China continues recovery, carriers prepare for rebound

3/20/2020

Following last week’s reports that manufacturing is returning closer to full capacity, there were many additional indications this week of Chinese production getting back into gear with even the city of Wuhan, the orginal epicentre iof the coronavirus, taking initial steps back to normal, according to digital rates specialist, Freightos.

However, in a weekly market update issued yesterday, it also underlined that the epidemic, now upgraded to a pandemic, continues to be “profoundly disruptive” to global supply chains, especially for importers heavily reliant on Chinese manufacturing.

“One interesting sign that production is picking up is the spike in intra-Asia air cargo rates -  indicating that Chinese factories are restocking the components they need to manufacture the backlog of orders caused by the shutdown,” commented Eytan Buchman, CMO, Freightos

“With production picking up and passenger flights and their cargo space still severely limited, air cargo rates out of China to Europe and North America have also started to climb.”

Turning to ocean freight, the latest Freightos Baltic Index (FBX) showed that China-US West Coast prices decreased  by 1% on the previous week to $1,323/FEU. Rates are 10% behind last year’s prices for this week.

China-US East Coast prices are unchanged at  $2,541/FEU. This rate trails last year’s by 2%.

As for other major trade lanes for ocean shipping,  China-North Europe rates are down 6% on last week at $1,447/FEU but are 6% higher than a year ago.

North Europe-US East Coast rates rose 2%  to $1,745/FEU but are down 8% on the same week in 2019.

“But as production recovers, a spike in prices becomes more likely - and carriers are getting ready for this rebound. This week's sharp drop in blank sailings is a good indication of this preparation,” Buchman said.

Carriers are also taking steps to make sure empty containers are back where they need to be, he noted:

“Though backhaul rates for US-China have been stable, FBX rates for North Europe-Asia have jumped 48% in the last two weeks, as exporters compete to get their shipments on limited numbers of ships.

“These developments show carriers are getting ready for a return of demand in the near future and a possible surge in late April when late orders meant for summer could overlap with the back-to-school push.

Buchman added: “But as the coronavirus has now spread to other countries including the US, new disruptions like the US ban on inbound flights from the EU are likely. And the industry not only has to worry about the supply of goods coming out of China but also about possible drops in the demand for those  goods in the countries just starting to cope with the epidemic.”