China is pressuring CMA CGM, one of the world’s largest shipping companies, to contain record container freight costs caused by a recovery in demand after the coronavirus pandemic.
“The market is so strong that the Chinese authorities believe they need to set a cap at some point,” Rodolphe Saadé, chairman and managing director of Marseille-based CMA CGM, told the Financial Times.
“And that’s why they say you can’t do what you want, there are rules that have to be followed.”
The Chinese Department of Transportation is particularly concerned that higher freight rates are slowing exports to the US and are “watching very closely what is happening,” Saadé added, without saying whether he would limit or cut prices.
The cost of shipping goods has increased globally in recent months as factories reopened in Asia and freight capacity quickly depleted, driving up transportation costs to the western shores. This followed the cancellation of hundreds of trips at the start of the pandemic.
Freight costs on routes between China and the US west coast spiked during the summer as American companies built up depleted inventories from shocks in supply chains earlier in the year and people stuck at home shopped online.
CMA CGM boss Rodolphe Saadé expects 2020 to be a good year © Boris Horvat / AFP / Getty
“When people go to work in the US, they usually stop by a Starbucks for a muffin and a coffee. . . But now they can’t go to the office, they stay at home, they have to have breakfast, they need toasters, ”said Saadé.
“So they buy a lot in China, I mean, millions of toasters from Wal-Mart, from Amazon, from Costco, from whoever. And we ship them, ”added Saadé, who has co-opted ships from other routes to meet demand.
Overcrowding combined with the occasional bad weather has also resulted in serious delays in ports. “When I bring China or Asia to Northern Europe, we usually spend two days in a Chinese port to refuel freight. Now we’ll spend maybe six, maybe seven days, ”Saadé said.
Rates from Asia to Europe had been rising gradually until prices rose 21 percent last week as global capacity constraints worsened.
Prices in Australia and Brazil are also rising. The Shanghai Containerized Freight Index, which shows the container spot rates from Asia, increased by around 150 percent compared to the previous year.
Lars Jensen, Managing Director of SeaIntelligence Consulting, said: “There is such a shortage of ships and empty containers that there is no upper limit to what these rates could be. It depends on how much senders are willing to pay. “
However, it is unlikely that higher freight rates would be passed on to consumers, Jensen said, as the cost of transporting goods is a fraction of their final retail price.
Rising interest rates have been a boon for companies like CMA CGM, which faced intense investor scrutiny earlier this summer. The privately held company’s debt had fallen in value as bondholders worried about losses.
Those fears subsided after CMA CGM received a government-funded EUR 1 billion loan from banks in May and the group generated significant free cash and was able to prepay debt of $ 700 million, including $ 100 million of government backed lower cost credit loans.
Saadé said the $ 30 billion sales group is focused on growing its logistics business, which brings in $ 8 billion a year after acquiring Ceva’s logistics arm in 2018.
It is also pushing to become climate neutral by 2050 and recently launched the world’s largest container ship carrying liquefied natural gas.
And while CMA CGM still has around $ 18 billion in debt, about half of which is due to ships that have been chartered for more than a year, Saadé is optimistic: “Volumes are increasing. We expect 2020 to be a good year. “