Market situation – container flows – update December

Africa

The volumes to West Africa typically go hand in hand with the oil prices. Many local oil-producing countries benefit from the months-long high pricing of crude oil, boosting their local economies. The volumes in West Africa have been strong for a longer period. Not only is the strong cargo demand pushing rates upwards, but in the past months capacity has not been re-activated to cover West Africa. The vessel sizes that are usually active in this area are still being utilized on the Transpacific trade and Intra-Asia trade, where they generate much higher revenue for the operating shipping lines.

East Africa (and connections to South Africa) is struggling with delays in the standard transshipment ports in the Middle East (mainly Jebel Ali) where they are facing a big backlog of containers. Dropping containers for connecting vessels is only adding to the problem. Therefore, the shipping lines are increasing their rates even more to cool down this market, so they can evacuate idle containers.

Additional news: MSC offers 5.7 billion euros for Bolloré Africa Logistics

MSC will take over 100% of the activities of Bolloré Africa Logistics, which includes all transport and logistics activities of the Bolloré group in Africa. All checks need to be concluded by March 2022 to get the green light to make it official. However, it is unlikely that the deal will be completed by that date. With this takeover, MSC wants to make clear that it is not their ambition to impinge on the turf of freight forwarders or NVOs. Instead, they see this as a strategic investment in the local assets to get control over the port activities, and an established network in Africa. The African ports are, from an operational point of view, by far the most expensive ports in the world, with many container movements in the harbor areas and delays on the vessels’ side.

With these additional 15 container terminals, soon in the control of MSC, the shipping line hopes to make these ports more efficient for their own benefit and for the benefit of shippers and receivers. Their current presence gets a huge boost as they only had terminals in Togo and Cote d’Ivoire.

Asia

China remains very strict when it comes to new COVID-19 cases, and the local authorities take firm actions to prevent possible outbreaks. Reuters pointed out last week that multiple companies have suspended operations in one of the busiest manufacturing hubs in Zhejiang. On top of that, tens of thousands of people are in quarantine and several domestic flights have been suspended to contain possible outbreaks in Ningbo, Shaoxing, and Hangzhou for two weeks. These three cities accounted for more than 50% of the province's economic output of around 6.46 trillion yuan ($1.02 trillion) last year. Many of Zhejiang's goods are for export. The lockdown is putting exporters on edge, as they recall the partial port closure in Ningbo in the summer. As per our last updates, the effect on port activities will only be limited this time. As a result of quarantine measures, like last year, the feeder operators in South China have announced a service suspension from late December 2021 to mid-February 2022. This suspension is because COVID-19 quarantine is required for ship crews traveling between South China and Hong Kong, upon their return from the Chinese New Year 2022 holidays. Taking this situation into consideration, the shipping lines are temporarily suspending cargo acceptance to South China with the final destination under the Pearl River Delta Area and Fuzhou until further notice. Shipments will still be accepted on mainline services to the main ports such as Hong Kong, Yantian, or Shekou.

Please keep in mind that during the feeder operator suspension period, any additional costs and liabilities related to detention charges, terminal storage, or terminal charges incurred at the transshipment ports of Hong Kong, Shekou, or Yantian after container discharge will be invoiced to the cargo owners, as the shipping lines will not accommodate this.

Apart from the operational hassles, commercially the rates remain at a very high level compared to previous years, even last year. According to Drewry's World Container Index, the current East-West rates are 170% higher. Nonetheless, according to the SCFI, the high peaks of rates on the services to North Europe, of close to USD 20,000 / 40’, simmered down to levels of around USD 15,000 / 40’ in the first half of December. To the Mediterranean ports, the rates are slightly lower (approx USD 14,000).

It remains to be seen what the effect will be before the Chinese New Year if we reach higher peaks again in the spot pricing, because to keep the pressure on the capacity, the shipping lines are reducing their port calls on the Asia–Europe services in January. 2M has already reported that 2 of their 6 loops will serve only two ports, Rotterdam and Bremerhaven. A survey done by Alphaliner clearly shows a significant decrease in the number of port calls made on this trade in the past 5 years. The shipping lines are convinced that a ‘hub and spoke’ system will help them to become more reliable in terms of sailing integrity. Not only in Asia, but also in Europe, shipping lines want to prevent extra delays. Port volumes are not only being consolidated on the Asia–Europe trade, but also on the Transpacific trade.

On the Transpacific trade, it seems we are in a similar situation as on the Asia–Europe trade. The backlog of the past months in Asia is keeping the rates at a high level, although the demands are no longer on an explosive surge. The logistical issues with shortages of containers and delays in the ports in Asia, Europe, and North America however keep on crunching the overall capacity. In that light, Hapag-Lloyd reports that port waiting times in Asia have gone up by 146% compared to the previous year, and with the congested terminals the port efficiency is decreasing further (in Europe +54% and in North America a whopping +300%)

Europe

Like in the rest of the world, COVID-19 keeps putting serious stress on public and professional life in Europe. As several European countries are seriously considering going into a strict lockdown again, with the closure of all non-essential stores and schools, this would affect industries and cargo movements alike.

The Netherlands is the first EU country to re-enter a lockdown due to the new Omicron variant, until at least mid-January. Germany has announced a ban on all travelers entering the country from the U.K., apart from German nationals and transit passengers. As of last Sunday, everyone entering from the U.K. needs to go in quarantine for 14 days. A full ban will be enforced if the Omicron variant cannot be slowed down.

We could almost forget amid all the COVID-19 turmoil that Brexit is still an ongoing item for the U.K. The referendum on Brexit dates back to June 2016, but it is still causing problems for the movement of cargo and people and this pandemic only complicates it all. There are quarantine measures and customs rulings in place because no overall agreement has been reached. The current discussion on the border in Northern Ireland is a big hurdle. The U.K. wants goods to flow freely between Great Britain and Northern Ireland, but the EU is not willing to agree to this just now.

On the Transatlantic trade, the capacity to ship out of Europe (mainly Germany, Netherlands and Belgium) to the U.S., Canada, and Mexico will be cut due to the implementation of a winter program by the 2M alliance. (More information on this be found in the segment on North America further in this document.)

Additional news: CLECAT investigates if Maersk's actions are not in conflict with European competition law

Forwarders' organization CLECAT is investigating if the actions of Maersk, where they are evolving more and more toward freight forwarding activities, do not create a non-level playing field and cause unfair competition.

CLECAT is making reference to the Consortia Block Exemption Regulation (CBER), because of which shipping lines that are part of an alliance are allowed to share a wide range of data for operational uses. Some of this info can be considered as commercially sensitive. According to CLECAT, the regulation must be updated to be in line with the current digitalization in the maritime industry, which is not the case today. CLECAT sees these vertical integrations within the shipping companies as a possible threat.

With the three major alliances on the East–West trade in place, CLECAT points out we are in an oligopoly and we need to be careful to protect our supply chains for the future, as the stability and reliability of sea connections have never been as poor as today. Nonetheless, the freight rates are surging. CLECAT is asking the European Commission to protect the interests of the cargo owners and the industry, and hopes to regulate the vertical integrations which are happening within the shipping lines.

Middle East / Red Sea

Kuwait has issued a decree banning the entry of commercial vessels carrying goods to and from Israel from its territorial waters from the beginning of December. The Kuwaiti decision contrasts with other parts of the Gulf, as last year Israel opened diplomatic and trading ties with old foes Bahrain and the UAE. Following that decision, shipping flows have grown significantly over the past year. Kuwait has been a consistent hardliner against Israel, vowing it would be the last to normalize any form of relations. Last week government representatives spoke out strongly in favor of Palestinian causes at the United Nations and it was followed by the decree against shipping.

Apart from any political decisions, the major problem in the MEA area remains. The availability of empty containers to service their own export needs is still the main concern for local exporters. Although the region is not the biggest producing area in the world, it has always been a repositioning area for the shipping lines connecting empty equipment to Asia. In the past, this was an interesting ‘leg’ on which the local producers could benefit from relatively low rates to Asia. With the current pressure remaining on getting empty equipment to the Asian region, the shipping lines are not very keen on shipping to the Middle East, as they want to prevent additional time losses to get their containers available for the profitable Asia–Europe and Transpacific trades.

The current situation however creates a stalemate where the local industry is screaming for empty containers (even at premium rates) and the shipping lines are refusing to position containers because the rates are not ‘high enough’… To accommodate the export shipments, some ‘smaller’ shipping lines see some opportunities and will set up a dedicated service between South East Asia and the Middle East. In late January, China United Lines (CUL), Emirates Shipping Lines (ESL), and Global Feeder Shipping (GFS) will start with a weekly service connecting South East Asia, Western India, and the Middle East.

North America

Winter is not coming; winter is here. Bad weather is forcing the 2M alliance to go into a ‘winter program’ on the Transatlantic trade. The bad weather has disrupted the schedules for 2M partners (Maersk and MSC) so severely that they will be canceling several shipments between December and February to get the schedules back on track.

However, all ports, a different one each week, will be transferred to the services in order to maintain the scheduled transit times. Savannah, New York, Norfolk, and Charleston will all be affected. Even New Orleans and Mobile will only be serviced every 14 days instead of every week as calling at these ports will alternate week by week.

The Port of Savannah is struggling the most of all ports on the U.S. East Coast with congestion. On average, 20 vessels are awaiting a berthing window. Therefore, Ocean Alliance and THE alliance decided to skip the port entirely. The services of THE Alliance and Ocean Alliance will be diverted to Charleston or even Jacksonville. Depending on the situation, Savannah may be re-activated in January.

The main reason to skip the port is not the average delay of 9 days to berth a ship, but because the port has no more space to position incoming containers. To relieve the stress somewhat, the Georgia Port Authorities will divert containers to three inland locations. The most peculiar one is a small airport in Statesboro, a 1-hour drive west of Savannah. An unused airstrip will be used as a temporary location to store containers. The two other yards are the railway yard in Dillard in Southern Norfolk, and the Hulsey Yard in Atlanta.

This is again a prime example of why we are facing container shortages on a global scale. Because of fewer workers in the factories or warehouses, fewer truckers and other workforces, all absent due to COVID-19 or quarantine measures, the entire supply chain is slowing down. The dwell time (or idle time) of containers in Savannah has increased from 4 days up to almost 9 days for incoming containers, 8 days for export containers, and no less than 17 days for empty containers! The problems on the U.S. West Coast are even worse than on the East Coast. More than 100 ships are waiting for a berthing space at the ports of L.A. and Long Beach. According to the latest data from the Marine Exchange of Southern California, these vessels are spread out across 1,000 miles of North American coastline, stretching deep into Mexico. The vessels are anchored, loitering, waiting for space at America’s top gateway.

Prior to the pandemic, a typical transit time for ships from Asia to North America was around 14 days. Today some voyages are taking longer than 45 days to berth. This again is a very clear example of how this situation is soaking up enormous shipping capacity through containers.

Last month, U.S. authorities pushed the vessel ‘parking lot’ away from the California coast, asking ships to idle some 150 miles from the coastline. People living and working at Newport Beach, south of Los Angeles, had expressed their concerns about the air quality with all these ships just loitering around near their beaches. Additionally, the authorities have asked for enough distance between the waiting vessels. This should not be mistaken with the social distancing we as people need to consider, but the distancing of the vessels is to prevent problems if stormy weather reaches the area. Now, they are spread out over 1,000 miles including many in the relatively calm waters south off the coast of Mexico. As another clear example of the scale of the extraordinary backup on the Pacific, the 13,000 TEU Maersk Esmeraldas left to the Port of Xiamen and two days later she remains at anchor not far from the Chinese coastline with a scheduled arrival in Los Angeles on January 11, making for a 30 days transit time (if the berthing window is reached).The ports of Los Angeles and Long Beach yesterday announced that the planned container excess dwell fee has been put on hold for another week, until December 27. The fine was first mooted in October but has yet to be introduced because the situation is simply not under control, and the shipping lines will not accept, or be able to pass on, these types of fines in the current situation.

Latin America

The same scenario as described in previous market updates remains. Mainly in Brazil, the space restriction and the shortage of containers are still impacting all flows and are causing a general disruption. In terms of rates, it is ‘stable’ for the moment, but the levels are very high. The situation remains very uncertain and the shipping lines have no clear indications for the beginning of 2022. At these high rate levels, some carriers feel comfortable enough to confirm spot rates valid for 2 months. This seems obvious but it was not common in the past year and a half. The key to going back to a ‘normal’ market is, like in many other areas, clearing the backlog of containers in the ports.

Additional news: MSC takes over Log-In Logistica in Brazil

MSC has offered to take over Log-In Logistica Intermodal SA. Log-In is specialized in cabotage containers along the Brazilian coast extending up to Argentina, the Plate area, and Uruguay. On top of this, they have terminal operations.

This takeover is in line with MSC's strategy of having more control of port operations (similar to its move on Bolloré Africa). The offer was already made in September this year, but only got final approval today.

General

• IMO 2023 – stricter regulations

In 2023, the IMO regulations to reduce the greenhouse gas emissions of sea vessels are going into the next phase. While 2023 still seems far away, we will already be confronted with this in 2022 as containers will need to prepare themselves to be ready to meet the deadline. In 2023, the limit of CO2 emissions is becoming stricter with the introduction of the Energy Efficiency Design Index (EEDI). Most of the older existing global fleet will not meet these new requirements. Especially in the bulkers and tankers segment, it is estimated that only 25% will be compliant.

The easiest way to get the energy efficiency index down is to reduce the engine power, i.e., slowing down the vessels. Another solution is retrofitting to clean technologies such as batteries or scrubber systems. These technologies will have a positive effect on the EEDI, but will not be sufficient on their own. Therefore, slowing down the vessels will be the only option for most of the global fleet.

These past months we have all learned (the hard way) that longer transit times, whether due to delays in the ports, new routings, bad weather or something else, mean a severe reduction of capacity both in containers and in space on the vessels. It is clear that this will have a significant impact on our already troubled industry.

Charterers are therefore hesitating to make long-term agreements lasting beyond 2023. This increases pressure on ship owners to decrease freight rates in order to get deals. Odd price fluctuations in freight rates and fuel prices are to be expected as different players ‘bet on different horses’. Currently, everyone from ship owners to charterers, brokers, and shipyards are feverishly trying to figure out how the new regulations will impact business. Is it time to sell, invest, or wait?

• UN warns about the impact of high container rates on inflation

According to UNCTAD (the United Nations Conference on Trade And Development), transport costs have quadrupled in the past 10 years. Today, a container from China to the U.S. costs 348% than it did prior to the pandemic. UNCTAD expresses its concern because these high prices will indefinitely impact consumer prices and will put pressure on the buying power of all consumers. The ongoing uncertainties keep the overseas transport costs at high levels, and economies that are ‘import-dependent’ are faced with indexations of more than 7.5%, risking these local countries slipping into a weaker position compared to producing areas. It is no surprise that the report mainly points out commodities such as electronics, furniture, textiles, and others that will most likely increase by more than 10%.

• CMA CGM pays 3 billion dollars for CLS activities of Ingram Micro

Shipping company CMA CGM has acquired Commerce & Lifecycle Services from Ingram Micro, a company headquartered in the U.S. With the integration of CEVA logistics, this combines to make the fourth-largest logistics group worldwide. The deal is still to be approved, but should be concluded in the first half of 2022. With the takeover, CMA is mainly buying in to the e-commerce and cloud-based logistics technology platforms.

• COSCO creates a logistics giant in China by merging 5 companies

The China Logistics Group (CLG) is being introduced as an integrator and organization company for worldwide flows. CLG is a new government-owned consortium composed of China Railway Materials, China National Materials Storage and Transportation Group, Huamao International Freight, China Logistics, and China National Packaging Corporation. With this merger, the Chinese government attempts to offer some solutions to the overall supply chain issues.

• Amazon is entering the container industry

For many years, Amazon has been building its own air cargo fleet under brand names such as Prime Air and Amazon Air. Given the current market conditions, they are also entering container logistics to be able to transport their e-commerce shipments from China.

With their own container fleet and vessels, Amazon is trying to act as an alternative to the currently available shipping services. Because they have this fleet ‘in-house’ they can take advantage of opportunities to steer clear of congested ports such as L.A./L.B. Amazon sails to smaller ports in Washington as an alternative.

Walmart, Costco, Home Depot, Ikea, and Target have tried to copy this setup this year by chartering multi-purpose vessels which are built to ship wood, grains, and agri-products. The results have been mixed.

Amazon is today still a ‘small’ player in international (container) logistics, focusing on some dedicated routes from China to the U.S. Although the big container lines have made more money this year than the ‘FAANG’ (Facebook, Amazon, Apple, Netflix, and Google), the risk exists that when the FAANG enters the international shipping industry, in a similar (aggressive) way as shipping lines are doing with regards to 'vertical integration', the landscape of international container shipments can change drastically. We might soon see a ‘fruit’ logo on a container vessel rather than on your tablet or cellphone.

What these FAANG companies do well is marketing, which is something the shipping lines are not really doing – at least not to the general public. Everybody was confronted with international logistics in 2021. Be it via news reports of the Ever Given, empty shelves in the stores, or bike parts that were simply not being delivered. If a company like Amazon then reports to their receivers that they are chartering their own ships “to get round port congestion”, in our industry we think, “That’s silly, because why would they get berth priority?” and “That will be massively expensive!”. However, it is all about marketing and painting an image that containers are profiteering and driving up prices to the point where global inflation is caused by the shipping lines. At least that is the story being told to the general public. The real question is, are FAANG companies paving the way to compete with the shipping lines? As an end note, we want to thank our customers and partners from the bottom of our heart for their support during this turbulent period. Best wishes to you and your families for a prosperous, healthy, and different 2022!

For additional questions or remarks, you can always reach out to your MPL contact or email info@manuport-logistics.be.