Market situation – container flows – update VIII

Asia

Currently the industry is facing delays of 5–11 days at ports throughout Asia due to the availability of containers. This situation will worsen as a delayed effect of the Suez blockage. (more on this in the segment further down in this update). Container availability will remain tight for at least another 4–6 weeks. Delays in booking acceptance are expected from carriers, as well as delays in the release of empty equipment, to put the release date as close to the actual sailing date as possible. Although it is suggested that bookings need to be made as far in advance as possible to minimize any potential disruption, we also notice more and more shipping lines either restricting advanced bookings to a maximum of 6 weeks or invoking rate increases even on confirmed bookings.

The graph below, as shown in the Alphaliner newsletter, is very clear on the current market.

The Shanghai Containerized Freight Index (SCFI) has reached a record high of 3,100.74 points this week, with average freight rates on the spot market nearly breaching a new historical benchmark of USD 5,000 per FEU between Shanghai and the U.S. West Coast. Meanwhile, spot rates on the Shanghai–North Europe trade increased to an average of USD 9,260 per FEU. This is a new record, breaking the previous one which was only set in early January. (FEU = forty-foot equivalent unit or 1 x 40’ container)

Singapore, one of the busiest transhipment ports, is facing slow vessel turnaround times and cargo rollovers due to the intensified vessel calls following the Suez Canal blockage. This is impacting deliveries to other Asian countries and to Oceania.

Indian Subcontinent

The COVID-19 situation in India has taken a turn for the worse, with the country reporting over 300,000 coronavirus infections per day for almost a week now. In an attempt to limit the spread of the second severe wave of coronavirus infections, strict regulations like curfews and partial/complete lockdowns are back in full force in all states in India. The transport sector (ports, customs, etc.) is deemed an essential sector, and business continuity is ensured, although all white-collar employees are restricted to working from home, and factories will have full or partial closures to prevent infections. This will impact outgoing and incoming cargo flows in the weeks to come.

Oceania

Although the congestion surcharges to Sydney no longer apply, the port continues to struggle with an imbalance of containers. The imports outpace the export volumes, causing shipping lines to repatriate empties from Australia to China.

As an example, Maersk has recently deployed a sweeper vessel specifically to pick up empties. This sweeper vessel is expected to further relieve port congestion in Brisbane, Sydney, and Melbourne, as well as increasing the integrity of vessel schedules again because they reduce time losses when calling at the Australian ports.

Europe

Due To the blockage of the Suez Canal and the consequent rate increases, the European Shippers’ Council (ESC) will most likely repeat its request for the European Commission to act, as the ESC feels that the shipping lines are given a free pass without any regulators in place. With this, they are greatly impacting the competitiveness and reliability of European shippers toward their own customers. Of course, this is not different for other regions in the world, so it is doubtful if this will result in any solution.

North America

It had long been rumored, and a strike notice has now been issued in the Port of Montreal. From Monday, April 26, the longshoremen will go on strike for 72 hours. The strike will shut down the Port of Montreal.

So it will not be possible to execute any pick up inside the terminals, either of containers arriving over the weekend which have not been picked up, or empty containers needed for export cargo.

The shipping lines might slow down vessels for delayed arrival or entirely divert cargo to alternative ports. The Canadian railways have already decided to no longer accept export containers destined for the Port of Montreal until the labor situation has been resolved.

To speed things up, the Minister of Labour, Filomena Tassi, has sponsored Bill C-29, an act to provide for the resumption and continuation of operations at the Port of Montreal. (Bill C-29 Port of Montreal Operations Act, 2021). The strike in Montreal will greatly affect the further connection with the U.S. East Coast, especially the northern ports, which might be used by both cargo owners and shipping lines as alternative ports to get cargo discharged.

On the U.S. West Coast, the terminals have managed to handle a massive amount of volume. Los Angeles handled 957,599 TEU in March, which is +113% compared to March last year. To give you an idea, if you placed these containers end to end, they would stretch from Los Angeles to New York and halfway back across the country.

In general, the U.S. market is booming. The growth in the U.S. economy will be the fastest since 1984. Economists have raised the forecast of real GDP growth in the U.S. in 2021 from 5.7% to 6.2%.

Latin America

Although Brazil keeps reporting bad COVID-19 figures, the local economy does not seem to be suffering all that much. Volumes stay at a fairly high level and with strong return cargo, the pricing keeps rising. Especially the northern part of South America is heavily impacted by delays on the rotation of vessels because of delays in the U.S. and Mexico for connecting vessels. This has reduced the overall capacity, which again puts additional pressure on the rate levels.

Connecting via the Panama Canal to South America East Coast has become a real challenge. Pricing has gone up drastically due to temporary draft restrictions in the Panama Canal, which have caused delays in T/S ports, and capacity reductions for passing vessels. In many cases, even with premium rates you simply cannot find space on the vessels to get your cargo shipped at the moment.

Extra topic - Suez Canal blockage - update

The ripple effect of the incident in the Suez Canal is, as expected, having an impact on the container equipment at China’s export hubs. The level of equipment, which was already in short supply, declined sharply in the second half of April. Reports say the effect will last well into May, and might even linger on till the end of June. This additional pressure on container availability raises the prospect of another rate surge out of China, where short-term prices are already at highly elevated levels on the Transpacific/Asia–North Europe trades.

This blockade delayed many ships by one or two weeks, forcing carriers to do blank sailings in both directions, which reduced their possibilities to reposition badly needed empty containers.

This also means that in Europe they are facing issues around equipment availability, with weeks 18–20 expected to be affected the most.

General

Due to the ongoing global equipment shortage and the issues concerning sailing integrity, shipping lines are increasingly breaking open contract agreements both on pricing and on other conditions (free times, shipment guarantees, etc.). In the current situation, the turnaround of equipment for the shipping lines is crucial, and this is now their main parameter for setting pricing. If on a certain trade the turnaround time is too long, they will move the little available equipment they have to another trade, unless the shipping line agents can convince the customers to accept premiums on the agreed conditions. For them, this is the only way to ‘accommodate’ pending shipments.

For some extra information on global shipping lines and its challenges, we would like to direct you to the MPL Podcast via the RSS feed or Spotify.