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admin | Category: Shipping Container Manufacturers | 08.01.2014
If trade is a reflection of global demand, and if shipping rates are a reflection of the supply of ships by carriers and the demand for those ships by exporters to meet that global demand for goods – well then, we’ve got a situation on our hands. Two weeks ago, when I wrote about the Shanghai Containerized Freight Index (SCFI), the index had fallen so far so fast that it seemed to be a statistical fluke, something that would instantly bounce back. There was a lot of handwringing because, even with the lower bunker fuel costs, the break-even rates for these routes were $800 per TEU, according to a report by Drewry Maritime Research. Carriers have tried to impose hefty rate increases, with UASC pushing for an increase of $1,300 per TEU, and a gaggle of others going for an increase of $1,000 per TEU, according to the Journal of Commerce. On some other routes, carriers have succeed in raising rates, and so not all routes from China suffered the same relentlessly brutal fate. The much broader China Containerized Freight Index (CCFI), which is sponsored by the Chinese Ministry of Communications, paints a similar picture. While the SCFI tracks spot rates from Shanghai to global markets and can be very volatile, the CCFI tracks spot and contractual rates for all Chinese container ports, is much less jumpy, doesn’t react as quickly to changes in spot rates, and is “more comprehensive and macroeconomic,” as the Shanghai Shipping Exchange, which operates it, explains.
Another index, the Worldwide Container Index for routes from Asia to the Americas and Europe, which Drewry cites, has plummeted 41% since January to below $1,300 per FEU (ugly chart). On top of the list of reasons is weak demand for imports in Europe, particularly the Eurozone, whose currency has been purposefully massacred by the ECB to achieve just that sort of effect: reducing imports and goosing exports as part of the currency war.
The HSBC manufacturing PMI, released today, fell to 48.9 in April, solidly in contraction mode, the worst level since April last year. In terms of shipping, on the supply side, carriers have been adding new and ever larger ships, now that money is nearly free.
Cheaply borrowed money gets plowed into creating overcapacity: Investors desperately chase yield, and companies become over-optimistic believers in the fallacy that central-bank asset-price inflation can create actual demand for everyday goods needed or wanted by real people.
There are other places where money goes to die as investors who’d bought into the hype get crushed. Or, if the asset is cash itself, lenders go hog wild investing in whatever moves and looks like it might give a return.
As interest rates have steadily fallen since the 1980’s, due to the concerted efforts of the Fed and Congress to prop up the stock market, so too has the personal savings rate. The end of central banking is coming in the next 10 or 20 years and it won’t be pretty.
Thanks for the compliment and I agree the readers are very well informed on here, and I’ve learned a lot from them as well as from Wolf. Central banking is an issue I’m passionate about, because I believe it is so fundamentally wrong and stupid on such an unimaginably colossal scale.
Actually, calling government finance a ponzi scheme is a huge mischaracterization; at least ponzi schemes are voluntary. It will be beautiful, but in the same way that it is beautiful when a cancer patient goes into remission after many rounds of chemotherapy. Our expertise in Road Logistics deliver cost-effective solutions for transport requirements. Atlas provide you with access to best-in-class rail operators and a suite of quality services. It could be that Chinese stock market participants have no idea that there is something wrong beneath the officially rosy covers.
One thing the Chinese authorities cannot do is crank up the global economy and demand for Chinese goods. The China Containerized Freight Index (CCFI), operated by the Shanghai Shipping Exchange and sponsored by the Chinese Ministry of Communications, has not been put through the beautification wringer that other more publicly visible statistics, such as GDP growth, are subject to.
The pricing dynamics in the spot market of containerized freight – so excluding contractual rates – are reflected in the Shanghai Containerized Freight Index (SCFI).
The same sort of gloom shows up in the World Container Index for routes from Asia to the Americas and Europe, which Drewry cites: it has plummeted 45% since January to $1,200 per FEU (forty-foot container equivalent unit). The big jag in the chart, starting at the end of April and collapsing in mid-May, shows that carriers have tried to impose hefty rate increases but couldn’t make them stick.
And all this while fuel costs have jumped, with bunker fuel up 22% since mid-March to $335 per metric ton for IFO 380 in Rotterdam (chart). In a historic leap of faith, they ordered a large number of ships, including monsters that can carry 19,000 containers and are too large for many ports. But inflated asset prices face a New Normal: “volatility and repricing” – a euphemism for losses.
Any chance some of that volume loss is going out to smaller importers through dhl, fedex, ups?
Exactly, shipping rates reflect that the capacity is out of whack with demand, but it doesn’t tell me demand is down.
What if demand for shipping is at an all time high, but that supply is also at an all time high. The problem is dual, as I said in the article: lackluster demand for Chinese goods AND overcapcity of ships.


I am not sure how to tie this with Germany factory orders growing by 1.4% and the 288K job report. Well Europe was very close to recession as well with their QE easing program only getting under 2% growth is pretty easy.
Seeing a slowing China is easy to see, plus the euro was shorted with their QE so its cheaper to buy European goods as well.
The most visible problem for Chinese factories (and by reflection, containerized freight) is the storm that’s building up over big box stores in both Europe and the US.
Last year troubles started surfacing, but were brushed aside: as is usual when it comes to economic news, laughter and optimism are the code words. All these companies are prodigious importers of Chinese consumer goods: in a way it can be said they could barely exist without China providing them a constant flow of sweaters, dishware and garden implements at rock bottom prices. And you want to know the reason for that blip in manufacturing in Germany, the US and elsewhere?
One may be forgiven for not seeing the connection between people not having the money to buy a cheap Chinese lawnmower but getting a brand new SUV, but consider this: you can buy a car on credit. In short, unless general consumer credit gets yet another bubble going, only goods that can be bought on credit are doing fine right now. Consumers all over the world are leveraged to the hilt and getting deeper in debt every day.
The liner shipping industry is run by corrupt idiots who have no inkling of finance, common sense or business.
The movement of freight is capital intensive and requires both a specific skill set and a psychological hardiness to being away from home for long periods of time. There is a glut of container ships — because projections of demand have not been realized. Falcon India obeys to the INCOTERMS 2015 chart in Freight Forwarding and Custom Clearance operations as per the rules of the world wide Chamber of Commerce.
219B, 2nd floor, Administrative Building, Inland Container Depot, Tughlakabad, New Delhi 110044, India. Over the two weeks since, the SCFI for Northern Europe plunged another 14% to $343, setting a new all-time low. On the routes from Shanghai to the US West Coast, carriers tried to impose rate increases effective April 1.
And so the composite SCFI for all routes rose to 761, from 702 which had been the lowest level in years!
Clearly, something is going on in the east-west container business – and beyond – to create this sort of gloom.
Imports measured in euros may actually rise, since the same imports are now more expensive.
China’s “official” manufacturing PMI, which was released on Friday, came in at 50.1, barely in expansion mode, and the worst reading for an April since 2005.
The new-orders sub-index, which points at what the near future might look like, dropped to 48.7. Decision makers had been bamboozled into thinking that QE and interest rate repression would stimulate actual demand!
This happened in the global resource sector, in the US oil-and-gas sector, in the global shipping business…. We deny reality because to accept it is to accept that we have a lot less control over our lives than we like to admit. We now know exactly what happens when you flood the world with worthless paper; you get asset bubbles, which then causes producers to go hog wild increasing production.
Maybe it goes for another lap around the track … or maybe a cashless society is the backstop with negative interest rates and all that. The less we save the more likely we are to get loaded up in debt, especially in an environment of price inflation, where we are desperate to maintain our standard of living while our real income falls. Perhaps they can maintain control through this next imminent crash, but at some point the game will be up. It is also the keystone keeping the whole government financial ponzi scheme from collapsing into a smoldering heap of failed economic and political ideologies, all of which are only slightly less fundamentally wrong and stupid. By signing contracts directly with key carriers, we provide our customers with access to the most competitive transit times and rates. Or they might already know in granular unofficial detail, and fearing the worst, they’re wagering everything they have, plus some, on stocks to get rich quick while they still can.
Now they’re hoping, because it has failed so many times before, that the next round of rate increases might stick.
The Baltic Dry Index, that has been tracking the price of shipping major raw materials by sea since 1986, is hovering near its all-time low set earlier this year!
Since the Financial Crisis when the Fed and other central banks have started flooding the world with cheap money, executives have swallowed hook, line, and sinker the meme that this would fire up the economies in the US, the EU, and around the world.


Like small cap IT companies that have long-term support contracts with essential government agencies (e.g. China came to the rescue with her cheap finished goods but it was only a matter of time before Western consumers would stop buying those goods at the same pace as in 2007 and 2008. The CCFI will probably rebound as we get closer to Christmas and stores will step up their orders of fake Christams trees and the like, but don’t expect miracles. This is true for truckers as well as ship crews…there are jobs that get you home more often but each has its own set of stressors. I live in Hong Kong where I work as a financial journalist and I found this story insightful.
Incoterms 2015 Chart in India offers a platform to recognize the necessities of International trade, including of import, export, freight forwarding and custom clearance providing a clear explanation of logistics operation.
At the time, the SCFI component for Northern Europe had plunged 14% from the prior week to $399 per twenty-foot container equivalent unit (TEU), down 67% from a year ago.
But after rising by nearly $300 to $1,932 per forty-foot container equivalent unit (FEU) in the first week, the spot rate plunged to $1,623 in the second week, and to $1,596 in the third week. The index is down 34% from a year ago and far below the multi-year range between 900 and 1,200.
But the number of containers would drop, since the same amount of euros now buys a lot less in China, whose currency is pegged to the dollar. I think this is exactly what has happened all over the world, except that now, governments are trying to keep the charade going by expanding their own (hence our children’s) balance sheets to ludicrous levels. They’re opening up brokerage accounts at record pace and borrowing on margin to ride the wave. It gives an unvarnished if noisy view of the immediate pricing environment for containerized freight from Shanghai to major destinations around the world. The index was set at 1,000 on October 16, 2009; today’s reading is 38% below its level during the Financial Crisis! They were drunk with the very optimism that central banks were purposefully spreading around luxurious C-suites.
Now they’re going into service, even as the carriers are confronted with a sobering reality: despite the flood of money, or perhaps because of it, the global economy has remained stuck in low-growth mire. Number of containers shipped from China would be a measure of pure export volume of manufactured goods (regardless of overcapacity problems among carriers). Truckers as a component of the blue collar set are aging as a group, and it is hard to recruit young people. It’s the HSBC PMI that captures the private-sector companies that are heavily export-oriented. The dominoes are starting to fall up here in Canada, people are losing their jobs, despite a housing bubble and all time high stock market.
This balance sheet expansion is resulting in a vast redistribution of resources and wealth, in turn causing ever growing social unrest. If the limits in China get in the way, they head to Hong Kong to set up trading accounts and borrow even more. The valuation of companies with a primary listing in China skyrocketed by $4.7 trillion this year. What’s left are inflated asset prices and overcapacity that has demolished, among others, commodity prices and shipping rates.
If we could trust Chinese numbers, we should see reality play out in their monthly exports numbers when they report them. It is hard work and while some of the younger people still have work ethic it seems to be a smaller percentage.
I am afraid many of the young today have unrealistic expectations, although, the coming new normal may alter that. People are feeling flush and are hoping for a another governmental tsunami of money to bail them out.
When retailers meltdown they’ll stay healthy with revenue streams and may even climb as investors catch on and jump ship.
What transpired in other countries over the past six years is now transpiring in China in condensed form. I guess I need to buy a new hat and a tasty one at that, because if this cosmic sheet storm ends well, I will have to eat it.



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