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China presses shipping line to rein in record freight rates

China is putting pressure on CMA CGM, one of the world’s biggest shipping companies, to keep a lid on record container freight costs, which have been driven up by a recovery in demand following the coronavirus pandemic.

“The market is so strong that they feel, the Chinese authorities, that at one point in time there needs to be a ceiling,” said Rodolphe Saadé, chairman and chief executive of Marseille-based CMA CGM in an interview with the Financial Times.

“And that is why they are saying you cannot do whatever you want, there are rules that need to be followed.”

The Chinese transport ministry is particularly concerned that higher freight rates would slow exports to the US and “watching extremely carefully what is happening”, added Mr Saadé, without saying if he would cap or cut rates.

The cost of shipping goods has jumped worldwide in the past few months as factories in Asia reopened and cargo capacity was quickly used up, forcing up transport costs to western shores. This followed the cancellation of hundreds of trips at the outset of the pandemic.

Freight costs on routes between China and the west coast of the US began to increase over the summer as American companies bolstered heavily depleted inventories caused by shocks to supply chains earlier in the year, and as people stuck at home shopped online. 

CMA CGM boss Rodolphe Saadé expects 2020 to be a good year © Boris Horvat/AFP/Getty

“Usually in the US when people go to work, they will stop by a Starbucks, buy a muffin and a coffee . . . But now they cannot go to the office, they are staying at home, they need to have breakfast, they need toasters,” said Mr Saadé.

“So they are buying heavily from China, I mean, millions of toasters via Wal-Mart, via Amazon, via Costco, via whomever. And we ship them,” added Mr Saadé, who has co-opted ships from other routes to try to meet demand.

Overcrowding combined with occasional bad weather has also caused serious delays at ports. “If I take China or Asia to north Europe, usually we would spend two days in a Chinese port to fill up cargo. Now, we are spending maybe six, maybe seven days,” said Mr Saadé.

Rates from Asia to Europe had been increasing more gradually until last week, when prices jumped by 21 per cent as global capacity shortages worsened.

Prices into Australia and Brazil are also on the rise, with the Shanghai Containerised Freight Index, which tracks container spot rates out of Asia, up by about 150 per cent on this time last year. 

Lars Jensen, chief executive at SeaIntelligence Consulting, said: “There is such a shortage of vessels and empty containers now that there is no ceiling to how high these rates could go. It is down to how much shippers are willing to pay.”

Yet higher freight rates were unlikely to be passed on to consumers, said Mr Jensen, since the cost of transporting goods accounts for a sliver of their final retail price. 

The soaring rates have been a boon to companies such as CMA CGM, which was facing intense scrutiny from investors at the start of the summer — the value of the privately held company’s debt had plummeted as bondholders worried about losses.

Those fears faded after CMA CGM won a €1bn state-backed loan from banks in May and the group is generating significant free cash and able to pay back $700m in debt ahead of schedule, including $100m of the lower-cost state-backed loan.

Mr Saadé said the $30bn revenue group is focused on growing its logistics business, which brings in $8bn a year after the acquisition of its Ceva logistics arm in 2018.

It is also pushing to make itself carbon neutral by 2050 and recently launched the world’s largest containership powered by liquefied natural gas.

And although CMA CGM still has to carry about $18bn in debt, with roughly half related to ships that have been chartered for more than one year, Mr Saadé is optimistic: “Volumes are up. We expect the year 2020 to be a good year.”

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