Summary
On September 13, the SCFI European line spot freight rate released by the Shanghai Aviation Exchange was quoted at 2,841 US dollars/TEU; On September 16, the SCFIS European Settlement Freight Index released by it was reported at 3813.92 points, down 752.35 points from the previous month, both of which recorded the largest weekly decline since July 29. At the same time, the container shipping index (European line) futures started a wave of rebound before the Mid-Autumn Festival, which made the contract price that had been cut in half return to 5%, and as of the close of September 13, the decline of each contract returned to less than 50%. In the face of such a large decline, will the spot price of futures stop falling and stabilize or take a short break in the downtrend?
We believe that the fluctuation of freight rates for near-term and long-term contracts carries different operating logics. In the short term (general month), in the context of the continuation of the deviation and the sluggish cargo volume, the suspension rate and capacity of the shipping company will become the key factors affecting the contract in the near month; In the medium and long term (general month), non-resumption of sailings will become the only "life-saving straw" for the long-month contract, otherwise, the freight rate will go to the next city, and at the same time, low fluctuations will become the norm. As the delivery month (day) approaches, the basis will become the focus of price fluctuations in near-term and long-term contracts.
Risk points: geopolitical development exceeds expectations, strikes, weather factors
Before the detour on December 17, 2023, the total capacity of the European basic port was about 2.35 million TEU, accounting for 72.72% of the European line capacity of the shipping company; After the detour at the beginning of 2024, the total capacity of the European basic port will be about 2.29 million TEU, accounting for 71.02% of the European line capacity of the shipping division. At the beginning of the period, based on the calculation of the round-trip time of the new 20 days (40 days to 60 days for a trip to Europe), the capacity loss was about 1.09 million TEU, and the capacity loss rate was 33.29%.
Excess is a fact, but insufficient capacity is also a reality, and the reason for this is deviation
Before the detour on December 17, 2023, the total capacity of the European basic port was about 2.35 million TEU, accounting for 72.72% of the European line capacity of the shipping company; After the detour at the beginning of 2024, the total capacity of the European basic port will be about 2.29 million TEU, accounting for 71.02% of the European line capacity of the shipping division. At the beginning of the period, based on the round-trip time of the new 20 days (40 days to 60 days for a trip to Europe), the capacity loss was about 1.09 million TEU, and the capacity loss rate was 33.29%.
In August 2024, the number of ships circumnavigating the Cape of Good Hope will be 613, an increase of 420 compared with the pre-circumnavigation (November 2023), totaling 5.375 million TEU, accounting for 537.5/3000=17% of the global capacity. Sustained high levels.
2024.2~2024.7: 8 shipping companies put an average of 570,000 TEU/month (15~17 ships) on the European line, an increase of 70,000~80,000 TEU/month compared with before the detour, and if it is calculated at 15,000 TEU/ship, 5~6 ships/month need to be added. According to the calculation of 17000TEU/ship, 4~5 ships/month need to be added. A total of 400,000~500,000 TEUs need to be added in 6 months.
According to Clarkson's data, as of August 2024, the container transportation capacity has delivered about 2.1 million TEU, accounting for about 7.1% of the capacity. Among them, 9 ships with a capacity of 17,000+ TEU were delivered, with a total capacity of 215,000 TEU, accounting for about 10% of the delivered capacity. And this part of the ship capacity has been put into the European line. The shortfall is through the deployment of ships of other capacity.
Up to now, static calculation, the capacity of ships put on the European line is 235 + 57 * 6 + 21.5 = 5.985 million TEU. According to the current circumnavigation capacity of 5.375 million TEU, it can already cover the capacity of circumventing ships.
The National Day "Golden Week" is approaching, and the capacity is now "Deviation Syndrome"
Recently, the shipping company's capacity has increased significantly. According to statistics, at the end of September, the capacity of China to major regions around the world increased by about 189,000 TEU compared with the end of August, of which the capacity of European and American routes increased by about 91,000 TEU. Since the third quarter is the traditional peak demand season, it means that while the demand increases, the capacity of the shipping company will also increase. Therefore, when the "Golden Week" is approaching, the increase in capacity is a seasonal pattern.
In 2024, the "Golden Week" capacity will show the characteristics of "year-on-year/month-on-month recovery". For example, in July, the European line capacity was 1.168 million TEU, in August the European line capacity was 1.127 million TEU, and in September the European line capacity was 1.589 million TEU, and the month-on-month changes in July ~ September were -22.07%, -3.56%, and 41.06%. Looking back on the same period in 2023, the month-on-month changes in capacity delivery in July ~ September were -16.21%, -6.19%, and 38.94%.
But this may just be a normal fluctuation in capacity absorption after a detour, and it is purely a deviation syndrome. From the perspective of the proportion of European line capacity, the proportion of capacity in the third quarter of 2024 decreased by 0.28% year-on-year. To a certain extent, it shows that in the context of maintaining the seasonal suspension rate and increasing the global container capacity, the sluggish cargo volume is behind the inconspicuous launch of European line capacity.
Excluding the impact of prices, China-Europe exports showed a "year-on-year/month-on-month decline"
Judging from the latest data on China's import and export trade, the EU's exports to China in August increased by 2% year-on-year, and the driving effect is more obvious. At the same time, the cumulative increase from January to August was 0.11% year-on-year. The data shows that in the third quarter, the value of China's exports to the EU was relatively high, and the total exports to Europe were still within the range of seasonal fluctuations.
Excluding price implications, we measure the volume of exports from China and Europe.
According to statistics, in July ~ August 2024, the total container volume of China's exports to Europe showed a "year-on-year/month-on-month decline". Specifically, they decreased by 0.15% and 0.3% year-on-year and 0.37% and 0.29% month-on-month respectively.
From the perspective of the commodity categories traded between China and Europe, the export demand for traditional low value-added products is sluggish. In July, 8 out of 22 categories saw a month-on-month decline in exports, 3 categories decreased year-on-year, and 1 category decreased year-on-year/month-on-month. From the weight of export categories, export contribution, electromechanical, audio-visual equipment and their parts and accessories; vehicles, aircraft, ships and transport equipment; miscellaneous articles; textile raw materials and textile products; The total export value of base metals and their products accounted for more than 70% of the total exports of China-EU trade, of which the two major categories with large changes in proportion, the total export value of electromechanical, audio-visual equipment and its parts and accessories, decreased from 70% in 2022 to 50% in 2023, and then to 42.61% in July 2024. Conversely, the share of total exports of vehicles, aircraft, ships and transport equipment fell from 9% in 2022 to 7% in 2023 and then 8.5% in July 2024. Therefore, in the context of a structural shift in the flow of export commodity trade, the rebound of China-EU trade exports will be pinned on the "new three" and automobile exports.
At the same time, the continued sluggishness of the Eurozone PMI also reflects changes in European demand. The European manufacturing PMI in August 2024 was 48%, a slight increase of 0.1 percentage points from July, and ran at around 48% for three consecutive months.
In this context, the freight rate from Shanghai port to the basic port of Europe also continued to fall, of which the 40-box freight fell even more.
Under the sluggish cargo volume, freight rates are weak in the recession of the detour profit
The marginal bullish effect of the detour on the freight rate is gradually declining, but it is still the last line of defense for whether the freight rate returns to the "origin".
We observe a consistently low 1.5% volatility in the share of idle capacity since 2024 (median 2.6% since 2017), the longest level since 2017.
For an understanding of idle capacity, please refer to the unemployment rate. When the unemployment rate is running at a low level for a long time, it does not necessarily mean that the current employment situation is very good, and it may also be that the number of people willing to work is decreasing, so there is no such thing as "unemployment". In the same way, the proportion of idle capacity to a certain extent indicates the most extreme measures taken by shipping companies in balancing freight rates. When the demand is good: the old ships are not eliminated immediately; When demand is poor: delayed launch of new ships, etc., so it is also an indicator of the contradiction between supply and demand.
We compare the quantity of export commodities with the demand, and the capacity of the container ships with the supply, respectively, with the idle capacity. The analysis found that demand is inversely proportional to idle capacity, and capacity is directly proportional to idle capacity. When the idle capacity fluctuates at a low level, the freight rate is stronger, and vice versa, the freight rate is weaker.
Since 2024, the number of commodity exports has shifted downward compared with the end of 2023, and it will be more obvious after July 2024, while the container transportation capacity has also fallen from a high point. It shows that the market demand for container transportation weakened in July, and the supply also weakened. At present, idle capacity is in a slight rebound, such as 1.7% in August, and 2% in September.
Summary and outlook
The short-term supply is inelastic, and the adjustment of the shipping capacity by the shipping company has a poor effect on the support of freight rates; The Palestinian-Israeli negotiations have gradually compressed the multilateral community, the long-term supply elasticity is large, and the excess capacity has become a "reality". Therefore, the dominant factor in this wave of market: weak demand.
Specifically, near-term and long-term contracts are considered from different angles.
The 2410 contract will enter the delivery month market, so basis regression is the main tone. We believe that there are two scenarios:
First, the spot price falls, the probability of futures decline is large, and the decline in spot price is greater than the decline in futures price, and the basis returns;
Second, the decline in spot prices narrowed, futures prices rebounded, and the basis returned;
Forward contracts face many uncertainties and are highly volatile. For example, when the direction of rise and fall is determined, the forward contract has a greater elasticity of rising or falling.
Investment consulting business qualification: Zheng Jian Xu Xu [2011] No. 1290
Author: Fu Xiaoyan, shipping analyst of South China Research Institute
Investment Advisory License No.: Z0002675
Important Disclaimer: The content and opinions in this report are for learning and reference only and do not constitute any investment advice. The market is risky, and investors need to be cautious.