The Logistics Industry Turns Positive

By Lily Wang

The logistics industry is a window from which to watch the economic situation. According to data released by the China Federation of Logistics & Purchasing， the prosperity index of Chinas logistics industry in June was 52.1%， and continues to expand. Such an index shows a positive signal for the increasing dynamics in the market supply and demand.

Return to business expansion

According to He Hui， General Assistant of the China Federation of Logistics & Purchasing， the data shows that with the positive effect of economic stabilization policies and better control over the domestic pandemic， businesses at both ends of market supply and demand are becoming more active. The 12 subindexes have rebounded， with total business volume index， new order index， inventory turnover index， facility utilization index and employment index showing the best performance. It is expected that， as demand further increases and production recovery accelerates， the logistics industry will return to being more dynamic in the near future.

To be more specific， the new order index for June is 53.3%， up by 4.5% from last month. This area has seen growth for two consecutive months， showing the recovery of logistics demand and an increase in orders. The new order index for the express delivery sector has seen the largest increase.

In addition， with the acceleration of the resumption of work and production in many places across the country， the business volume index and facility utilization index also had a good performance. In June， the total business volume index was 52.1%， up by 2.8% from the previous month； the facility equipment utilization index was 50.4%， up 2.1% from the previous month.

“Driven by the rising demand for industrial and consumption logistics， the logistics activity continued to increase in June， as the total business volume index increased by 2.8% from the previous month.”Hu Han， a researcher at the China Logistics Information Center， said that the business volume index of road transportation， warehousing and postal express delivery rebounded significantly. Among these， the postal express business volume index rebounded by double digits， reaching a high expansion range of more than 60%. The improvement in both supply and demand is the main driving force behind the rising demand for the logistics services.

It is worth mentioning that， according to Zhao Chongjiu， Vice Minister of the Ministry of Transport， as of June 24， the national railway freight volume reached 10.77 million tons， the road freight volume was 116 million tons， and the postal express received 336 million pieces and delivered 348 million pieces.

Generally speaking， with better control over the domestic pandemic and the implementation of assistance and relief policies for the transport industry， the major logistic indexes have shown a positive improvement， and the industrys expectations are also becoming better. This can be seen in the rebound in the business expectation index. Data showed that in June， the business expectation index reached 54.9%， up by 1.2% from the previous month.

“In June， the logistic index shows that the global logistic activity keeps increasing， and the supply and demand of the logistics industry continues to improve. However， we must focus on the stability and continuity of such improvements，” said Hu Han， before emphasizing that it is important to focus on the driving force behind macroeconomic recovery， which has a great impact on the strength and pace of the recovery in logistics demand. In addition， we should continue to pay attention to the rising operating costs of enterprises and the operational difficulties of small and micro enterprises，” he added.

Decrease in sea freight

As the global logistic supply chain recovers， skyrocketing sea freight has started to decrease. The amount of freight for some popular sea routes has dropped by more than 50% from last year.

According to the FBX index released by the Baltic Exchange， on June 29， the average FBX container shipping price was USD 6583， down by 40.9% from the peak in September of last year. Among these， the freight rate from China/Far East to the west coast of North America decreased by 63.1% compared with the peak price last year； the freight rate from China/Far East to the east coast of North America fell by 54.6% compared with the peak freight rate last year； the freight rate from China/Far East to northern Europe fell by 29.4% compared with the highest freight rate in January this year， and fell by 26.6% compared with the highest rate last year.

The spot freight rate also dropped sharply， to a point even lower than the contracted price. According to freight rate comparison platform Xeneta， the freight rate for the Pacific route to the west coast of the U.S. is USD 7，768/FEU， which is lower by 2.7% compared with the contracted price of USD 7，981/FEU.

“It is true that some shippers have discussed modifying the longterm contract price with shipping companies， but few shipping companies have actually reduced the price，” explained one representative of a top domestic shipping company. “We will not consider reducing the freight rate to receive more orders， unless the loading rate falls sharply. Unless the loading rate decreases significantly， we will not consider reducing the price and receiving more orders. However， at present， the loading rate is still at the normal level， and the price reduction is illogical. The Christmas stocking up period in the third quarter will start， and the transportation capacity will be tight again，” he said.

As the freight rate drops， some shipping companies have started to cancel shipping voyages to reduce their losses. Drewry？predicts that a sharp decrease in the spot freight rate will not happen， as the shipping companies will adjust their shipping plan to reduce market price fluctuation. In the following year， shipping companies will face the situation of spot prices being lower than contract prices.

The decline in freight demand and the restoration of logistics services are the main reasons for the reduction of maritime freight rates.

“Last year， the COVID-19 pandemic was so serious that shopping sprees occurred many times in foreign countries. Many large retail supermarkets have increased stocking， resulting in excess inventory. This year has seen a decrease in new orders by 30-60%，” said Chen He， sales manager of a foreign trade company in Nanjing.

The data shows that as of May 8， the inventory of U.S. chain supermarket Costco reached USD 17.623 billion， an increase of 26% year-on-year. These goods， which are worth hundreds of millions of dollars， are inventory from last years peak consumption season. In addition， the inventory of Macys department store increased by 17% compared with last year， and the inventory of the Walmart logistics center increased by 32%.

“Usually， U.S. customers stock goods from July to August. Due to the previous rise in freight rates and uncertainties such as the pandemic， many shippers have advanced the stock time to May， which has also led to the recent decline in freight demand，” Feng Jin， a shipping agent in Ningbo， said.

In addition， the logistics supply chain has been gradually recovering.“Previously， due to the pandemic， workers had to stop working and the goods piled up at the port. The containers cannot be returned. Recently the situation has been getting much better and the logistics turnover speed has significantly accelerated. Previously， it was necessary to book cargo space 1-2 months in advance， and from June， this has been reduced to about a week in advance，” Feng Jin said.

Industry insiders believe that the maritime super cycle has ended， and the freight rate is expected to further decline in the second half of the year. The growth rate of global container transport demand will drop from 7% in 2021 to 4% and 3% in 2022 and 2023 respectively.

It is gratifying that a series of“policy packages” to reduce logistics costs and improve the transportation efficiency are being implemented， such as reducing taxes and fees for logistics companies， reducing charges in the field of transportation， reducing institutional transaction costs through streamlining administration， and delegating authority and optimizing services to promote logistics quality and efficiency. It is undeniable that improving the supply chain efficiency and reducing logistics costs will be a long-term systematic project.