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Market Situation – Container flows - Update II

Nov 2020
6 minutes
Referring to our earlier blogpost of September 22nd, the situation has only taken a turn for the worse concerning container availability and space on the vessels.

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 however on this trade the impact is the greatest. Other regions that are under tremendous pressure due to the volumes being pushed out of China are Far East-Oceania and Far East-Europe.

To illustrate this, the port of Shanghai reached a record volume of 4.2 mln TEU in the month of October this year alone. This is a whopping growth of 15.7% compared to October in 2019. Keep in mind this is a COVID-19 period in which many economies are suffering! The e-commerce however out of China is benefiting from (temporary) closures of local stores and of people ordering items to accommodate their lockdown stays at home or to facilitate their home-office.

This ongoing market trend is pushing the shipping lines to maximize the capacity and utilization of their containers out of China. The cargo being traditionally 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 ride this high market on a feverish way.

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 be (again) positioned to Asia without any cargo inside.

The European market which is highly depending on containers coming in from Asia is struggling, like many other regions, with equipment availability. 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 the shipping lines are shipping the containers empty to Asia.

The combined delay of loading, unloading, free times, and possible small/big repairs to the equipment weighs heavier than to load the containers with freight that pays (partially) for the repositioning. (Yang Ming has issued a full booking stop To Asia and the Middle East for November out of Europe. Evergreen has not reported a booking stop but doubled their spot rates for November to Asia,…)

The Indian market is also reporting very high export figures and they also seem to be benefitting from the e-commerce market. The increases in volume come with some delay due to the heavy COVID-19-restrictions in India. The past week's volumes are however peaking and also India is in high demand of empty containers.

Following other customer letters, in Oceania, the ports are silting up as a combination of the peak volumes ex China and strikes spread across the different ports. This is pushing the market levels upwards with severe 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. The containers being ‘stuck’ in Oceania put additional pressure on the equipment levels worldwide.

 In the USA, most of the volume is moving between the west coast and the Far East. On the US East Coast, they struggle to get steady volumes for a similar reason as Oceania. From the US East Coast, only a limited volume is being shipped back to Asia making it uninteresting 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. They are however struggling with a depreciation of the Brazilian Real causing a serious drop in their imports. On the export side, however, 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 however also highly impacted because the drastic shortage of suitable equipment is pushing shipping lines to use NOR’s (Non-Operating Reefers) as an alternative for lacking 40’ equipment. 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 fruits and vegetables from the different continents is being held up in Asia.

These unprecedented times are exposing fundamental and structural cracks in the business models from the shipping lines today. The delicate balance of container flows, with strong and weak legs on a global scale, is being distorted up to a point where the control is slipping away from the shipping lines.

Jeremy Nixon, CEO of ONE has explained that the shipping lines are hitting their own limits. All ships are fully booked, all containers are used and on the charter market no additional ships are available to accommodate the increased volumes. He simply said: “We are sold-out!”. (source Alphaliner database: only 1.8% of the total container fleet worldwide is idle. Of which 20% are ships that are not available to put in use because they are in a drydock to undergo a retrofitting for scrubber installment).

This extreme environment is pushing the 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 FFW’s are being forced with their backs against the walls to accept or simply not ship their cargo. Apart from a withdrawal of contracted rates, many side 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 ‘you always meet twice. We, therefore, remain in close communication to do our utmost, so our clients only feel a minimal effect of these changes in the market.

We will keep close track of further developments. Your designated contact with Manuport will be able to guide you to minimize any possible impact on your logistic processes.

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