Although the rates are still a lot higher compared to ‘pre-pandemic’, we are noticing that the market is cooling down somewhat ex Asia. This is seen by a slight decrease in different trades.
The Omicron variant is raising more concerns however for ships that are calling at Chinese ports as this variant has proven to be very contagious and for crews, the very strict quarantine requirements are delaying the supply chain and are not adding to the already unstable shipping industry. Ship managers say the problem has been manageable so far though a sustained jump in cases will add pressure to supply chains as many ports still have long lines of cargo ships waiting, while a shortage of workers and drivers are adding to the snarls.
Vessels calling China must be free of Covid for at least three weeks. On top of that, crew changes in China are still near impossible for foreign seafarers. The Chinese government seems to be keen on eradicating Covid as the rest of the world resolves to live with it. According to data from project44 (a supply chain visibility platform), average shipment delays from China to the U.S. West Coast increased 114% in 2021 compared with a year earlier. The route to Europe recorded a 172% surge.
The issues in the UK remain. Due to Covid-19, the reduced labor force is delaying and limiting port operations in the terminals, as in any other port, but congestion at UK ports remains extremely high, making it difficult for carriers to fully carry out their operations. This results in a lower number of units making intended sailings or arrival. The recent storms and bad weather across Europe have of course only worsened the situation.
With the passing of the 3 storms Eunice, Franklin and Dudley over a major part of Europe, the overall situation on terminals and inland connections has not improved for obvious reasons. The heavy winds made port operations close to impossible as several vessels got knocked adrift and port cranes needed to shut down for security reasons.
In Eastern Europe, the rail connections faced some delays due to debris on the tracks and cut powerlines due to trees and branches that fell on the cables. The most recent reports mention however that the majority of the operators are back on their normal schedule.
Throughout the pandemic, the US market has proven to be a challenge with the problems on the islands that have only gotten more intense.
As the port congestion in the major US port gateways has triggered a rare intervention of the White House, the problems are still not resolved. The Federal Office has agreed on a $1.2 trillion bipartisan bill to upgrade the overall port infrastructures and inland connections.
At its core, the current crisis, with ships waiting offshore for berths at multiple US ports, is the result of those containers remaining on the terminal. The Los Angeles and Long Beach ports threatened with a fee on containers sitting on the docks for longer than nine days.
On the East Coast, federally supported “pop-up” yards in Georgia, enabled containers to be relocated from the Port of Savannah to near-dock locations. These additional yards could be a promising longer-term solution, especially if these locations can be kept as ‘reserve’ so they can be activated only during surge periods.
On February 16th we got the following ‘snapshot’ of the vessel count at the top 6 US Ocean ports
As the contract negotiations for the longshoremen in the US are nearing, delegates from the International Longshore and Warehouse Union (ILWU) were gathering beginning of February to discuss the strategy ahead of what is expected to be contentious contract negotiations. The major issue is the automation at West Coast ports. For the unions, the automation of cargo-handling equipment would translate directly to job losses on the docks. On the other hand, automation will also create new classifications of jobs at container terminals, such as in computer programming. The ILWU has insisted that any new jobs fall under the union’s jurisdiction and that employers train their members for those positions.
The ILWU will likely leverage today’s strong cargo volumes and supply chain bottlenecks as the July 1 expiration of the current contract draws closer. The West Coast ports last year handled record cargo volumes despite unprecedented supply chain disruptions. Both parties acknowledge those work slowdowns this summer if a contract is not reached by July 1 would cripple already congested West Coast ports and would be devastating for retailers and the US economy.
The region has not been spared with congestion, especially on the east coast, and the next weeks will be very important as the typical export ports are preparing for the new fruit season for apples and pears more specifically. The increasing demand to get reefer equipment available from the fruit industry is putting the shipping lines in doubt. Do they ship reefers to this region with the risk of long idle times in the ports because of the delayed throughput or do they take the risk of losing out on the very high rates (mainly ex Brazil) by not having equipment in position?
How to read:
What everybody knows already can also be visualized in the below graphs. These examples are taken from a presentation done by the CEO of Hapag Lloyd however they are deducted from neutral sources like the SCFI and bunker databases and are concerning global volumes, not only Hapag Lloyd.
(keep in mind this data was taken prior to the escalation in Ukraine).
Graph upper left: the evolution of the spot rates globally
Graph upper right: the global container volumes
Graph middle left: rates to charter a vessel have tripled
Graph middle right: bunker evolutions
Graph bottom left: global orderbook of new vessels
Graph bottom right: global idle fleet (normally around 6-7%, currently 0.6%)
To complete the full story explaining higher costs that are being charged, the schedule reliability is already for a longer period on an all-time low at +/- 30% meaning that vessels are not respecting their forecasted sailing schedules.
Despite the higher container volumes, the terminal movements have dropped by 4% globally. This might not seem very significant, but this is a global figure. The impact is of course much higher on the major ports of the world.
Chairman Rodolpho Saadé has communicated that CMA CGM will no longer accept plastic waste on their vessels as from June this year. The reason behind is that CMA cannot guarantee that this plastic waste is being processed or recycled in the correct way in the receiving countries. This is in line with their greener strategy.
Manuport LOGISTICS raises money each year to support the RIVER CLEANUP initiative.
This organization cleans up plastics that end up in waterways. It is estimated that 10 million tons of plastic end up in the ocean each year.
Several big investors are looking at DB Schenker which is being put in the shopping window to relieve partially the tremendous debt of mother company Deutsche Bahn (DB).
For additional questions or remarks, you can always reach out to your usual MPL-contact.