(Yicai) Aug. 26 -- Sea freight rates on most major shipping routes are sliding as global trade demand stays weak. However, other markets are filling the gap. Prices to the Middle East as well as Australia and New Zealand are climbing steadily even as rates to Europe and the US slump.

Rates to Europe have been tumbling since June 13 and rates to the US have also been on a downward trend, despite a brief rebound on July 11. However, the reasons for the declines in Europe and the US are different. In the European Union, both the economy and demand are recovering, while in the US, the slump in freight rates has more to do with weak demand caused by high tariffs.

The Shanghai Containerized Freight Index tumbled 3.1 percent on Aug. 22 from the week before to 1,415.36 points, according to the Shanghai Shipping Exchange.

That day, the ocean freight rate, including surcharges, from Shanghai to major European ports slumped 8.4 percent week on week to USD1,668 per 20-foot container. While rates from Shanghai to the US West Coast and East Coast tumbled 6.5 percent and 3.9 percent per 40-foot container to USD1,644 and USD2,613, respectively.

“Although freight rates have fallen, our shipping volume to Europe has gone up,” said Wang Zhicong, marketing director at Shenzhen Baosen Santong Logistics. “However, last week a big client selling on Amazon said that the US e-commerce platform has begun restricting warehouse space. If clients’ storage space is limited, they will rely more on overseas warehouses,” he added.

Many Chinese exporters are reporting a drop in orders from the US, with clients becoming more cautious and placing shorter-term orders. One China-based exporter who focuses on the US market said that it only has orders at the moment for the next four months, when before the tariff war it would have orders stretching over six months or longer.

New Opportunities

While freight rates to Europe and the US continue to tumble, Middle East and Australia-New Zealand routes are becoming more popular.

On Aug. 22, rates from Shanghai to major Persian Gulf ports surged 7.1 percent from the previous week to USD1,479 per twenty-foot equivalent unit. And rates to Australia and New Zealand climbed 2.3 percent to USD1,267 per TEU, a jump of around 85 percent from June 6.

“The Middle East route has seen the most dramatic increase. A 40-foot container that cost USD1,100 in July is now over USD2,000,” Zou Zhenhua, a freight forwarder who mainly focuses on emerging markets such as India, told Yicai. Demand for 40-foot containers is higher than for 20-foot containers because consolidating shipments in larger containers reduces shipping costs, and because nearly 60 percent of exports are electromechanical products, which often require extra-large or special containers.

Zou began expanding into the Middle East earlier this year. After the flare-up in tensions between Israel and Iran in June, although there has been a surge in demand in the region, available shipping space remains tight, causing some goods to be delayed. As a result, his company is working to further expand capacity.

A manager from a major international freight forwarder told Yicai that while demand in the Middle East and Australia-New Zealand regions has risen significantly, their overall volume is still much smaller compared to Europe and the US. Therefore, the strategy is to maintain business in the European and US markets, while at the same time ramping up services for Chinese companies going global.

“Traditional Free On Board business is bound to shrink,” she said. “The key areas for growth lie in supporting Chinese companies which are setting up factories overseas, such as by moving raw materials and components and handling logistics for high-tech products that require more specialized services.”

Editor: Kim Taylor