Market situation – container flows – update XII

Asia

The power crisis in China might ease some pressure on incoming and outgoing flows. Due to the government-imposed energy output caps, some major manufacturing regions had to reduce their production. There are several reasons behind the imposed restrictions. First, coal and gas account for 75% of the country’s energy usage, and for this China also relies on imports from countries like Russia. However, the prices have surged in recent weeks. This has caused energy firms (often government-owned) to lose huge amounts of money every day. Another reason for the energy shortage is China’s emission targets. Since the country had used most of the quota set by the government in the first nine months of the year, there was a need to slow down as the winter months are ahead and energy consumption will only rise. Thirdly, with the COVID-19 outbreaks in Southeast Asia (e.g., Vietnam), much labor-intensive manufacturing has moved back to China. This is something which the Chinese government does not want, so they are trying to slow this effect by implementing these energy caps. This effect, in combination with the Golden Week in China, might lead to a serious reduction in both incoming and outgoing volumes for raw materials and semi-finished products. For countries in Southeast Asia such as Thailand, the Philippines, Malaysia, and Vietnam, COVID-19 continues to disrupt normal life, as every day many new cases are added to the total. With Malaysia being the exception, the other countries have a vaccination grade of 35% or less making it very difficult to get the infections under control. As long as the case rate per day is not drastically reduced, the restrictions with regards to social distancing will remain, with the resultant delays in the ports, depots, factories, and other cargo handling sites.

Europe

Because of the corona pandemic and Brexit, the U.K. is faced with a shortage of an estimated 100,000 truck drivers. The shortage is causing serious issues in terms of delivering and picking up cargo to and from the seaports. It has come to the point that supermarkets and gas stations cannot serve their customers any more, as they have no products to sell. As a temporary action, the British government has decided to allow cabotage. This new decision has provoked a lot of protest from the federation of British road haulers (RHA), and they have not excluded taking actions. Apart from the issue on landside, the cargo in the U.K. ports is stacking up – and it doesn’t end there. Hub ports like Rotterdam, Zeebrugge, and Antwerp have blocked U.K. imports on their already congested terminals awaiting delivery. The cargo is stuck in the U.K. ports because many shipping lines are simply skipping U.K. port calls due to berthing delays, caused by the bottlenecks on the haulers’ side. The cargo is stuck in the U.K.'s hubs, however, because the feeder operators, who connect the European mainland with the U.K., constantly need to reshuffle their berthing windows in the EU ports as ocean vessels get priority. The ocean vessels are still sailing off-schedule, making it close to impossible for the feeder operators to have some kind of predictability and reliability in their own services. This situation is actually a paradox if you know that the shipping lines are demanding a berthing window from the ports, and insisting that other (smaller) vessels are held off to accommodate their own vessels. On the other hand, it is those same shipping lines that fixed the feeder movement with the operator and refuse to pay demurrage.

North America

The Port of Savannah is struggling with congestion as 30 vessels are awaiting a berthing window. The average wait time is around 9 days. Because of this delay, Ocean Alliance and THE alliance (*) have decided to skip this port entirely. MSC, who will keep on calling at Savannah, has for the same reason increased their PSS by $1000/container! The services of THE Alliance and Ocean Alliance will not return to Savannah before the end of November. Instead, they will be diverted to Charleston.

(* THE Alliance = HLL, YM, ONE, and HMM // Ocean Alliance = CMA, COSCO, OOCL, and EMC)

In an attempt to reduce the congestion on the West Coast it was decided to open the container terminals of Los Angeles and Long Beach 24/7. By working on the weekend and during the night, the local port authorities hope to relieve some stress on the terminals. Local corporations are therefore requested to organize their logistics during the nighttime. (40% of U.S. inbound containers move through L.A. and L.B.). Israeli shipping line ZIM has returned to the Transatlantic service after an absence of more than 5 years. They will launch a monthly service from Antwerp, Rotterdam, and Bremerhaven to call at New York, Norfolk, and Charleston. ZIM is attracted to return by the lack of capacity on this trade linked to the strong demand and spiked freight rates. Freight rates from Europe to the U.S. have leaped by 225% since March 2021.

Latin America

While most of the equipment is moving between Asia–North America and Asia– Europe, South America continues to struggle with equipment availability both on the east and west coasts. Especially rates on the northbound trade (from Latin America to North America and Europe) are on a steep increase. The limited equipment which is available is being sold at premium rates. On top of this, due to the reduced equipment flows, the overall market capacity on these trades has been reduced by taking out services. In combination with the delays in place due to congestion, the market is very ‘tight’. Several shipping lines have simply declared that they have stopped taking bookings up to the end of December.

General

Chinese rate index back at record levels

At the beginning of October, the Shanghai Containerized Freight Index (SCFI) had a small dip for the first time after twenty consecutive weeks of increases. In the second week of October, when everyone thought the tip of the peak was reached, a new record was set at $15,425 / 40’ between Shanghai and the North European ports. Also, in the Mediterranean region, a new record was set. Keep in mind that while the levels which are reported in these indexes give the trends, in reality shippers are still paying high premiums for guaranteed space and equipment.

Global port congestion remains the main driver for high rates

Between the Far East and Europe, the average delay remains 18 days for a full round trip, according to Alphaliner's database. Ocean Alliance can show the best scorecard, as they had the smallest delay on their round trips. They lost on average 7 days. This does not sound too bad, until you consider that these delays were kept to a minimum by simply skipping some port calls in the U.K. and in the Netherlands. THE Alliance had the highest delays, with an average of 35 days. They face the most delays in Rotterdam, Hamburg, and Antwerp, although they choose to keep calling at these ports. (FYI, their last vessel on the FE4 service took 138 days to complete its round trip, compared to a normal 84 days). 2M, as the third alliance, has an average of 19 days' delay. To compensate for the delays, just on the connection between the Far East and Europe, Alphaliner has calculated that at least 44 extra ships of 14,000 to 24,000 TEU will be needed to guarantee a weekly sailing. On the Transpacific trade (mainly on the U.S. side), the delays are very visible on the vessel trackers online, whereas in California sixty vessels have waited for 10 days or more to berth. The average transit time from major Chinese ports to the U.S. West Coast has increased from approx. 16 days to 36 days.

Container shipping lines won't return to normality until end of 2022

Sea-Intelligence said that, this August, 3.1m TEU, or 12.5% of shipping lines' capacity, was out of service due to delays. This compares to a previous high of 11.3% in February, which dropped to 8.8% in April. Looking ahead, the current surge in new building orders will make little difference for two to three years, until deliveries start to filter into the fleet on a large scale. Based on congestion, which has become a global issue, Sea-Intelligence estimates that it could take until the end of 2022 before normal operations are resumed. For additional questions or remarks, you can always reach out to your normal MPL contact.