Equipment Shortages in Asia, bound to affect European exports - update I

The container imbalance has been caused primarily by the spike in imports to the US and Europe in July and August caused by the reopening of their economies following lockdowns due to COVID-19. Containers of all sizes — 20-foot, 40-foot, and 40-foot high-cube — are in short supply. As a result, exporters in China are grabbing whatever containers they can, even if it means downsizing to containers that carry less freight at a higher rate.

“There are plenty of reports out there that a lot of equipment — I mean, I’m not talking for Maersk, but for the industry, if you will — has been stuck in Europe and the US and other importing regions and is slow in finding its way back to Asia,” Maersk CEO Søren Skou said

In addition, typhoons, and fog are throwing vessels off-schedule in China, South Korea, and Japan, in some cases causing liner services to skip port calls to avoid weather issues. The consequence is that the shipping lines are not dropping off empties, adding to the shortages in affected areas.

The trade imbalance from Europe and the US to Asia, bad weather, and a cargo rush ahead of the weeklong shutdown for China’s National Day holiday are creating a never-seen situation concerning equipment availability.

Space on the vessels is also an issue but with only a reported 4% of idle vessels, the market capacity is at a high utilization level. In the US, warehouses, especially those in Southern California, have been overwhelmed by imports over the past two months due to e-commerce merchandise and medical supplies (personal protective gear,…). Productivity however at the import warehouses is down as employers space out workers for safety reasons and a general shortage of workers is reported due to COVID-19. As a result, containers, and the chassis they sit on, are remaining at warehouses much longer than they normally would.

To alleviate this problem, ocean carriers, who for years had been granting extended free time for equipment storage to retailers and other large customers to retain their business, are now cutting back on free times. When customers request extended free time now, the NVO/FFW is in a position where it must explain to the consignee or shipper that the carriers are now backtracking from free-time extensions. The ability of carriers to cut back on free time reflects the power carriers now have in a market where space and equipment are crucial.

Importers in the USA are also faced with finding enough truck capacity to return empty containers to the ports. The main issue is that truckers are simply not interested in getting ‘pre-appointments to return empty containers for retailers. The delays caused in warehouses and factories are creating a lot of uncertainty for the truckers. Causing the truckers to book multiple slots to get appointments at the marine terminals (for security reasons this is needed). However, they do not know which slots they can fill. Therefore, many slots are booked but not used only adding to the problem for truckers who then do actually have empties to return. 

To shorten the turnaround of equipment, several shipping lines are also only releasing empty containers a maximum 8 days prior to the ETS from its mainland China depots. Customers who are desperate to obtain containers and secure space on vessels leaving Asian ports are willing to pay heavy surcharges on top of record-high spot rates for an ocean voyage. Some carriers are also charging additional fees to guarantee priority unloading at US ports and delivery to railroads and truckers. The surcharges for these ‘guarantees’ range from $300 to $1,950 per container, on top of record-high spot ocean rates from load ports in China to the US East and West coasts.

To give an indication of the pressure, the pricing from Asia to the US West Coast is 140 percent higher compared to the same week a year ago, according to the Shanghai Containerized Freight Index (SCFI). The Asia - US East Coast rate increased 72.5 percent year over year.

The question is, why are the shipping lines not giving away freight rates on the backhaul leg to get the boxes repositioned? For the carriers, they claim it is the last thing they need right now. Shipping full will require additional free time at origin and at the destination, only adding to the turnaround time of equipment. It is more profitable for them to ship empties back rather than to get them loaded on the import sector.

Gloomy predictions say that this situation will linger on till March 2021 and possibly beyond considering Chinese New year will fall in the second half of February.

We will keep close track of further developments.