South China Research Institute Xiaoyan Fu Z0002675
The Lunar New Year has arrived, firecrackers are sounding everywhere, and the whole country is celebrating the new life brought by the lifting of the lockdown! Affected by the Spring Festival factor, the container shipping market also ushered in its New Year!
According to the data of the freight index of Ningbo Airlines Exchange, the comprehensive freight rate fell at the beginning of 2023, and among the sub-routes, except for the obvious increase in the freight rate of the Black Sea route, other routes showed different degrees of decline; The routes with the largest declines were Singapore-Malaysia and Australia-New Zealand, both with a drop of more than 10%. Compared with the Spring Festival market in the previous container shipping market, the New Year market in 2023 is "cold"!
We believe that in addition to seasonal factors, the container shipping market in 2023 will also digest the "legacy" problems in the previous market, such as the consumption power of European and American countries behind the high inflation; Delivery pressure after new orders from shipping companies hit a record, and so on. From past experience, the performance before the Spring Festival continued for a period of time after the holiday.
First, the "ship" is still there, and the "price" is different from year to year
Most of the Spring Festival time in 2013~2022 starts in mid-to-late January and ends in early to mid-February, and the duration is generally about 35 days. According to statistics, before 2020, the container shipping market has a very obvious seasonality. The seasonal characteristics of freight rates are manifested as "falling in the first quarter, picking up in the second quarter, falling steadily in the third quarter, and picking up in the fourth quarter". In 2020~2022, the market of the container shipping market exceeded everyone's expectations. In the expression of spot people, such a market is "once in a century", and the probability of having such a market in the future is very small. Therefore, the event shock broke the customary law of the container shipping market.
The "ship" is still there, and the "price" is different from year to year! This phrase is also apt in the container shipping market. In the face of the "Spring Festival effect", the commonality of container freight rates is manifested in "all falling", and the characteristics are manifested in "different amplitudes".
During the Spring Festival in 2013~2022, the NCFI freight rate composite index all fell, and the decline showed a "V-shape", that is, the decline in 2013~2016 expanded year by year, and the decline in 2017~2022 narrowed year by year. We believe that the Spring Festival market of freight rates reflects the expectations of shipping companies for short-term (1~3 months) demand, and the capacity adjustments made accordingly. When the expected demand recovery is better, the smaller the capacity reduction, the faster the capacity recovery after the holiday; Conversely, the larger. Judging from the decline of the NCFI freight index in the first quarter of the figure, the decline in 2016 not only exceeded the Spring Festival market, but also the year with the largest decline in the first quarter of the past year; In the first quarter of 2017, the decline in freight rates was smaller than that of the Spring Festival market.
Looking at the freight rates of European and American lines, the performance of freight rates on European and American lines is also different! In most years, the freight rate of the European line fluctuates greatly during the Spring Festival, and this fluctuation will continue until the first quarter, but the direction is mainly "falling"; The US line freight rate does not have a strong sense of rules, "sometimes rising, sometimes falling", and the Spring Festival effect does not necessarily continue to the first quarter.
Second, the analysis of the influencing factors behind "commonality" and "characteristics"
"Commonality": What factors affect the Spring Festival effect of consolidated freight rates?
To understand the Spring Festival effect of the container freight rate, we must first mention the participants in the container transportation market - shipping companies, their capacity concentration is very high, the world's top ten shipping companies account for more than 90% of the capacity, showing the characteristics of "oligopoly", which is different from the dry bulk transportation market and the oil and gas transportation market. In this context, shipping companies have a very strong right to choose and decide.
We went to see that the capacity of various shipping companies during the Spring Festival was basically reduced. It should be known that the driving force for the active reduction of capacity is the shipping company's estimate of the cargo volume on the route based on the period. The month-on-month increase in capacity in the first quarter indicates that shipping companies have resumed route operations according to cargo volume.
At the same time, we found that shipping companies began to diverge from capacity adjustments in the first quarter. And this is also used to anticipate, judge the post-holiday, and even the starting point of the annual market.
"Characteristics": Why is the same demand-driven (supply) driven market, freight performance is so much worse?
For the "characteristics" of the container freight rate in the short-cycle market, we try to find more frequent supply and demand data to explain.
First of all, in the specific analysis, we first divide whether the current year is demand-driven or supply-driven;
Secondly, look at the changes in the main indicators and freight rates in the demand-driven (supply)-driven market.
Whether the rise and fall of freight rates is demand-driven or supply-driven, we use the difference between the change in demand growth rate and the change in supply growth rate to benchmark. According to this logic, when the freight rate is driven by demand, the period for the shipping company to passively adjust the capacity is 2016 (special), 2017, 2019, and 2021 (special); When the freight rate is driven by supply, the period of active adjustment of capacity by shipping companies is 2013, 2014, 2015, 2018, 2020 and 2022.
Feature Focus 1: Replenish or destock?
Taking the US market as an example, when the replenishment cycle, the increase in the inventory sales ratio of wholesalers is higher than that of retailers, including 2015, 2016, 2017, 2019; When the inventory cycle is removed, the increase (decrease) of retailers' inventory-to-sales ratio is higher than the increase (decline) of wholesalers' inventory-to-sales ratio, including 2014 and 2018.
Focus 2: The performance of the term rental market is not satisfactory
To name a few, in 2023, chartered vessels accounted for 39.9% of its total capacity, Mediterranean chartered vessels accounted for 54.1% of its total capacity, COSCO SHIPPING chartered vessels accounted for 45.3% of its total capacity, CMA CGM chartered vessels accounted for 53.2% of its total capacity, and ONE chartered vessels accounted for 48.5% of its total capacity.
Different shipping companies have different proportions of time chartering, but since charterparties generally have a long cycle, even if the spot market is weak, if in the face of strong demand, the enthusiasm for short-term chartering will lead to an increase in rents, such as 2017.
Figures 9 and 10 show the "apparent fit" between the spot market and the leasing market, respectively. This characteristic is mainly due to the degree of relative change between demand growth and supply growth.
3. How to view the "regularity" of the Spring Festival in the container transportation market in 2023?
The 2023 Spring Festival kicked off on January 7, and shipping companies reduced capacity according to route volume. According to Drewry statistics, on January 16~22, a total of 100 voyages were canceled, while in the same period, 73 in 2021, 88 in 2020, and 67 in 2019; Among them, air aviation on the trans-Pacific eastbound route accounted for 53%, the Asia-Europe route accounted for 24%, and the transatlantic westbound route accounted for 23%. Compared with previous years, the proportion of air aviation on the trans-Pacific eastbound route has increased the most, indicating to some extent that the volume of cargo from Asia to the United States will decline sharply during the Spring Festival in 2023.
To sum up, we count the influencing factors behind the "Spring Festival effect" of freight rates over the years and their performance, and summarize the following rules for reference:
1) Whether the annual market is demand-driven or supply-driven, the "Spring Festival effect" of spot freight rates is manifested as a decline;
2) The demand-driven annual market, after the freight rate has passed the "Spring Festival effect", is a wave of better replenishment market;
3) Supply-driven annual market, the "Spring Festival effect" of freight rates will continue;
4) The above refers to the comprehensive freight index (more reflecting European and American routes), and the situation of other routes is different.
The annual market benchmark for freight rates in 2023 shows that supply drives more, that is, capacity growth exceeds demand growth, and the "Spring Festival effect" of freight rates will continue for a long time.
Important Statement: The content and opinions of this report are for learning and reference only and do not constitute any investment advice. The market is risky, and investment needs to be cautious.