Market situation – Container flows – Update II

Out of China the volumes keep on booming, mainly on the Transpacific trade. The peak volumes are a direct result of increased e-commerce. It is not limited to the Transpacific, but it is on this trade that the impact is the greatest. Other trades that are under tremendous pressure due to the volumes being pushed out of China are Far East–Oceania and Far East–Europe. As an illustration, this October alone, the Port of Shanghai reached a record volume of 4.2 million TEU. This is a whopping growth of 15.7% on October 2019. Bear in mind we are in the COVID-19 pandemic, in which many economies are suffering! E-commerce out of China is benefiting from (temporary) closures of local stores, and from people ordering items to accommodate their lockdown stays at home or to set up their home office.

This ongoing market trend is pushing the shipping lines to maximize the capacity and utilization of their containers out of China. Traditionally, the cargo being produced and thus shipped out of China is typically 40’ DC and 40’ HC cargo. Even with massive equipment repositioning, executed by the shipping lines, the reports we receive tell us that this type of equipment is almost sold out, and shippers are desperately swapping their cargo to other equipment types such as 20’ DC and 40’ High Cube Reefer (non-temperature-controlled), to make sure that their cargo is being moved. Even today, the shipping lines are moving empty containers to feverishly ride this high market wave.

As long as this trend continues, other regions such as Latin America, Red Sea/Middle East, Africa, Med/Black Sea, and Europe will remain short-stacked on available equipment. Empty containers that are available, especially 40’ equipment, will (again) be positioned in Asia, without any cargo inside.

The European market, which is highly dependent on containers coming in from Asia, is struggling with equipment availability, like many other regions. The trade lane Europe–Asia has always been priced a lot lower than its westbound counterpart, hence it has always been considered as a kind of repositioning to Asia. But today shipping lines are shipping containers empty to Asia. The combined delays due to loading, unloading, free times, and possible small or large repairs to the equipment mean it is not cost-effective to load the containers with freight that would (partially) pay for the repositioning. (Yang Ming has stopped taking any bookings from Europe to Asia and the Middle East for November. Evergreen has not reported stopping bookings but has doubled its spot rates to Asia for November)

The Indian market is also reporting very high export figures and they seem to be benefiting from the e-commerce market too. The increases in volume come with some delays due to the strict COVID-19 restrictions in India. The past weeks' volumes are peaking, however, and India also has a high demand for empty containers. Following up on other customer updates, in Oceania, the ports are clogging up as a combination of the peak volumes ex China and strikes spreading across the different ports. This is pushing the market levels upwards, with very high increases. Apart from the rate level, the cargo is facing delays of 12-16 days to get unloaded. Containers that are being shipped to Oceania are only returning in limited numbers due to the congestion caused by the strikes in the ports. This is making the shipping lines more and more reluctant to accept cargo destined for Oceania. Containers getting ‘stuck’ in Oceania is putting additional pressure on the equipment levels worldwide.

From the U.S., most of the volume is moving between the West Coast and the Far East. On the U.S. East Coast, they are struggling to get steady volumes for a similar reason as Oceania. From the East Coast, only a limited volume is being shipped back to Asia, making it unattractive for the shipping lines to ship containers to this region. This is combined with an increased turnaround of containers due to capacity issues on the inland leg in the US.

For the region of Latin America, the economic driver is Brazil. The country is however struggling with the depreciation of the Brazilian Real, causing a serious drop in its imports. On the export side, the fruit season has started, pushing the traditionally already high demand for reefer equipment to even higher levels.

The reefer segment, which is normally less affected by similar market trends, is also highly impacted because the drastic shortage of 40’ equipment is pushing shipping lines to use NORs (Non-Operating Reefers) as an alternative. This normally more expensive container type is now also actively being used to book cargo out of Asia. The high rates on the spot market justify the use of this equipment type. Reefer equipment which follows the seasons worldwide, to ship fresh fruit and vegetables from the different continents, is being held up in Asia. These unprecedented times are exposing fundamental and structural cracks in the shipping lines' current business models. The delicate balance of container flows, with strong and weak legs on a global scale, is being distorted up to the point where the control is slipping away from shipping lines. Jeremy Nixon, CEO of ONE, has stated that shipping lines are hitting their own limits. All ships are fully booked, all containers are used, and no additional ships are available on the charter market to accommodate the increased volumes. In Jeremy's words: “We are sold out!” (From the Alphaliner database: only 1.8% of the total container fleet worldwide is idle. Of this idle fleet, 20% are ships that are not available to use because they are in a dry dock to undergo a scrubber retrofitting).

This extreme environment is pushing shipping lines to walk away from rate agreements and contracted rates in place. Congestions, peak seasons, and other increases alike are being pushed onto the market. The shippers and FFWs are being forced, with their backs against the wall, to accept what's on offer or simply not ship their cargo. Apart from a withdrawal of contracted rates, many secondary terms and conditions are being reconsidered, such as container quality and free time agreements, to speed up the turnaround of containers. Although we work in a global industry, we strongly believe that the world is a small place and that you always meet twice. We therefore remain in close communication, so our customers only feel a minimal effect of these changes in the market. We will keep a close eye on further developments. Your designated contact with Manuport will be able to guide you to minimize any possible impact on your logistic processes.