Freight rates continue to rise, with sea freight to the United States increasing by nearly 50%!

Shipping prices have seen a second consecutive increase. The SCFI container freight index has risen for two consecutive weeks, with freight rates in the US West and East markets continuing to rise, with the US East rising by 5.61%, breaking the $3,000 mark. However, after a 30% surge, the European route saw a slight decline, and shipping companies began to raise FAK rates for individual routes to support freight rates. After Amazon set the Prime schedule, sellers accelerated their pace of stocking up for the peak season, and industry insiders expect that shipping prices will still see a wave of price increases at the end of the month.

The shipping price has risen, but the sellers' shipment volume has not increased accordingly. Instead, the internal competition in the industry has intensified, and the freight forwarders are having a hard time. It is difficult to get the goods, to sweep the building, and to operate a one-stop service . They have to worry about 007 with a base salary of 2,000 yuan. The current freight forwarding industry shows signs of polarization. Some people have abundant resources and considerable income; some people take a container of goods with a profit of 100 yuan. Even if there is no profit, they are still scrambling to take the goods. The main thing is to be with you.

Some freight forwarders have reduced costs to attract cargo in order to increase cargo volume, which has led to frequent bankruptcies. Freight forwarders that have cooperated for a long time have suddenly declared bankruptcy, freight forwarders have been arrested for bankruptcies, and a blacklist of freight forwarders has been circulated wildly in the industry. Today, the "money printing machine" effect of cross-border e-commerce has disappeared, and the logistics industry is undergoing a major reshuffle. The profits of shipping companies and freight forwarders have plummeted, and there are constant reports of layoffs, salary cuts, divestment, and running away.

Shipping rates to the US continue to rise, breaking through $3,000 on the US East Coast

At the end of July, the industry warned that there would be a new round of price increases for containers on the US route in August. Now this wave of price increases has quietly arrived.

The latest SCFI index of Shanghai Shipping Exchange shows that the transportation demand remained high this week, the supply and demand fundamentals were stable, and the market freight rates continued to rise. On August 4, the freight rate from Shanghai to the West Coast of the United States and the market freight rate (sea freight and sea freight surcharge) from the basic port of the East Coast of the United States were US$2,002/FEU and US$3,013/FEU, respectively, up 3.04% and 5.61% from the previous period.

Compare the data on July 7: US$1,404/FEU in the West Coast and US$2,368/FEU in the East Coast. In other words, within one month, the freight rates of Shanghai Port to the West Coast and East Coast base ports increased by 43% and 27% respectively.

So far, spot freight rates in the US market have continued to rise for a month, with the largest weekly increase in freight rates in the US West Coast reaching 26.1%.

"The demand is not strong now, but the volume of cargo on the US route is relatively good, and the shipping companies continue to reduce flights and adjust freight rates, so the shipping prices in many places are rising," a freight forwarder pointed out. Including COSCO, EMC and others have quietly increased their prices. Now the price of a 40HQ container from COSCO to Los Angeles and New York in the United States is US$2015 and US$3075 respectively.

Compared with the previous period, the quotations of freight forwarding companies have increased, and it is expected that there will be new freight rate increases after August 15 and in September. "After the freight rate increased, the volume of goods received actually increased," a seller reported. Freight forwarders have suggested that sellers ship before the 15th, otherwise the price of later shipments will be higher.

Industry insiders generally believe that in order to maintain freight rates, shipping companies are very likely to impose peak season surcharges or raise basic freight rates in the middle of the month, and the freight rates or surcharges are expected to increase by 300-400 US dollars. At present, the reduction of cargo space on the US route by carriers is close to 30%, but in order to cope with the impact of the fourth quarter off-season and the continuous launch of new shipping capacity, if shipping companies want to maintain the current freight rate, they will inevitably have to raise freight rates by continuously reducing cargo space to make up for the losses.

Compared with the first half of the year, the second half of the year is the real peak season for foreign trade. Under the stimulation of the atmosphere of major festivals, consumers' shopping desire will be released to the greatest extent. At present, Amazon has officially announced that it will hold a Prime membership promotion in October. After the sellers submit their applications, they will be busy preparing for the goods. According to past practices, most sellers will mainly use ordinary ships, but due to the frequent dumping of ordinary ships in July, part of the shipment volume may be transferred to Matsushita, which will raise the freight rate. It is expected that at the end of the month, as the sellers' shipment volume increases, there will be a wave of price increases.

However, the method of reducing capacity and raising prices seems to have little effect on European routes, and the recovery of freight rates on this route is not optimistic. The Shanghai Shipping Institute report shows that the transportation demand in the European market is stable, the supply and demand fundamentals are basically balanced, and the market freight rates have fallen after a sharp rise last week.

The latest index of Shanghai Shipping Exchange SCFI on August 4 showed that the freight rate from Shanghai to Europe was US$947/TEU, down 2.87% from last week; the freight rate from Shanghai to Midland was US$1,503/TEU, up 1.72% from last week.

Regarding the European route, industry insiders said that there are many variables, and the current reduction in cargo is not obvious, mainly relying on the increase in cargo volume. Last week, the spot freight rates of containers from Asia to Northern Europe soared. The Shanghai Shipping Exchange SCFI rose by US$233 to US$975/TEU in a single week, an increase of 31.40%; the Ningbo Shipping Exchange NCFI rose by 56.9% in a single week. However, due to weak demand, the market volume is not enough to support the increased freight rates, and the current freight rates have fallen back.

In order to support freight rates, some shipping companies have chosen to raise FAK rates for "some European routes". In early July, Maersk announced that it would increase FAK rates to US$1,025 per 20 feet and US$1,900 per 40 feet from July 31; CMA CGM also announced that it would increase FAK rates to US$1,150 per 20 feet and US$2,100 per 40 feet from August 15.

Overall, this year's peak season for freight was not ideal, with slow growth in cargo volume and limited success in adjusting supply. Although there was some improvement in August, it was still a big disappointment compared to the previous peak seasons, and the industry was unwilling to accept unreasonable freight rates.

But this does not change the fact that the increase in freight rates will be passed on to sellers. In the annual reports disclosed by many big sellers before, the sharp drop in ocean freight was an important reason for the increase in profits of some big sellers, but if ocean freight increases, the sellers' transportation costs will increase, and their profits will inevitably shrink.

At the same time, it will also intensify the internal competition in the freight forwarding industry, and the polarization will be more significant. Large freight forwarding companies may receive new customers due to fluctuations in ocean freight rates, but small freight forwarding companies may not be able to retain some customers due to rising freight rates and low profits, and may even go bankrupt.

The profit of 1 container of goods is 100 yuan. Freight forwarder: Can you continue to do this?

"We couldn't get the goods in the first place, so we had to lower our profits to get the goods. Now that the prices have gone up, it's even harder," a freight forwarder complained in his WeChat Moments. Freight forwarders made too much money during the pandemic, so they all rushed into the market. However, since shipping costs returned to normal last year, the phenomenon of a large loss of orders has spread to the entire logistics industry, and a large number of freight forwarders have died as a result. The remaining freight forwarders are facing greater competitive pressure and can only carry a large number of empty containers around to "seek goods."

The recent increase in shipping prices seems to have driven the overall level of the industry upward, but in fact it is not the case. The China Logistics and Freight Forwarding Association said that this freight rate was artificially adjusted by the shipping companies, which will cause market chaos in the short term and drive up freight rates, not a market recovery. It is expected that the shipping companies' price increase will last for about two months, and the freight rates will slowly fall back afterwards.

During this period, some sellers may shop around to save on freight costs, but recently many freight forwarders have gone bankrupt, and freight forwarders themselves are highly risky, so they either do not change or switch to relatively reliable large companies. For larger freight forwarding companies, rising ocean freight rates are beneficial, and their own price advantages will also help them attract more sellers. But for small and medium-sized freight forwarding companies, even if the price is low, the ability to get reservations is limited, and lowering prices and reducing profits to receive goods will exacerbate their difficult situation.

"I went to canvass the building in Shenzhen in 40-degree heat, but I didn't get a single customer in the whole afternoon," complained freight forwarder Xiao Wang. The market this year is bleak, and I often can't receive goods. Even if there are interested customers, I still compare three companies. I start quoting from morning to night, and I don't cooperate for three years, but I still think you are slow. He calls you like calling the police, and you call him like solving a case. You pay 50 cents but want a three-month payment period, and you have to keep the price unchanged all year round, without taking over shifts or dumping goods.

Would you accept a 100 yuan profit for a whole container of goods ? Yes, as long as you don't lose money, you must accept it. For prices, freight forwarders have a long-term view and keep lowering prices, just to get more customers and more sales.

The feedback from peers is even more distressing: "Are you not satisfied with 100?", "What? 100? That's the profit of my 100 cabinets," "I have been following the companies with profits of dozens of yuan for two or three months, and I serve all the customers, so be content," "I have taken all the companies with profits of 30 yuan, but I only get 30 cents, not even enough for my phone bill." The market this year is outrageous, and it is good to not lose money. The main focus of freight forwarders is companionship, otherwise where can they receive the goods? After all, among the 1,200 friends, one third are peers.

The market is not good, sellers are not shipping enough, the market is out of stock, and it is normal to receive goods at low prices. Some freight forwarders are even more out of line, running to pick up a trailer for 5 yuan, which is equivalent to no profit at all; even worse, they accept it even at a loss. In their view, if they sell in large quantities, they can accept less losses, just for the sake of customer sources and long-term development in the future.

So, what is the salary that freight forwarders receive?

First of all, from the perspective of basic salary, most freight forwarders have relatively low basic salary, which is basically between 2000-5000, and the basic salary of some freight forwarders is linked to commission, and a few freight forwarders have basic salary of over 10,000. The current situation in the industry is: basic salary of 2300, no commission for the time being; if the monthly performance does not reach 5000, the basic salary is directly 500 yuan; Ningbo freight forwarders have a basic salary of 3500, and commissions start from 10,000 gross profit. So much so that some people in the industry bluntly said: "The basic salary of Shenzhen operators is 5000, and a monthly salary of 2000 means no food?"

What's more, have you ever heard of a job where you have to take on multiple jobs (business management + warehouse operation + porter) with a total monthly salary of 3,500 yuan, but after deducting medical insurance and social security, there is only 3,100 yuan left? Some netizens are doing this.

As for commissions, only a few have been able to get the lion's share since last year. "For a freight forwarder with a base salary of 10,000 yuan after tax, the performance requirement is 20,000 yuan, and the commission for the extra performance is 30%," said a high-paid freight forwarder. The company has long-term cooperation with some big sellers, so the commission is not bad. In the months with high shipments, the comprehensive salary can reach more than 20,000 yuan per month.

A considerable number of freight forwarders receive less commission, or even no commission at all. A commission of 150 yuan for a sales volume of 10,000 yuan is still a good deal, and a commission of 500 yuan for a sales volume of 150,000 yuan is also a good deal. What's worse, many freight forwarders cannot reach the sales volume required by the company, so naturally there is no commission.

"It is becoming increasingly difficult to be a freight forwarder. This is my 15th year as a freight forwarder. The profit has dropped from 30,000 to 3,000," a freight forwarder lamented on a social platform. Nowadays, it is difficult to accept full containers at break-even cost, and it is difficult to accept goods at a profit of US$2 per LCL. How can we break the deadlock?

Even though I get paid a few thousand yuan but cannot receive any goods, I still have to worry like a 007, constantly jumping between scolding and being scolded. Freight forwarder Xiao Wang said helplessly: "Germany is over, the US is back to work, I will continue to work, and in a few hours it will be China again. 80% of the day is spent working, it's great."

On major social media platforms, there are constant voices discouraging people from entering the freight forwarding industry. They sincerely advise newcomers who want to enter the industry to step back and look at other jobs. Those who have already entered the industry should change industries as soon as possible, so as to avoid staying in the freight forwarding industry for too long and becoming boiled like a frog in warm water, and not knowing what they can do after changing careers.

Fresh graduates : I opened four orders in a month and was persuaded to quit by the company. I went door-to-door and made phone calls every day, but I didn’t ask for prices as much as others. Usually, there was no follow-up after I quoted the price. I finally opened a few orders, but I didn’t meet the performance target. That’s it.

A freight forwarder who has been in the industry for one year: I haven’t received any commission in 9 months. The market conditions are too bad and the company has too many systems. I just want to advise newcomers not to join.

2 years of experience as a freight forwarder: I have operated a one-stop service including air freight, sea freight, railway freight and express delivery, but I felt that the operation was too mechanical and had no future, so I started to change my business. During the third week of the change, I thought to myself: "How desperate must I be to work as a freight forwarder".

Freight forwarding to purchasing : Successfully switched from Party B to Party A. Although the salary is not that high, it is comfortable and I don’t have to worry about it so much. I feel much better.

Freight forwarder with 6 years of experience in the industry : I can’t do this any longer, there’s no money left, I’m ready to pack up and run away.

Due to the bad market conditions, poor market volume, high pressure and lack of profits, some freight forwarders have chosen to change careers and exit the industry, but some freight forwarders still stick to their posts. In order to compete for more customers, these freight forwarding companies try to accept goods by lowering prices and making losses, but low prices are no longer enough to support market demand, and incidents of running away and bankruptcy have followed.

Layoffs, salary cuts, and runaways: the logistics industry is undergoing a major reshuffle

Since the cross-border industry cooled down last year, there have been reports of logistics companies going bankrupt from time to time. In recent months, such reports have become more common, with many cross-border logistics companies caught up in labor disputes, running away, and closing down.

For example, not long ago, a leading freight forwarding company in Shenzhen collapsed, owing more than 40 million in foreign debts, 170 containers were detained, and sellers had to pay out of their own pockets to redeem the goods. Netizens also revealed that the company was in arrears with employee salaries. A supply chain company in Shenzhen chose to go bankrupt due to a broken capital chain and was unable to pay nearly 4 million in customs clearance fees. A Chinese logistics company was arrested after being charged by the U.S. federal government for using fake postage.

Recently, news broke that two freight forwarding companies had investors withdraw their capital. The freight forwarding industry is in a downturn, and some companies are considering laying off employees. "The HR department talked to me a few days ago and told me about my resignation," said Xiao Li, a warehouse manager in Shenzhen. In fact, Xiao Li has already accepted the company's actions. As early as the beginning of this year, the company laid off several waves of employees one after another, and he has already prepared himself mentally.

Xiaoli's situation is quite similar. Xiaoliu from another freight forwarding company said that the company has relatively few employees and has not yet laid off any employees, but has adjusted the bonus structure. Not only has the base salary been reduced, but the commission amount has also been increased. This is not a disguised way of reducing wages to force people to leave, and they are already looking for other jobs.

The "money printing machine" effect of cross-border e-commerce has disappeared, the prosperous days are gone forever, and all industries related to it will be affected.

A survey shows that nearly 70% of the surveyed freight forwarding and logistics companies currently have a profit margin of 3% or higher, but 14% of the companies are currently in a state of breaking even or even losing money, and only 31% of the respondents said that their profit margin is over 10%. Although many companies have relatively stable profits, this cannot cover up the hidden worries of the market under the overall environment.

2022 is a turning point, and global trade has entered a period of adjustment. With weak demand and a severe decline in shipments, freight forwarders have changed from looking for ships for cargo to looking for passengers for ships. The industry has entered a period of reshuffle, with small and medium-sized freight forwarders being eliminated, and logistics companies at that time began to respond to market changes by means of salary cuts and layoffs.

Since last year, many international logistics giants have announced salary cuts and layoffs. Among them, CH Robinson Worldwide, the largest ocean freight forwarder in the United States, started a new round of layoffs in May this year after laying off employees in November last year.

The huge profits in the shipping market in 2021 have helped Maersk jump from 294th in 2019 to 151st in the Fortune Global 500, and COSCO Shipping's ranking has also risen to 115th this year. Although the rankings have improved, it is undeniable that the market has changed.

A review of the financial reports of several shipping companies shows that due to the weakening of freight demand, the profits of the companies have fallen by 70% to 90% . ZIM even predicts that the company may suffer losses in 2023. In the second quarter of this year, the profit decline of many shipping companies far exceeded the decline in revenue, and the profit decline was particularly obvious.

CMA CGM's revenue in the second quarter of this year was US$12.289 billion, down 36.9% from last year, and its profit was US$2.593 billion, down 73% from last year. Among them, the shipping business revenue was US$8.4 billion, accounting for nearly 70% of the total revenue, and the EBITDA profit margin was 26.2%, down 30.7 percentage points.

Maersk is in a relatively better situation, with revenue falling to $13 billion, a 40% drop. Among them, shipping business accounts for 67% of total revenue, which fell to $8.7 billion in the second quarter of this year, a 50% drop; in terms of profit, Maersk's EBITDA in the second quarter was $2.905 billion, a 71.87% drop from $10.327 billion last year.

Not only shipping companies, but also the performance of the freight forwarding industry has been hit. The world's largest ocean freight forwarder, Kuehne + Nagel, saw its revenue drop by 38.3% in the first half of 2023, and its EBIT fell by 48.3% year-on-year; DHL's revenue fell by 16.4%, and its EBIT fell by 27.2% year-on-year.

As we enter the third quarter, the market is still shrouded in negative sentiment, and sellers' shipments have not increased significantly. In order to boost the container shipping market, shipping companies have chosen to reduce capacity to increase freight rates. How long can they keep the market active?

Ocean Freight

USA

Cross-border