Hello, it’s IINO.
I would like to broadcast IINO san’s Logistics Radio.
Today, I would like to talk about the theme of “Container ocean freight rates from China plummet due to power shortages in China”.
Currently, ocean freight rates from China to North America are at an all-time high. However, at the end of last week, there were a big change in spot freight rates of this route.
There was a price drop of about half, from USD 15,000 to USD 8,000 per 40-foot container.
Daily Logistics Radio by IINO san in 5th Oct. 2021
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Power Shortage in China
The reason for this is because of the power shortage currently occurring in China.
This has affected factory production, and many factories that were not able to finish production before the National Day of China, October 1st, have cancelled their bookings for the vessel.
It is reported that forwarders who were not able to stock the space sold it at a discounted rate. The timing of this happening may have been related to the reduced production before the National Day of China.
Forecasting the Market from the Power Shortage Issue
Through learning more about the cause of the current power shortage in China, we may be able to see how the market will move in the future.
Let’s take a closer look at power consumption policy, coal prices and the impact on shipping in China.
Policy to Curb Power Consumption in China
Since the generation of President Hu Jintao, China has had a policy of curbing power consumption to a certain level.
However, in August 2021, China’s National Development and Reform Commission announced the achievement of the target for the first half of 2021, and found that it had fallen far short of the target.
Therefore, at the end of August 2021, there is a view that “Chinese government may have suppressed power generation in order to achieve the target.” This had affected 23 listed companies in mainland China to suspend or reduce production by September 27th, 2021.
It is believed that this background is influencing the recent sharp ocean freight rates drop in.
Environmental Measures in China
It is also believed that there is influence of the environmental measures of current President Xi Jinping.
Mr. Xi has announced a goal of reducing carbon dioxide emissions to virtually zero by 2060.
In addition, the Beijing Winter Olympics in February 2022 could also have a bearing. There might be a desire to curb air pollution and hold the Winter Olympics under blue skies.
Coal Prices Soar
Coal is the main source of electricity in China today.
Coal-fired power generation accounted for 60 or 70% of the country’s electricity generation in 2020, which indicates China’s dependence on coal for power generation.
The price of coal has been rising since this year, which is one of the reasons for the power shortage.
Coal Prices as of mid-September This Year
– Year-on-year: about double
– Compared to the beginning of the year: about 56% increase
This has caused unprofitable power plants in China to refrain from generating thermal power and coal purchases themselves.
Coal inventories at China’s six major power plants are at a record low of about 15 days’ worth and there are no stocks.
Rising Demand for Electricity and Coal
Vaccinations against coronaviruses being spread worldwide, so demand for electricity is recovering whole of the world, which may lead to a surge in demand for coal.
It may also be affected that they changed import country for coal to Indonesia due to deteriorating relations between China and Australia.
Effects of Future Power Shortages
As winter will be coming, the demand for electricity will increase in China.
Until the issue of power shortages in China was brought up, there was a prediction that the surge in ocean freight rates from China to North America would continue until the Chinese New Year in February 2022, or even beyond that until the end of 2022.
However, with the shortage of electricity, Chinese factories will have less production capacity and will be able to ship less. This makes space for shipping companies and lead to lower ocean freight rates.
Summary
Whether this power shortage in China will be a temporary situation or continue for a long time, and it is interesting to see how this will affect the shipping market.
