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Market situation - container flows - JULY

Jul 2022
8 minutes
Update July ‘22 In order to keep an overview, we have broken the market down into several segments covering different areas worldwide. Although not all trades are in the report, similar trends apply. If you require more detailed info on a specific trade, you can always reach out to your Manuport contact.

Asia

Some early indications show that the prices for containerized transport on the Trans-Pacific trade have declined by more than 50% compared to September 2021 (which was an exceptional peak). The current rates are already below the levels we saw at the beginning of last year.

The reason for this steep decline is of course the reduced demand, which is caused by a mix of factors. Consumers have shifted from spending on goods back to services, similar to before the pandemic (e.g., holidays, restaurants), and on top of that you have monetary policy measures that have been taken, or which are going into effect, to slow down inflation. This has a big impact on goods imported from mainly Asia/China, and explains the reduced volumes.

 

 

Europe

Concerns are rising about the lax attitude by the European Central Bank (ECB). The euro has been losing its position against the U.S. dollar, and inflation in European countries is not slowing down. The ECB has (finally) announced that it will increase the interest rates on loans by 0.5% – the highest increase since 2010 – in an attempt to cool down the market. If this fails, European countries will keep ‘importing inflation’ as the high cost of raw materials and semi-finished products has a snowball effect on further prices along the way, all the way to the end consumer.

As an additional effect, the ‘weaker’ position of the euro against the U.S. dollar is hitting European countries when buying oil, as this is always traded in USD. The high energy prices and the difficult situation with gas supplies coming from Russia – or more accurately, not coming from Russia – is hitting not only private households but also the industrial sector.

An upside to all of this is that exporting out of Europe to countries buying in USD is becoming more attractive. However, the main trade for this, North America, is facing a logistical bottleneck with limited capacity being deployed on the Trans-Atlantic trade by the shipping lines and ongoing congestion on the U.S. landside.

 

North America

The U.S. East Coast and Gulf Coast ports are trying to heighten their efficiency in anticipation of a potential summer peak volume that could grow the current backlog of vessels already queuing up outside these ports. To increase working speed in the port areas, the port authorities are using nearby land to store import and empty containers. These “pop-up yards” provide some relief, although they also generate extra costs as the terminals/shipping lines are shunting these containers and the bill is passed on to the importers.

Due to consumer demand that has increased – and which continues to increase in 2022 – total US imports have grown another 3 percent in the first 5 months of the year, after rising 13.1 percent for the full year in 2021.

That growth has been uneven if you look at the regions. In Atlantic trade we have seen a shift from shippers diverting cargo away from the West Coast. This has pushed volumes to the East Coast and Gulf Coast up 6.1 percent and a whopping 21.3 percent, respectively, while West Coast imports slipped to a small growth of 3.5 percent.

Some of this growth can be attributed to normal seasonality, with retailers and other importers sending holiday goods that are not time-sensitive to the East Coast earlier in the summer. The West Coast leg is more used for shipments when we get closer to the holiday season. The difference this year is that imports to the East Coast began even earlier because shippers have been trying to avoid delays related to West Coast congestion in the ports. As a result, an average of 17 container ships sat anchored outside the Port of New York and New Jersey during the last week of June, after reaching a record 21 vessels on June 20th.

The ongoing congestion in the U.S. ports has increased dwell times for import boxes. This is due to a combination of jammed warehouses, congested inland rail ramps and the everlasting shortage of wheels to move the containers to their final destination. In New York, the dwell time for import containers increased again in the second quarter of this year, from 5-7 days up to 8-14 days.

The schedules for the shipping lines remain very volatile, as vessels keep shifting back and forward, as a result of the unreliable windows wherein vessels can berth in the ports. This generates many problems on the export side because scheduling transport to the ports has become close to impossible. The moments for full delivery on the quays also keep shifting as they move together with the schedules of the vessels. Besides this, the time allowed to deliver full containers on quay has been shortened to prevent idle, full export containers in the already over-utilized terminals.

Truckers, who are in a strong position to ‘choose’ which transport they accept, will invoice dead freight as they cannot execute the transport as planned. Some truckers, if they can offer it, will store the containers elsewhere until they can deliver to the port. Of course, this service is not without costs – costs which the shipping lines are not willing to absorb.

A next big hurdle to take in the U.S. will be the labor talks for the U.S. railroads. These talks between major freight railroads and labor unions, representing their workers, have been dragging out for more than two years. To prevent a nationwide strike, the Biden Administration has been asked to intervene and to assist in the talks by appointing a Presidential Emergency Board (PEB). When appointed, the PEB has 30 days to make nonbinding settlement recommendations. Work stoppages are prohibited during that time, and for 30 days following the release of the report. The rail labor talks cover 115,000 workers in the U.S. Some of you might remember the U.S. railroads shut down in 1992 for (only) two days, following a discussion of labor terms. According to experts, a similar stoppage now could cost the U.S. economy over $1 billion a day

A positive note is that the labor negotiations for the West Coast port longshore employees seem to be going in the right direction. It is likely that a deal will be reached in August or September without major disruptions in the docks.

That being said, in the Port of Oakland, there is an ongoing protest against the AB5 law that is being enforced in the state of California. Owner-operator truck drivers, who make up 90% of the Port's operations, are protesting because they believe this new law will force them to join a trucking company. Currently, trucking companies deal with the permits and insurance needed to work in the Port, and these trucking companies hire independent drivers to pick up and deliver loads. AB5 would prohibit that, requiring owner-operators to do all the administrative tasks themselves.

 

Latin America

Brazil-U.S. freight rates have spiked again because of the continued tight capacity and port congestion. The increased volumes going to the U.S., in combination with the reduced ‘northbound’ capacity, have boosted freight rates. This is likely to last until at least the end of 2022, as no plans have been announced to re-introduce any additional capacity on the trade.

 

Indian subcontinent

India’s West Coast ports, Nhava Sheva and Mundra, have seen many void sailings as several major services did not call at these ports. Because of this, these important industrial areas for India have become almost disconnected from the U.S. and European markets during the month of July. The void sailings were initiated to “improve the service’s schedule reliability”, according to the shipping lines. This move by the shipping lines can simply be explained by the same phenomenon which we have seen on other trades. Capacity is taken out to put on trades where higher revenues can be made. For remaining services which cover Asia–Europe or Asia–U.S., India is a scheduled stop. However, it is not the major focus, so to prevent delays and to reduce operating costs, the shipping lines simply decided to skip the Indian ports. The volumes ex India have also greatly gone down, similar to the volumes ex China, as a result of the high inflation hitting major global markets, making these markets even less attractive for shipping lines to service.

 

For additional questions or remarks, you can always reach out to your usual MPL-contact.

Best regards,

Manuport Logistics

 

Annex: Market trends

How to read:

  • Applicable trade always mentioned per individual graph.
  • The percentages shown give the difference per trade on 3 levels:
    • Year on Year = Rates agreed now compared to the same period 1 year ago
    • Past 3 Months = Rates agreed within the past 3 months
    • Past 1 Month = Rates agreed within the past month. This can be considered as a reflection of the spot market.
  • ‘Main’ means ports that are normally called on a direct basis.
    • Far East Main = Ningbo, Shanghai, Qingdao,…
    • Mediterranean Main = Istanbul, Alexandria, Piraeus,…
    • South America East Coast = Santos, Buenos Aires,…
    • North Europe Main = Antwerp, Rotterdam, Hamburg,…

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