How will the cliff-like decline of global sea freight rates affect China exportation?

During the past three years, the rising sea freight rates had aroused widespread concern in the market. But now the cliff-like decline really surprised people as well.

In January this year, the sea frieght for a 40-foot container from China to the U.S. Western Coast was about US$10,000. In August, the price was about US$4,000, a 60% drop. Compared with the average cost of US$20,000, which was the highest point last year, a drop of more than 80% has happened. The market of Thailand-Vietnam route in Southeast Asia fluctuates greatly. Due to the large gap in freight demand on the route, it fell by 37.1% in a single week. The spot market booking price dropped sharply, and there was even a small amount of zero freight and negative freight.

Obviously, many people are very much surprised to see the sharp drop in sea freight rates, because they had risen rapidly for a period of time after covid-2019 started.  

First of all, the current rapid decline in shipping prices is actually affected by the fluctuations in the overall international market, resulting in a substantial drop in the entire international shipping demand. The price of the entire market is actually affected by the dual effects of supply and demand. Under normal circumstances, the supply of the shipping market is still relatively sufficient under the previous high price. Currently affected by the economic downturn in Europe and the world, the overall world demand is actually in a relatively insufficient state. The inevitable result of the lack of world demand is the whole. There is a certain degree of overcapacity in the market, and the inevitable result of overcapacity is a drop in prices, which is the function of objective economic laws.

Secondly, for the current money supply of the whole world, because buying ships are all sunk costs, so for the entire market, it is impossible for these sunk costs to flow in the means of production in a short period of time, so the final The result is that supply remains relatively surplus. This relative excess of supply is difficult to change significantly in a short period of time, so the decline in prices is an impact of excess supply. When discussing the long-lost profits of some shipping companies before, it was said that for shipping companies, this is a relatively sunset industry, and the supply in the entire market is relatively surplus. Now this problem will arise again.

Thirdly, for our entire market, the decline in shipping prices will inevitably lead to a decline in profit levels, which is an inevitable result of objective market laws. But for other export industries like stock clearance business, it may be a relatively big opportunity. In the past, the export industry has actually interfered with the normal export due to the high shipping cost. Now the drop in shipping cost will be conducive to the long-term growth of exports. So for the current entire market, the drop in shipping prices actually contributes to the development of the entire export market, and for China, the world's factory, is actually more meaningful.