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Asia-EU sky high ocean rates might hit Chinese exports
Signs are emerging that the sky-high freight prices on the Asia-Europe trades may be beginning to structurally undermine it, as European importers begin to look for alternatives to sourcing from China.
Group commercial director of Seko Logistics in the UK, Keith Gaskin, said: “I am seeing importers in the UK and Europe actively telling their merchandisers to look for near-shoring solutions, because the freight rates from Asia have reached such heights it is making their business untenable. If I were an importer, I wouldn’t want to be beholden to a shipping line, but that is what is happening right now.”
While Mr Gaskin admitted that switching sourcing locations was not an overnight process, he added: “We are seeing Turkey as a new sourcing location for a lot of products, and it is growing exponentially. And there is other manufacturing capacity across eastern and central Europe, as well as parts of North Africa.
Chinese government concerned about carriers policy and their impact on the economy
“Carriers have now realised they are in a position to control the market – by restricting capacity they can control the rates. But by taking this ultra-aggressive approach, I am worried that they are biting the hand that feeds them.
The Chinese government is now concerned because it understands the country’s volumes as a sourcing location could be under threat if freight rates remain too high for much longer.” And, although he said his “gut feeling is that rates are beginning to drop”, they still remain at levels that make it simply uneconomic to ship products, said Mr Gaskin.
“We have seen importers saying they cannot pay these freight rates because they will lose money. If you are shipper of, say, large white goods or furniture where relatively few units can fit in a box, those increases put hundreds of pounds on the cost of the product.
Shippers diversify their trade due to current ocean freight levels
“And while the carriers may want to hold on to these high rates, their behaviour has meant that shippers are diversifying from the deepsea trades,” he said.
In the monthly Freight Baltic Index market analysis, SeaIntelligence chief executive Lars Jensen graphically demonstrates how freight rates are seriously beginning to hit shippers’ balance sheets, reports UK’s The Loadstar.
Mr Jensen compares the freight costs of two US shoe retailers: one selling high-value footwear at US$100 per pair and the other low-value at $10 per pair; both source from China, with the added proviso that the high-value retailer was also a major shipper that had secured rates at the lower end of the spectrum, and the low-value, smaller retailer negotiated rates at the higher end of the spread.
Low value retailers experience huge impact on their selling pricing
“At the beginning of March 2020, the high-end retailer had a freight rate of $1,258, and the low-end retailer paid $1,440. Both can fit 10,000 pairs of shoes into the container. The $100 shoes thus had a freight cost of 13 cents, where the $10 pair cost 14 cents.
“Fast-forward to the FBX pricing range of today and the high-end retailer pays $4,128 and the low-end retailer, $6,135. The $100 pair of shoes costs 41 cents for freight whereas the $10 pair costs 61 cents,” Mr Jensen explained.
He calculated that, whereas a year ago, the high-value retailer’s freight costs were 0.1 per cent, and the low-value retailer 1.4 per cent, of the retail price of their products, today they are 0.4 per cent for the former, but for his low-end competitor, “they have ballooned to 6.1 per cent”.
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