Trade China-Europe: Sea Freight Trade China-Europe: Sea Freight
Keyfacts
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Freight rates for sea transport have recently seen a sharp rise.
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This is due to logistical problems caused by the coronavirus measures and shifts in demand.
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The shipping alliances will likely try to push through permanently higher prices.
In a three-part blog series, we take a close look at the transport of goods between Europe and Asia. How are freight rates developing? What are the emerging infrastructures? We assess developments and estimate trends. In the first article, we look at container transport by ship and train. In the second part, we look at air freight. A shift to road appears to be a possible future alternative and is therefore analysed in more detail in the last part of the blog series.
Sea freight: Will the coronavirus price increases be sustained?
Demand for consumer goods has developed very positively worldwide. This also has an impact on the movement of goods. The demand for transport capacity is rising and causing freight rates to skyrocket. A temporary high triggered by the coronavirus crisis? Or are there other triggers, and was the trend towards higher freight rates only anticipated based on the events?
Trade with China quickly overcame coronavirus slump
The surge in demand could not have been foreseen. In 2020, China was Germany's second largest export customer. Germany imported more goods from China that year than ever before. European exports to China rose by 2.2 per cent to 202.5 billion euros in 2020 compared to 2019 [1]. Similarly, European imports from China increased by 5.6 per cent to 383.5 billion euros [1]. China had already become Germany's most important trading partner in 2016. Most traders were not prepared for this sudden increase, which came about despite the coronavirus pandemic.
Shipping companies shut down too many ships
The shipping companies in particular felt compelled to react promptly to the sharp downturn. They cut important connections for a limited period of time and shut down ships. Globally, about 310 container ships were affected at the beginning of February [2]. This inevitably led to a bottleneck when the subsequent boom in demand arrived. If demand continues to rise, there is no end in sight to the bottleneck.
Many shipping companies have ordered fewer new ships in recent years, with new ship orders already down 10 per cent in 2019 and 50 per cent in 2020 [3]. This means that a rapid increase in ship capacity is not on the horizon, as an order for container ships placed today will lead to delivery in about 3 years.
Container congestion
The movement of goods is also hampered by the limited availability of containers. There are not enough containers to absorb fluctuations in demand such as those caused by the Covid-19 crisis. In addition, at the beginning of the pandemic, many containers were congested in the West. In the lockdown at the end of February and beginning of March 2020, European buyers were still ordering large quantities of supplies despite the lockdown. As a result, containers arrived from China at this time that were not collected or transported onwards and instead jammed up in the container terminals.
A similar development can be observed with the return transports. Quarantine measures for ship crews and employees in container handling led to a lack of personnel in the ports and for onward transport to the hinterland. The storage of containers increased and with it the return times.
Meanwhile, container demand was rising. And as a result, freight rates were increasing too. In March and April, the rates per FEU remained constant. Since May 2021, however, they have been rising rapidly again.
