China pressures CMA CGM for cap on freight costs

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China has been pressuring one of the world's largest container shipping companies, CMA CGM, to put a cap on freight costs, which have been pushed up massively by the surge in demand following the outbreak of coronavirus and lockdowns, according to the Financial Times.

Rodolphe Saadé, chairman and chief executive of the French-based CMA CGM, told the FT: "The market is so strong that they feel, the Chinese authorities, that at one point in time there needs to be a ceiling. And that is why they are saying you cannot do whatever you want, there are rules that need to be followed.”

He went on to say that the Ministry of Transport in China is especially concerned that increased freight costs would mean a slowing down of exports to US, adding that they are keeping a close eye on developments.

Saadé neglected to say whether or not he would instigate a cap on prices.

The cost of international shipping of goods has leapt in the last few months as factories across Asia reopened, filling up cargo capacity and pushing up transport costs to Western countries, many of which have been locked down and, as a result, seen a surge in online buying.

The increase in costs began this summer as companies in the US began buying heavily to replenish depleted stocks.

“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,” Saadé told FT.

“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.”

This overcrowding, combined with bad weather conditions has led to serious delays. “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,” added Saadé.

Last week, costs jumped by 21% as global capacity shortages worsened due to a chronic shortage of vessels and capacity being almost full.

The good news for consumers is that these higher costs are unlikely to be passed on to them, given that transportation costs generally account for a small fraction of goods' final retail price.

The swollen rates actually come as a boon to companies like CMA CGM, which has come under close scrutiny by investors over the value of the company debt.

Saadé said that the $30 billion (€25.3 billion) revenue group is now focusing on expanding its logistics business, which brings in around $8 billion (€6.7 billion) a year.

The company is also pushing to become carbon neutral by 2050 and recently launched the world's largest LNG-powered containership.

Despite the company carrying $18 billion (€15.2 billion) in debt, Saadé told FT that the mood in the company was optimistic: "Volumes are up. We expect the year 2020 to be a good year."

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