On December 15, 2021, the Federal Reserve announced a new interest rate resolution to accelerate the implementation of Taper. It is expected to raise interest rates three times in 2022. When the Fed’s monetary policy tightening expectations are exhausted, the fundamentals of the United States are an important factor in the recovery of US inflation expectations.
From the perspective of commodity supply, the US supply chain system has not been substantially improved, and commodity supply is still tight. After Biden introduced the “7×24 Port Working System” and “Imported Container Detention Fee”, the number of detained containers in the two major ports of the Western United States, Los Angeles Port and Long Beach Port, has indeed fallen by 55% and 46% in the past two months. Due to the continuous influx of new ships in the later period, the number of waiting ships in the two ports still reached 90, and the waiting time reached 21.3 days and 34.9 days. Imported goods still need a long period to reach the store shelves. In October 2021, the US seasonally adjusted inventory-to-sales ratio recorded 1.24, a record low.
From the perspective of consumer demand, the US consumer enthusiasm remains unabated. In November 2021, seasonally adjusted retail and food service retail sales in the United States recorded US$839.8 billion, a positive quarter-on-quarter growth for four consecutive months. In December 2021, the University of Michigan Consumer Expectation Index recorded 68.3, which stopped falling and rebounded after falling for two consecutive months.
From the perspective of interest rate hike expectations, the recent epidemic in the United States is very severe, which will make it more difficult for the Fed to implement three interest rate hikes in 2022. With the invasion of Omi Keron strain, the number of newly diagnosed cases in the United States on January 3, 2022 exceeded one million in a single day. Once the epidemic cannot be effectively contained, the U.S. government may raise the level of restriction again, which is bad for the U.S. economic recovery.
To sum up, due to the recent severe Ome Keron epidemic, the uncertainty of the future economic risks in the United States has increased, and the expected intensity of interest rate hikes has cooled slightly. Moreover, the spread of the epidemic will worsen the supply chain, which is already under inefficient operations, and may also trigger a new round of panic buying among the American people. These are all important factors that have contributed to the recent rebound in US inflation expectations.
Southeast Asia's economy restarts causing freight rates to rise sharply
In 2021, container shipping prices have skyrocketed, and the average prices of China's export routes to Europe and the United States have increased by 373% and 93% year-on-year respectively. However, in the first three quarters of 2021, the freight rates of Southeast Asia routes remained basically stable, and there were no major fluctuations; until the fourth quarter, the freight rates of Southeast Asia routes began to rise.
According to the latest Shanghai Container Freight Index (SCFI), it broke through the 5000-point mark for the first time in history; the index rose 91 points to close at 5,047 points, about 5 times higher than the historical average. In July last year, the index broke through the 4000-point mark for the first time in its history. It stayed at a high point briefly at the beginning of autumn, and then rebounded again in the past six weeks. It's not just the spot market setting new highs. With the release of the first round of bidding data, Xeneta's data shows that most long-term contracts in 2022 will be at a record high level. Operators require customers to pay all fees for guaranteed long-term transactions, otherwise they will face the unpredictable impact of the spot market. In the same period, another freight index, Ningbo Container Freight Index (NCFI), set a new record of 4264 points.
According to the China Export Container Freight Index (CCFI) published by the Shanghai Shipping Exchange, the freight rate of China's export to Southeast Asia routes recorded 2088.6 points on December 24, 2021, an increase of 48% compared to the end of the third quarter of that year. In addition to the increase in export freight rates, import freight rates have also risen sharply. The China (Shanghai) Import Route Freight Index shows that the Southeast Asia Import Freight Index in November 2021 recorded 253.15 points, rising for two consecutive months, compared with the increase in September. Reach 41%. In the fourth quarter of 2021, the large increase in freight rates of China's imports from Southeast Asia is directly related to the restart of Southeast Asia's economy, bilateral trade relations and capacity adjustment.
First of all, many Southeast Asian countries will gradually unblock them from September to November 2021, and their economies will restart. Southeast Asia is an important raw material supply and manufacturing processing base in the world. Vietnam's textile industry, Malaysia's chip industry, Vietnam's mobile phone manufacturing industry, and Thailand's automobile processing industry occupy a pivotal position in the global supply chain system. With the lifting of the ban, the manufacturing PMI of the major ASEAN economies rebounded to above the line of prosperity and decline in October.
Second, ASEAN has become China's largest trading partner. Since 2020, ASEAN has surpassed Europe and the United States to become China's largest trading partner, and will continue to maintain this position in 2021. Although the Southeast Asian epidemic in 2021 has gone through multiple rounds of repetition, the total trade volume between China and ASEAN from January to November that year still reached 7885 trillion US dollars, an increase of 29% year-on-year, which is enough to show the closeness of bilateral trade. Especially in November after the epidemic was lifted, the bilateral trade volume reached 863 trillion U.S. dollars, an increase of 28% and 19% year-on-year and month-on-month respectively. Among them, China's exports to ASEAN reached US$478 trillion, an increase of 22% and 18% year-on-year and month-on-month respectively; China's imports to ASEAN reached US$385 trillion, an increase of 36% and 21% year-on-year and month-on-month respectively.
Third, due to the long-term blockade in the third quarter of 2021, a large number of 2000-5000 TEU container ships were transferred to trans-Pacific routes for emergency relief. After the blockade was lifted, the capacity was blocked in the US ports and could not be evacuated in time, resulting in insufficient capacity supply. As of the beginning of November 2021, the capacity of 2000-5000TEU ships in the Far East region has dropped by 8.6% year-on-year, while the capacity of the Far East-North America route has increased by 16.9% year-on-year. From early February to early November 2021, the capacity of 2000-5000TEU ships in the Far East region will be reduced from 1.57 million TEU to 1.31 million TEU; the capacity of 2000-5000TEU ships in the Far East-North America route will increase from 290,000 TEU to 680,000 TEU.
Due to the shortage of shipping capacity in Southeast Asia and the sharp rise in freight rates, Wanhai Shipping has attracted USD 85.76 million to rent 2741 TEU and 2200 TEU container ships each to enter the route. However, due to the higher profits of the trans-Pacific route, the total amount of transfer capacity is relatively limited. Moreover, after the lifting of the blockade in Southeast Asia, the Omi Keron strain will spread, and port operation efficiency will be affected; North American routes are still congested, and it is difficult for 2000-5000TEU ships to be transferred back in time. In addition, from January 1, 2022, RECP is formally established, and the trade relationship between China and ASEAN will be closer. Therefore, freight rates in Southeast Asia will have a further upward momentum before the Spring Festival holiday, and the trend is bullish throughout the year.
