistics], [Jilong Logistics], etc.

4) Under the safe and controllable chain of international trade supply chain channels, pay attention to [Investment Ports]: the strategic value of overseas ports is underestimated. The company has deployed four main control terminals in the Port of Djibouti, and the northeastern part of Djibouti guards the intersection of the Red Sea and the Gulf of Aden.

[Dialogue with Shipping Experts: Outlook for European Container Lines]

1. The impact of the Red Sea incident on the European container shipping market

Spot freight rates surged 45% in the latest period, far exceeding market expectations. The Red Sea crisis led to route detours, resulting in a substantial increase in spot freight rates and a change in the monthly spread structure. The market expects that the detour issue will be resolved in the future.

Global new ship deliveries are expected to grow by 8-9% in 2024, but scrapping may reduce pressure on real capacity. Affected by the Red Sea crisis, the dismantling volume is expected to be different, and the dismantling motivation of shipping companies has been reduced.

The substantial increase in orders for large-capacity container ships, especially ships of 24,000 TEU, indicates that the pressure on European line shipping capacity will increase significantly in the future.

2. European line container shipping market and Red Sea crisis

Container shipping demand in Europe is weak, and the U.S. market has performed relatively solidly. EU container exports are sluggish in the peak season, while cargo volumes in Africa, India, Pakistan and South America have increased significantly.

The Eurozone economy is under great pressure, and the PMI has been below the boom-bust line for 17 consecutive months. However, container import volumes are relatively good, indicating that manufacturing is under pressure but end-use demand remains.

The Red Sea crisis could have an impact on shipping routes through the Suez Canal, an important waterway from China to Europe. Container shipping lines tend to choose deviations and need to pay close attention to the scale and duration of the deviations.

3. Shipping industry outlook

Affected situation of Nordic and Mediterranean routes: The Nordic route around the Cape of Good Hope takes about 30% more time than passing through the Suez Canal, while the Mediterranean route around the Cape takes about 70-80% more time.

Container ship movement tracking: Most ships still choose to go around the Cape of Good Hope, and a few ships are still sailing in the Red Sea; some countries have withdrawn from U.S. escort operations, and the safety of Red Sea passage is questionable.

Estimated impact: The Red Sea crisis may lead to a tightening of shipping capacity on the Asia-Europe route, and the supply of shipping capacity may be tight. The entire Asia-Europe trade route will be most affected.

4. Analysis of container shipping market under shipping crisis

The extended voyage time caused by the deviation has absorbed part of the transportation capacity, but the capacity gap needs to consider the impact of increased speed and idle capacity on supply.

Spot freight rates continued to rise in January, and shipping companies tried to increase freight rates during the critical period of signing long-term contracts before the Spring Festival. The deviation provides a favorable bargaining chip for the long-term agreement negotiations, and the price center of the long-term agreement may be increased.

Cost increases resulting from the deviation include a seven-fold increase in insurance premiums and additional escort costs. If the voyage passes through the Cape of Good Hope, the fuel cost for the voyage is expected to increase by approximately US$500,000.

5. The economic trade-off between shipping cost and speed

Detouring around the Cape of Good Hope could result in additional fuel costs rising to more than $1 million, and for time-critical cargo, speeding up would significantly increase costs.

Redeploying idle capacity and increasing sailing speed will help alleviate the capacity gap, but too fast sailing speed will increase fuel consumption and environmental protection costs.

Container dismantling is likely to decrease next year, resulting in an oversupply of overall shipping capacity. Detour conditions and regional supply disturbances are uncertain variables.

6. Shipping experts analyze future trends in the container shipping industry

Given the overlapping routes, shipping companies may achieve more efficient transportation and alleviate supply gaps by deploying larger vessels and reorganizing routes.

In the short term, shipping companies may prefer to maintain higher freight rates and regulate shipping capacity to adapt to changes in freight rates and supply and demand. Unlike the Suez Canal crisis in 2021, the current crisis may not lead to similar extreme freight rates because the global The supply and demand background is different and shipping companies have more control means.

7. Logical analysis of freight rates and shipping speeds in the container shipping market

The delivery index is all based on spot prices, using spot prices rather than long-term contract prices.

The current mainstream market spot prices are: US$2,500-3,000 for small cabinets and US$4,000-5,000 for large cabinets. Freight rates are affected by many factors, such as release period and shipping schedule.

There is a tacit understanding among container shipping companies to maintain high freight rates; the long-term agreement negotiations at the end of the year are expected to maintain high freight rates. There may be competition for market share in the off-season to attract customers through speed increases and other methods, breaking the tacit understanding on prices.

8. Shipping market price fluctuations and future prospects

Futures price guidance is limited: the April contract at 1,400 points represents an expected reasonable valuation, but actual transactions are diverse among market participants and are not entirely based on reasonable valuations. It is difficult to judge a reasonable valuation in a chaotic state of freight rates, and market prices are mostly driven by funds.

The difference between spot and futures prices: Spot orders are usually placed 2 to 3 weeks to one month in advance. Since the contract price is higher than the spot price, the April contract price on the futures market increased by about 50% compared with the January spot price.

Rising freight rates and costs on routes: European and American routes have similar characteristics, but the details depend on supply and demand. The European line's freight rates have increased due to the supply chain crisis, which may drive up the price of the American line. The cost has increased due to the increase in detour and environmental protection costs. Under normal circumstances, the cost of a small cabinet to the European line is about 550-600 US dollars. After the detour, the cost will rise significantly.

9. Analysis of freight price differentiation on the US-Europe line

The freight rates on the U.S. line and the European line change out of sync. The European line is significantly affected by the low water level of the Panama Canal, and the cost of passage increases, while the overall freight rate of the American line is relatively good. The freight rate of the American line is significantly higher than that of the European line.

The demand in the United States is relatively strong, and long-term contract signings in the United States usually fall in April to May. Therefore, the recent performance of the US line may not be as good as that of the European line. The phenomenon of US lines can be regarded as a rising tide lifts all boats, and shipping companies take this opportunity to push up freight rates.

The SCFI/SFI freight index is launched by the strategic cooperation between the Hangzhou Stock Exchange and the Shanghai Stock Exchange. The calculation method uses June 1, 2020 as the base period, and weights 2.8 for large containers of 20 feet and 40 feet. The freight rate can be roughly converted to the index level by multiplying the market quotation by 1.05 times.

Source of minutes: [Wen Bagu Research] Mini Program

Q&A

Q: With European routes facing a theoretical capacity gap, will shipping companies consider adjusting transportation routes, such as using larger ships to go around the Cape of Good Hope, and then transshipping to the destination port via feeder ships?

A: We believe shipping companies may reallocate capacity to improve transportation efficiency or alleviate supply shortages. This could include the use of larger vessels around the Cape of Good Hope to consolidate cargo from Asia to Europe and the Mediterranean, before offloading at North African ports for transshipment on feeder vessels to the rest of Europe. Considering that container shipping is a global network and changes dynamically, shipping companies can adjust the capacity balance by accelerating sailings, temporarily idling ships, or increasing capacity. Forecasting future supply and demand gaps requires close attention to the actions of shipping companies.

Q: How are shipping companies likely to respond to current shipping challenges in the short and medium to long term?

A: In the short term, as long-term contract negotiations have not yet concluded, shipping companies may be inclined to maintain detours to keep spot freight rates at a high level. In the medium to long term, especially when overcapacity is expected, shipping companies may take specific measures, which requires further observation. Regarding freight rate expectations, freight rates are likely to rise in the short term and are less likely to fall sharply before the Spring Festival. In the long term, the freight rate trend depends on the duration of the detour and the shipping company's capacity deployment. If the detour continues and shipping companies do not significantly adjust capacity, high freight rates may continue for a period of time. On the other hand, if the detour problem is resolved, next year's freight rates will be affected by supply and demand factors. In general, freight rates next year still face uncertainty, which depends on the subsequent development of the Red Sea crisis and the response strategies of shipping companies.

Q: How is the current shipping crisis different from the 2021 Suez Canal incident? Will the market experience the same high fortunes again?

A: The current bypass crisis is not comparable to the 2021 Suez Canal incident. The Suez Canal blockage in 2021 was a passive detour due to a complete blockade of the waterway; the current ship detour is an active avoidance of potential attack risks in the Red Sea. In addition, the supply and demand background was also different at that time. In 2021, global demand surged and the supply chain was tight, while now there is oversupply. In terms of operational efficiency, port operating efficiency will decline due to the epidemic in 2021, but similar problems have not been seen so far. At the same time, the mismatch and extreme shortage of boxes during the epidemic will not be repeated for now. Generally speaking, the current transportation capacity control methods are more diverse, and port operation efficiency problems are not as serious as in 2021, so it is unlikely that a high freight rate situation similar to that time will occur.

Q: What is the proportion of long orders in the underlying index for European container shipping futures delivery? Will the remainder consist of spot orders?

A: The delivery indices are all based on spot prices, all are G7 prices, and long-term contract prices are not used.

Q: The spot price may reach US$4,000 before the Spring Festival, but the April contract usually has a discount. What is the typical discount range?

A: It is currently difficult to determine how big the discount will be because it depends on market conditions. Currently, the spot price of small containers is mainly between US$2,500 and US$3,000, while the price of large containers is between US$4,000 and US$5,000. Regarding the discount, funds may be more inclined to spot transactions in the short term, because reasonable valuations now depend on market conditions, and funds may keep the market high in the short term. However, once the risk of deviation is eliminated, the market may significantly reduce this war premium.

Q: Can you elaborate on the calculation method of shipping index? For example, how to calculate the ratio of large and small cabinets, and the relationship between the current spot price and the index?

A: The calculation of the index follows a series of compilation rules, similar to the BDI (Baltic Dry Index). Taking June 1, 2020 as the base period, 20-foot containers and 40-foot containers are weighted by a ratio of 28 to calculate the spot index. The market freight rate for large and small containers is usually between US$2,500-3,000 (small container) and US$4,000 (large), but the conversion with the spot freight index (SFIS European line) is relatively rough. The conversion formula is usually the price of a small container multiplied by a coefficient of about 1.05, but the instability of market supply and demand causes this coefficient to be non-fixed. When market demand is strong, the actual settlement price may be higher than the quoted price; on the contrary, it may be lower than the quoted price. Taking the year to date in 2023 as an example, the conversion factor is roughly 1.05. Therefore, if the price of US$2,500 can become the actual settlement price, the corresponding SFIS European index will be roughly above 2,600 points.

Q: In the market, freight price information seems to be confusing. I see some prices are very low. How can I identify the accuracy of this information?

A: The freight price situation in the current market is indeed complicated. The 1000+ freight rates you see may depend on the ETC (estimated time to container) and the specific shipping date. The current mainstream price in the market is about US$3,000 for a small container and US$5,000 for a large container based on shipment in mid-January. The freight rates on the official website may sometimes be inaccurate. To understand the real market transaction prices, it is recommended to make inquiries directly with companies and freight forwarders in the industry. For example, Maersk's online quotation is representative and can better reflect the actual transaction price. The online quotations of other shipping companies may not be the actual transaction price, and the final transaction price may need to be determined through offline negotiations. Therefore, in order to obtain accurate price information, you should pay attention to the quotations within a specific time window and communicate directly with relevant industry personnel. Get precise information.

Q: For goods that attach great importance to transportation timeliness, what proportion does it usually account for in the transportation? Will container shipping companies adjust their speeds based on this?

A: The proportion of goods with timeliness requirements in the overall transportation is not high. When container shipping companies make any operational decisions, such as adjusting speed or redeploying routes, their core goal is to pursue profits. When shipping companies judge that there is sufficient profit, they will take various measures to maintain market share and customer service levels. Currently, part of the reason for shipping companies to tacitly agree to divert is to maintain the current high freight rates, especially when long-term contracts are signed at the end of the year. However, entering the off-season transportation season in April next year, if market demand decreases, this tacit understanding may not last, and shipping companies may strive for more market share by increasing shipping speeds, because market share is an important indicator of performance evaluation and operating goals. In the past, during the off-season in April every year, shipping companies would lower freight rates below the cost line in order to maintain their customer base. Therefore, if everyone still bypasses and cannot resume the Suez route next year, in order to maintain market share, shipping companies may consider increasing the speed.

Q: In the trading software, I saw that the futures price is around 1,400, which is the contract price in April. What does this mean for the market?

A: In theory, the price of the April contract reflects the market’s expectations for a reasonable valuation in April. However, in actual transactions, prices may be affected by a variety of factors and may not necessarily be traded entirely in accordance with reasonable valuations. The current freight market is in overall chaos. The market may be more driven by funds, thus affecting prices.

Q: At what level are the spot prices in April currently trading?

A: Currently, the spot price has not been reported for April, and bookings are usually made 2 to 3 weeks or one month in advance. The spot price in the first half of January has reached more than 2,000. If this freight rate remains unchanged, the April contract price will be about 40-50% higher than the spot price.

Q: Currently, freight rates on the European line are rising sharply, while freight rates on the American line are relatively stable. Will U.S. line prices rise in the future due to the influence of European lines, and how should the possible increase be evaluated?

A: Although the operating characteristics of European and American routes are similar, the final freight rate trend still depends on their respective supply and demand conditions. Europe is currently facing a supply chain crisis. If European freight rates remain high, some ships on the West American route may be attracted to switch to the European route, resulting in a reduction in the supply of shipping capacity on the West American route, which may trigger an increase in freight rates on the American route.

Q: Container transportation prices are rising rapidly, but downstream transportation prices are declining. What is the reason?

A: I don’t know much about the specific situation of the downstream transportation market, but judging from the impact of the epidemic on transportation routes, this may not be a common phenomenon and may be related to the adjustment of transportation routes caused by the epidemic. At the same time, the difference between spot and futures prices needs to be noted, and the two cannot be simply compared.

Q: Assuming that the Suez Canal and the Sea of Gibraltar are permanently closed, can the current capacity supply still remain balanced?

A: If the Suez Canal and the Strait of Gibraltar are permanently closed, there will definitely be a gap in static shipping capacity, which cannot be fully replenished solely by existing idle ship capacity. The specific extent of the dynamic capacity gap needs to be further measured and will be affected by speed and route redeployment. The closure of the Suez Canal has blocked the route to the Mediterranean through the Red Sea. If the Strait of Gibraltar is also closed, ships may only reach some ports in Western Europe, such as Spain or Portugal, and then reach the Mediterranean region by land transportation, which will significantly increase transportation costs.

Q: How much does it cost to operate a route?

A: It is currently difficult to accurately estimate costs because environmental protection costs are about to increase. Under normal circumstances, a small container might cost less than $600 to ship to Europe. But if a detour is required or other additional costs such as insurance, fuel costs, etc., it can add about $200. The specific cost will vary depending on different ships, routes, fuel types, etc., and needs to be calculated based on actual conditions.

Q: For the European line (EC) corresponding to container futures, what is the weekly shipping frequency of the liner company?

A: The current departure frequency of the European line is once a week, that is, one ship per week.

Q: Why do the prices of American lines rise along with European lines? What is the difference in freight rates between the US and China lines this year? What is Meixian’s pricing strategy?

A: The price of the American line sometimes rises along with the European line. This is mainly due to the strategic behavior of shipping companies to take advantage of the price increase of the European line to increase their own freight rates. In fact, the overall freight performance of the US line this year is generally better than that of the European line. The U.S. line was not affected by the low water level of the Panama Canal, while the European line saw a significant increase in passage costs due to this factor. Without the suspension of sailings in November and December and the increase in freight rates caused by the Red Sea crisis, the performance of the American Line would have been stronger. In addition, the linkage between the 0 line and the US line has weakened this year, and the price adjustment strategies and rhythms of the two lines have diverged. For example, the U.S. line has raised prices several times during the year, while the price increase strategy of the European line is different; price fluctuations are no longer synchronized, especially starting in September, due to Panama Canal water level issues and stronger demand in the United States than in Europe. The freight performance of the American line is better than that of the European line.

Shenzhen Xiangfeiyang International Logistics, with many years of experience in air transport, sea transport, and express delivery channels, has maintained close long-term cooperation with various airlines, shipping companies, and the four major express delivery companies. It adheres to the principle of people-oriented and integrity. The company has experienced port Customer service at the front and back ports patiently solves professional shipping problems in international logistics, efficiently tracks cargo information, and strives to build the Xiangfeiyang brand with self-operated and self-controlled air and sea delivery routes in the United States, Canada, the United Kingdom, and Europe. It has more than 10,000 square meters of overseas warehouses in the United States. There are more than 3,000 square meters of overseas warehouses in the UK. Based on the type of goods, product attributes, and timeliness requirements, the country will customize the most suitable logistics plan for customers, so that customers' goods can arrive on time at the scheduled time, and successfully save logistics for customers. Cost, our expertise, your peace of mind!