Freight Rates
We’ve done Covid-19 and grown used to rising energy prices. Now it’s 2024, and our crise du jour involves an important sea lane and those intent on disrupting its navigation. The situation is making itself felt in many parts of the tyre business, including the two-wheeler tyre segment.
The growth trend seen in China’s tyre exports throughout 2023 continued in July, albeit at a slower rate of year-on-year growth than seen earlier in the year. China’s tyre makers exported 56.89 million tyres in July 2023, 4.7% more than a year earlier. The value of these exports increased 9.4% year-on-year, to RMB 14.02 billion (£1.5 billion).
Despite its turnover increasing 4.6 per cent to more than 62 million euros in 2022 – a new record for the company – tyre recycler Genan reports that decreasing steel prices and significantly higher energy and freight costs more than halved its year-on-year earnings to less than 1.5 million euros. In response, the company is now speeding up its ongoing work to invest in renewable energy sources.
To put the weirdness of 2022 into perspective, consider that tyre wholesalers must contend with the impact of both rising costs and falling costs. And this contradictory situation is but one of a host of challenges in a year that tore up the rulebook. Antwerp-based wholesaler Deldo recently shared its experiences with us.
Ocean freight is in the midst of a predicament. The global shortage of shipping containers, primarily caused by the COVID-19 pandemic, has led to continued port congestion and freight prices at all-time highs. Hankook Tire & Technology has worked with Hapag-Lloyd AG, the world’s fifth largest liner shipping company, for more than 20 years and now aims to strengthen its logistics capabilities through a new partnership.
Consolidated sales and operating profit may have been down year-on-year during the three months to 30 September 2021, but Hankook Tire was nonetheless pleased to experience “qualitative growth” during the quarter.
Year-on-year comparisons of financial performance tell us arguably more about global events than an individual company’s economic trajectory at the moment. Thus, it came as no surprise a few months back when Michelin reported much healthier first-half results compared with pandemic-riddled 2020. Similarly, eyebrows aren’t raised now when the company notes the impact of rising materials, shipping and energy costs as well as a shortage of semiconductors and labour shortages upon its performance in Q3 2021.
Toyo Tire U.S.A. Corp. has announced that it will increase the dealer base prices across all tyre categories by up to 8.5 per cent from 1 August 2021. The tyre maker comments that the price increase “is a result of continued increases in raw materials and logistics costs.”
Yokohama Off-Highway Tires has announced further price increases for its brands in Europe. These will take effect next month and see prices for Alliance and Galaxy tyres rise by around five per cent. The manufacturer says this increase comes at a time when the costs of raw materials and freight rates “continue to rise at a dramatic pace on the global commodity markets.”
A shortage of shipping containers and essential equipment at Chinese ports, exacerbated by fluctuating international trading environments in the Covid pandemic, has meant inflation in international shipping rates. In November, rates for transporting containers between China and the east coast of the USA increased to $4,750 per container, 42 per cent up on July rates, according to RefinitivEikon data. The cost of shipping from China to the US west coast has increased 50 per cent to $3,878 per container. Europe’s Shanghai Container Freight Index (SCFI) spot rate index has risen sharply, with Northern Europe rates up 21 per cent and Mediterranean rates up 23 per cent, rates that have not been seen since the beginning of 2014. According to Trojan, a tyre marketing agent headquartered in Qingdao, China, shortages have worsened recently. This busy period for Chinese exports could see deficits continue to deepen into the New Year, meaning further price increases.
Shipping plays a vital part in the world of tyre wholesaling. Managing the volatility of freight rates with efficient and transparent service is paramount in maintaining the competitiveness of distribution operations. Maritime Cargo Services, a freight forwarder with significant ties to the UK tyre industry, tells Tyres & Accessoires about the factors affecting the global shipping industry, and how its fluctuations, illustrated by this chart, which shows at a glance the trends of the last 12 months, must be managed effectively to allow tyre wholesalers to operate efficiently.
Considering the increasing price of oil and continuing consolidation in the freight shipping, the slight decrease in freight rates, as shown on the graph, may come as a surprise. Maritime Cargo Services, a key freight forwarding agent in the UK tyre import business, explains…
As August came to its close, the world’s seventh largest – and South Korea’s biggest – container shipping line, Hanjin Shipping, filed for court receivership, consumed by mounting debt schedules with creditors and increasing industry overcapacity. Hanjin had suffered annual net losses from 2011-2014 – with total debt in June reaching a staggering $5.5billion. While there may be hope on the horizon, (Hyundai Merchant Marine are in talks to acquire Hanjin’s vessels and staff), for the time being, ports in China and the US have denied entry to Hanjin ships and goods cannot be unloaded. Discussions between banks and Hanjin are yet to proffer a solution, though it seems likely that its Asia-United States route and related sales and marketing assets could be on sale by the end of the week in order to raise rehabilitation funds, several news sources have reported.
Asia-Europe container transportation rates are currently at a deep low (see graph), but the obvious price benefit to importers of tyres from South-East Asia is mitigated somewhat by volatility in shipping conditions, which affects punctuality and reliability of tyres’ delivery. Shipping lines’ over-estimation of the market potential has led to artificial capacity restrictions used to mitigate over-capacity, and in some cases, cancelled shippings. With these factors fundamental to UK tyre wholesale, Tyres & Accessories asked freight forwarder Maritime Cargo Services partner Rob Shelley about the issues currently at play in this market.
Increases in freight rates during the last quarter of the year happened earlier than expected, according to Maritime Cargo Services’ Rob Shelley. The freight forwarding company said that the market, led by supply and demand, had seen rates harden due to increased demand for shipping space “earlier than expected”. This ahead of schedule peak season combined with “higher than forecast import volumes” to increase both rates – “in some cases by 150 per cent” – and dockside waiting times.
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