Is the Winter of Cross-border Logistics Coming?

Recently, there has been a hot topic about the sharp decline in foreign trade orders.

Many foreign trade companies now feel that the decline in foreign trade orders has made the prospects a bit grim. The overall data for January has not been released yet, but if the situation is true, the stagnation of foreign trade will inevitably lead to a low point in shipping demand, and global shipping capacity and containers will be seriously surplus. The Anbang think tank research team's previous tracking showed that after the Spring Festival, the empty container stacking at Shenzhen Yantian Port has reached the highest level since March 2020, with empty containers stacked 6-7 layers high, possibly breaking the record for the largest empty container accumulation since the port opening 29 years ago. In addition, Shanghai, Tianjin, Ningbo and other places are also facing considerable empty container storage pressure.

According to the latest data from the global container trading platform Container xChange, in week 6 of 2023, the 40-foot container CAx (Container Availability Index) of Shanghai Port reached 0.64, and the CAx index of the port has been above 0.6 since the beginning of this year. It should be noted that when CAx is above 0.5, it means that the container equipment at the port is surplus. Between November 2020 and December 2021, the index was repeatedly below 0.1.

Ports are crowded with empty containers. However, this situation is not only happening in China, but the entire Asian economy is facing huge challenges recently.

Asian economies exporting to the U.S. shrinks, and routes lose momentum

"Now the situation of declining foreign trade is far more severe than imagined, with a serious lack of orders." said the person in charge of an electronics factory in Dongguan, Guangdong.

There are many companies that have this feeling. At the beginning of 2023, the global trade growth rate slowed down, causing demand to contract and China's foreign trade to stagnate, with obvious downward pressure. Li Xingqian, director of the Ministry of Commerce's Department of Foreign Trade, said that the main contradiction in China's foreign trade field has changed from last year's supply chain disruption and contract performance insufficiency to the current weakness in external demand and order decline.

On February 27, the Hong Kong government's statistics department released data on external commodity trade statistics, showing that Hong Kong's overall export value of goods fell by 36.7% year-on-year to RMB 290.9 billion in January 2023, after recording a year-on-year decline of 28.9% in December 2022. Although the data for mainland China in January has not been released yet, since Hong Kong is the largest trade transit port on the mainland, the decline in Hong Kong's data also means that the export situation in mainland China is also relatively grim.

The decline in orders is nothing more than a reduction in demand or a loss of orders. In other words, either someone else stopped buying or they were snatched away.

First of all, as the world's largest consumer market, the demand in the United States has severely shrunk. According to analysis by the Japan Maritime Center, the number of containers exported to the United States by 18 Asian economies fell by 20.1% to 1,468,276 standard containers in January, of which China's exports to the United States fell by 25.4% to 822,047 standard containers. Taiwan Province of China fell by 28.5% to 48,124 standard containers, Japan fell by 19.9% to 43,829 standard containers, and the export volume of members of the Association of Southeast Asian Nations also decreased by 11.8% to 342,926 standard containers. At the same time, Vietnam, Thailand, Indonesia, and Malaysia all saw decreases of 12.5%, 3.7%, 14.2%, and 23.6%, respectively.

Secondly, China's share in US goods trade is gradually declining, facing pressure from US "nearshore" partners such as Canada and Mexico, as well as "friendshore" partners such as Vietnam. Data shows that China's share of total US goods trade fell from 14.8% in 2020 to 12.9% in 2022, while the share of "nearshore" countries such as Canada and Mexico steadily increased, with Canada rising from 13.9% in 2020 to 14.8%. In terms of US imports, China's share has declined even more significantly, accounting for only 16.4% in 2022, a decrease of 5 percentage points from 21.4% in 2017, while the share of US "friendshore" country Vietnam has increased from 2.0% in 2017 to 3.9%, almost double.

Multiple global logistics giants have laid off many employees. Is "winter" coming?

The chill of slowing market demand, weakened consumption, and increased costs has spread to the global

Logistics giants have collectively laid off employees, the total number of layoffs involving nearly 10,000 people. On the one hand, the market demand is sluggish, the performance report is difficult to see, the scale of layoffs become the first step to reduce costs and increase efficiency. On the other hand, investors are anxious for investment returns, and pressure on logistics companies has become the direct driver behind the layoffs.

In June 2022, logistics giant DBSchenker announced that it was laying off 130 employees in the U.S. In July 2022, news broke that GXO Logistics, a global leader in contract logistics, would close a warehouse in Wisconsin and fire 144 employees. Logistics giants Geodis and Ceva have also filed layoff documents, planning to cut a total of about 450 employees by Sept. 30.

Last November, according to sources familiar with the matter, Robinson, North America's largest third-party logistics company, was laying off 1,000 to 1,200 employees in global logistics, most of them at the top management level (vice president and general manager level). At the beginning of this year in the company worked for 24 years of the chief executive officer was also fired due to poor performance.

Not only management, but also the front line is being laid off. Amazon, the largest e-commerce and logistics giant in the U.S., which is also a Fortune 500 company, has been laying off 18,000 employees since November 2022, closing logistics warehouses and halting projects such as unmanned deliveries.

In addition, in January this year, Flexport also announced a global layoff plan of 20%, involving operational services, sales, products and other departments, about 600 people are affected. Among them, 60% of the employees in the product department may be affected. The head of the company said in this regard that the global macro economy and the decline in trade volume had an impact on its business.

Not long ago, FedEx announced a new round of layoffs will cut more than 10% of its managers and supervisors team, while saying it has cut 12,000 employees since announcing layoffs last June to save costs. in February, UPS, the world's largest package delivery company, also joined the ranks of layoffs, starting to cut some drivers across the United States.

From a box hard to find to empty boxes piling up, the shipping industry into the "era of grabbing goods"

In 2021, global demand for shipping soared, with high freight rates and serious congestion, and containers used for shipping transportation became in demand. However, two years later, maritime demand entered a low point, freight prices fell back to the level before the epidemic, global capacity and containers are a serious surplus. In major ports around the world, empty containers were piling up.

The Shanghai Shipping Exchange Shipping Index chart shows that China's export container freight index has fallen sharply since last year and has now almost fallen to the thin level of 2019.

For the reasons behind the surplus of containers, industry analysis that, on the one hand, the current export volume from Southeast Asia to Europe and the United States is rising rapidly, resulting in a reduction in domestic exports. On the other hand, because the year before did not wait for the export order outbreak, many factories early vacation, empty containers can not be transferred out in time, thus causing a backlog of empty boxes at the port, and after the year was the off-season, the export volume is not high, so the empty boxes continue to accumulate. According to the situation in previous years, exports should rise after March.

DHL's "Ocean Freight Market Outlook 2023" report forecasts that sluggish consumer behavior will continue to affect demand at least through the first half of 2023. Ocean carriers are trying to limit the influx of capacity to stabilize freight levels.

Orders are down and the fight for cargoes remains central to alleviating empty container piles. In the first half of the year also do not rule out shipping companies will launch initiatives to focus on market share, when the market price may have a certain degree of decline. And once the demand recovery, the growth of cargo volume, the stage as well as regional price competition situation will be moderated.