The Chinese Ministry of Commerce Responds to High Rates for Oceanic Freight

By: Nancy Xie

Director, Government Relations, FII China

Photo: Adobestock

The international ocean freight supply chain is facing significant challenges as container freight rates on Asian-Western lanes continue to surge. According to recently published data of the Baltic Sea Freight Index and the World Container Index, the current freight from Asia to North America is approximately USD $18000 for a standard container, a year-on-year increase of six-fold. 

However, some Chinese foreign trade companies that are highly dependent on popular trans-pacific lanes, such as the Shanghai – Los Angeles or the Shanghai – New York Routes, reveal that many liner companies are quoting freight prices at as much as 12 times higher compared to the same period last year; the freight rate of a standard container box that cost about USD $2000-3000 in July last year can now reach prices higher than USD $30,000.

This surge in Asian oceanic shipping costs over recent months has attracted significant attention from the Chinese government. Director-General of the Chinese Ministry of Commerce’s Department of Foreign Trade, Mr. Li Xingqian, stated at a recent media session: “We are starting to notice that the imbalance between supply and demand of international maritime transport is affecting global trade cycles which will ultimately disturb the vital securities of consumers around the World”.

The causes of the freight pricing surge are multifarious, but it comes down to the reflection of an immensely disproportionate number of containers leaving Asia compared to those being shipped back. As consumer demand for Chinese manufactured goods in North America continues to grow amidst its post-pandemic economic recovery, sea shipping prices are driven through the roof as containers heading West become increasingly scarce. 

To put things into perspective, according to Chinese customs statistics, in June 2021 alone, the United States imported USD $236.7 billion of goods from China. The upward pressure of international demand on maritime logistics is especially evident from comparing the J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI) from April 2020 to now. From a reading of 39.8 in April 2020 showing the steepest contraction in the 22-year history of the survey, the index posted 55.4 in July 2021. With any reading greater than 50 representing growth, the index shows that the global economic and trade boom has rebounded sharply from last year, while sea transportation capacity has not kept pace with the significant growth in demand. 

While ships and ports in China are operating at full capacity, the shortage of labour in North America due to recurring waves of the pandemic has further exacerbated the global logistics shortage causing port backlogs and congestion. Take China’s Shenzhen Port for example, although its output capacity grew almost 20% compared to the same period last year, Shenzhen port authorities noted that boxes going Westward are having to wait in longer lines upon arrival and are not able to return timely, creating unprecedented scarcity for empty boxes in Asia. 

According to the Economist Intelligence Unit (EIU), such conditions are not likely to improve until early 2022. Container lines are not in a hurry to send empty boxes back to Asia for multiple reasons besides the obvious shortage of port staff – lower return freight rates, frequent upcoming typhoon warnings in Asia, and instability of pandemic waves are all said be to critical challenges.

Director-General Li observed that “at present, ‘thinking and worrying’ about sea transportation has become a common concern for Chinese foreign trade enterprises, which has in turn aggravated to be a bottleneck for the stability of international trade.” On the one hand, industries’ expectations of rising commodity and logistics prices will prompt large scale stockpiling, while on the other hand, such reactive struggles will further worsen port congestion, putting international trade practices into a vicious downward cycle of global supply chain disruptions, posing serious threats to international trade profit margins and thus the global economic equilibrium.

Bulk commodities such as agricultural products, iron ore, and lumber are very much reliant on sea transportation, and the surge of sea freight is expected to, if not already, result in price increases for agricultural products and other bulk commodities. As of May 2021, the United Nations Food Price Index had been increasing for 12 consecutive months, with sugar and meat being the most affected. 

Production costs in sectors where the prices for consumers are relatively low in value but require large amounts of container spaces will need particular attention. EIU’s predictions indicate that sectors such as furniture, toys, and dried foods will see obvious inflations. We are already noticing traders transferring the burden of the rising transportation cost onto exported products, which becomes the burden of the purchaser or the end-users. 

For example: in June 2021, the U.S. Consumer Price Index (CPI) reached a 13-year high, with a year-on-year increase of 5.4%. Core prices (ex. food and energy) rose sharply, driving core inflation to 4.5%, a 30-year high. U.S. monetary policies may have contributed to its inflation, but the country’s excessive dependence on imported products has skyrocketed international sea freight prices and exacerbated inflationary trends. This rippling effect of upward CPI pressure is expected to become a globalized issue for all World economies.

While international trading companies in China are wrestling with rising logistics prices, small and medium-sized shipping enterprises are also worried about their chain of capital being disrupted by merger acquisitions, which will further impact the international supply chain. Director-General Li reassured on a recent media session that: “The CPC Central Committee and the State Council attach great importance to efforts of stabilizing foreign trade. Various key Chinese Ministries including the Ministry of Commerce, the Ministry of Transport, The Ministry of Industry and Information Technology, as well as the State Administration of Market Supervisions are actively seeking solutions to overcome current challenges. Some measures include actively encouraging the accelerated production of oceanic freight containers, maximizing China’s transport capacity, stricter price supervision, and mobilizing all levels of governments to introduce corresponding solutions.

According to a recent report by the China News Network, active measures are already being implemented in Key Chinese ports like Shenzhen, where local transportation bureaus and port authorities are working together to help Chinese foreign trade companies and shipping enterprises with sourcing available containers, advancing digitalized management, and mobilizing additional vessels to maximize shipping capacities to overcome supply and pricing challenges.