Equipment shortages in Asia bound to affect European exports – update I

The container imbalance has been caused primarily by the spike in imports to the U.S. and Europe in July and August, caused by the reopening of their economies following COVID-19 lockdowns. Containers of all sizes – 20 foot, 40 foot, and 40 foot high cube – are in short supply. As a result, exporters in China are grabbing whatever containers they can, even if it means downsizing to containers that carry less freight at a higher rate. “There are plenty of reports out there that a lot of equipment – I mean, I’m not talking just about Maersk, but about the industry – has been stuck in Europe, the U.S. and other importing regions, and is slow in finding its way back to Asia,” says Maersk CEO Søren Skou. In addition, typhoons and fog are throwing vessels off-schedule in China, South Korea, and Japan, in some cases causing liner services to skip port calls to avoid weather issues. Consequently, the shipping lines are not dropping off empties, adding to the shortages in affected areas. The trade imbalance from Europe and the U.S. to Asia, bad weather, and a cargo rush ahead of the week-long shutdown for China’s National Day holiday are creating a unprecedented situation concerning equipment availability. Space on the vessels is also an issue, but with a reported idle vessel rate of just 4%, the market capacity is being highly utilized. In the U.S., warehouses, especially those in Southern California, have been overwhelmed by imports over the past two months due to e-commerce merchandise and medical supplies (personal protective equipment, etc.). Furthermore, productivity at the import warehouses is down, as employers space out workers for safety reasons, and a general shortage of workers is reported due to COVID-19. As a result, containers, and the chassis they sit on, are remaining at warehouses much longer than they normally would. To alleviate this problem, ocean carriers, who for years had been granting extended free time for equipment storage to retailers and other large customers in order to retain their business, are now cutting back on these free times. When customers request extended free time now, the NVO/FFW has to explain to the consignee or shipper that the carriers are backtracking on free-time extensions. The ability of carriers to cut back on free time reflects the power they now have in a market where space and equipment are crucial. Importers in the U.S. are also struggling to find enough truck capacity to return empty containers to the ports. The main issue is that truckers are simply not interested in getting pre-appointments to return empty containers for retailers. The delays caused in warehouses and factories are creating a lot of uncertainty for the truckers. This is causing the truckers to book multiple slots to get appointments at the marine terminals (these appointments are needed for security reasons). However, they do not know which slots they can fill. Therefore, many slots are being booked but not used, only adding to the problem for truckers who then do actually have empties to return.

To shorten equipment turnaround times, several shipping lines are only releasing empty containers a maximum of 8 days prior to the ETS from their mainland China depots. Customers who are desperate to obtain containers and secure space on vessels leaving Asian ports are willing to pay heavy surcharges on top of record-high spot rates for an ocean voyage. Some carriers are also charging additional fees to guarantee priority unloading at U.S. ports and delivery to railroads and truckers. The surcharges for these ‘guarantees’ range from $300 to $1,950 per container, on top of record-high spot ocean rates from load ports in China to the U.S. East and West Coasts.

To give an indication of the pressure, the pricing from Asia to the U.S. West Coast is 140% higher than the same week a year ago, according to the Shanghai Containerized Freight Index (SCFI). The Asia–U.S. East Coast rate has increased 72.5% year on year. The question is, why are shipping lines not giving away freight rates on the backhaul leg to get the boxes repositioned? For the carriers, they claim it is the last thing they need right now. Shipping full would require additional free time at the origin and destination, only adding to equipment turnaround time. It is more profitable for them to ship back empties rather than get them loaded for the import sector. Gloomy predictions say that this situation will linger on till March 2021 and possibly beyond, considering Chinese New Year will fall in the second half of February. We will keep a close eye on further developments.