Market Situation - Container flows - update XI

Asia

The Chinese authorities have closed the Meidong Container Terminal at the Port of Ningbo due to a COVID case. At MCT, the Ocean Alliance has its calls, having an immediate effect on alliance partners Evergreen, Cosco, OOCL, and CMA CGM. Other terminals will most likely feel increased pressure with container movements. The port remains in fear of other possible new COVID cases.

The government has not reported how long the closure will remain. The MCT handles approximately 25% of cargo through the port of Ningbo. Being in full peak season in China, the impact will be severe and reminds to the delays in the port of Yantian in June.

Some channels also report new positive cases in the Shanghai port area but this is not confirmed by any official channel. This would however be nothing short of a disaster as Shanghai is still facing a huge backlog following the typhoon ‘In-Fa’ of last month. Local weather forecasts predict additional thunderstorms with strong winds, heavy rainfall, hail, and possible landslides to occur across eastern China throughout the second half of August. Heavy rain prompted already some flooding in parts of the region, including locations in Shanghai's Yangpu District.

The bad weather has caused additional delays on the inland logistics. On the Silk Rail connection from China to Germany, the current delays are around 3 weeks. Floodwaters and debris have rendered some bridges, rail networks, or roadways impassable, impacting overland travel around affected areas.

Following a month of rising COVID-19 cases across Vietnam, the ports corporation has been forced to suspend some operations at Ho Chi Minh’s largest international terminal and is threatening to stop receiving cargo ships entirely if it cannot clear its yard and reduce the current backlog. Saigon Newport Corporation said that it is taking the measures because the container yard had reached 100 percent of capacity, while staffing has been reduced by half due to the surge of COVID-19 cases during July. The ‘slowdown’ of activities has caused a 100.000 TEU to pile up at Ho Chi Minh Cat Lai. Therefore, many factories in the Ho Chi Minh area have reduced production to 50%, or lower, because the ports simply have no room for new containers coming in.

North Africa

The connections to Africa are suffering from severe capacity reductions. Not only has this invoked major rate increases, but the overall space on vessels has also become very limited and this is greatly impacting the overall service levels and reliability of schedules to both East and West Africa. The reasons are not entirely similar however the basis is the same.

Alphaliner has calculated that today almost 46% of the available container vessel fleet is active on 3 major east-west routes. A year ago, this was only 38.5%. Most of the capacity is taken from services connecting the African continent.

The overall capacity from and to Africa has been reduced by 6.5%. To put this in perspective, MSC and Maersk have increased their capacity on the trans-Pacific trade respectively with 80.7% and 50.4% to benefit from the high rates on this trade.

The connections to East Africa are mainly connecting via the Middle Eastern ports (e.g. Jebel Ali). Also, here we see a capacity reduction in the connecting vessels from the Middle Eastern hubs to East Africa.

In Northern Africa, a heatwave is currently causing many wildfires. Port operations are not affected for now, but the heatwave might result in possible preventive actions to guarantee the health and safety of the longshoremen. Especially Algeria is hit hard with over 35 fires raging on.

Europe

Continuing the topic of capacity reshuffling, the trade between Europe and Asia remains the biggest in terms of capacity. This trade represents 21.5% of the container fleet however the increased capacity on this trade is not sufficient to accommodate the growth in shipments in combination with the increasing delays in the European ports.

Following the decision for Brexit, new regulations need to be set up concerning customs formalities. Considering these new regulations, the Fresh Produce Consortium (FPC) has warned for major issues when importing food products from the EU. The British government will implement more strict border checks on agro-products and more administrative obligations will be needed for imports of any animal-related products (meat, poultry,…). Normally these new procedures would be introduced from April 1st, however, this date has been pushed to October 1st. The time is needed for the British customs to make the necessary investments in staff and IT.

According to the FPC however, no progress is being made to meet the, already postponed, deadline. This will not only have an impact on British distributors of food products but also on EU producers who sell to the UK.

In Germany, a nationwide strike was held on August 11th by the train drivers. The strike ended on August 13th to not interfere with passenger and goods transport during the weekend. The impact on the transportation of goods can only be assessed in the next days, weeks.

The same heatwave that is hitting the North African countries already passed some European countries like Greece, but forecasts are reporting that the intense heatwave will hit Italy, Malta, and possibly Spain and Portugal in the next few days. The peak temperatures will be up to around 46 °C for several days and will worsen the ongoing drought conditions.

North America

With the additional peak volumes coming from Asia, the infrastructure on the port side and already crippled inland logistics in the US are coming to another critical point where inland deliveries or pick-ups will take yet another turn for the worse. It appears that August, and the next months to come, will be the toughest months for the trans-Pacific shippers. Container volumes into the West Coast have reached new records with the holiday shipping demand that comes to an already overloaded supply chain. China’s exports to the U.S. grew above 13% in July from a year ago. The total USA imports even rose by more than 25%!

This enormous increase in volume is increasing the strain on inland logistics and the port infrastructure. The shipping lines are now urging the receivers to return containers and chassis as quickly as possible so they can evacuate containers from the port areas. On the other hand, exporters are obliged to only deliver the full containers as close as possible to the sailing date to prevent idle containers on the quays and depots.

The Port of Los Angeles CEO, Gene Seroka, has said in an interview with the American Shipper that it feels as if they have been in a peak season for more than a year. The database Alphaliner counted 28 container vessels in the San Pedro Bay on a single day, simply waiting for a berthing window in the port of Los Angeles/Long Beach of which already 6 vessels for more than 10 days.

Additionally, the ongoing drought and high temperatures in Canada have caused several wildfires, they are causing a logistical nightmare with thousands of containers and rail cars kept idle in Vancouver on the West Coast but also impacting other regions up to the East Coast.

Latin America

The shipping turmoil is threatening coffee exports from Brazil, the world’s biggest supplier. As lockdowns ease and economies rebound, the competition for containers and space on the container vessels is stronger than ever. This has resulted in worldwide price increases and some commodities simply cannot follow the scramble for containers at premium rates. Coffee suppliers who booked shipments at an earlier stage simply see their planned exports getting canceled by the shipping lines.

Farmers are not only confronted with higher ocean freights, but they also had to face the drying up of key waterways across South America, making it harder to haul crops to the ports and other distribution areas. Vessels traversing the rivers are being forced to lighten their loads because of low water levels.

Because of the high-rate levels on the transpacific trade, the majority of the containers available on the LATAM market are being used to reposition empty into Asia. This is putting tremendous pressure on the availability of containers for export.

From all regions into Latin America, the rates keep on increasing because of the same reason. To prevent the empty repositioning from the LATAM markets to other demanding markets which can bear the high prices the shipping lines are increasing the rates to compensate for the repo and idle time of the containers.

For the West Coast connections via the Panama Canal, the increase in rates is even more severe considering the reduced capacity on the canal and higher fees recently invoked by the Panamanian Authorities.

General

Congestion Dashboard HMM

The South Korean shipping company Hyundai Merchant Marine (HMM) publishes regularly a dashboard on the congestion problems worldwide. In the edition of August 9th, ‘code red’ applies for ships in 15 major container ports. In the Far East, these are the ports of Ningbo, Shanghai, Hong Kong, Shenzhen, and Singapore. In Europe, Rotterdam, Southampton, Antwerp, and Le Havre also are marked as ‘red’.

The dashboard doesn’t only account for the delays on the waterside but also the throughput of containers on the landside. The port of Los Angeles and the terminals in Vietnam are the only ones that are marked ‘red’ for all transport modes. The port of Rotterdam is ‘red’ for all transport modes except for rail (green). The port of Antwerp as a comparison has code ‘yellow’ on the gates in the port but is ‘green’ for all connecting transport modes to the hinterland.

More and more frustration about the high container pricing – lobbying and legal actions

The British Chambers of Commerce and the Chambers Network, who represent tens of thousands of British companies, have written a joint letter to the British Competition and Markets Authority, who are in charge of keeping an eye on the fair competition, to ask for an official investigation on the high prices in the international container transportation.

MCS, a US-based producer of home decorations has filed an official complaint with the Federal Maritime Commission (FMC) concerning the high rates and possible price agreements against MSC and Cosco Shipping lines. MSC already reacted that they are very shocked by the complaint and will investigate a possible complaint on their own against MCS for slander.

The South Korean Fair-Trade Commission (KFTC) has also started an investigation because they are convinced that illegal agreements on pricing were made. Not only HMM as national shipping line is accused, but also Maersk, Cosco, and Evergreen are included in the investigation. The KFTC is claiming high fines to the shipping lines. The investigation has already provoked a lot of protest from the Chinese and Korean Shipowners’ Association.

In Europe, the shipper’s organization tried a few weeks ago to get some action from the European Commission however without any avail. Maybe the Korean case can inspire the EU to initiate an actual similar investigation this time.

Two weeks after launching an audit of several container lines, the US maritime regulators have ordered eight carriers to show how congestion surcharges and other fees tied to the pandemic-driven supply chain disruption meet legal and regulatory requirements. The audit is invoked by several complaints from shippers on the increased rates and surcharges.

The actions of the FMC are supported by the request from Congress and the Biden administration to look into ‘anticompetitive pressure’ by the shipping lines.

Worldwide rise of container rates

In the month of July, the rise of container rates on a global scale is calculated up to 28.1% by the benchmark platform Xeneta. According to them, this is the biggest increase in rates from one month to the next month. Zooming in on the import rates from Asia to Europe, the rates even increased by 49% in one month. Compared to July 2020 the rates are even 120% higher!

Mega profit margins for the shipping lines

Based on preliminary figures, Hapag Lloyd will be able to make a gross profit of 10 billion dollars this year.

Maersk has increased its expected gross profit by 5 billion dollars for the second time this year. They expect to end up close to 20 billion dollars by end of the year. Maersk has grown by 15% in container volumes in the first semester of 2021. In combination with an average rate increase of 59%, they have revised their budget expectations.

ONE has doubled their gross profit in 1 quarter up to 5.7 billion dollars. Their net profit exploded from 167 million to above 2.5 billion dollars.

As a result of the very high container market, Drewry had already predicted that the shipping lines would account for a collective profit of 100 billion dollars. It is most likely that the shipping lines will even exceed this amount. This remains an estimation because not all shipping lines report their financial figures. The family-owned company MSC, soon to be the #1 in shipping capacity, never reports its figures. It is a solid assumption that they are excessively profitable. The family and management of the MSC group are known for their strict cost structure and smart deals.

High rates for refrigerated containers (reefers) are most likely to remain even when the market ‘normalizes’

Worldwide the transport overseas of perishables in reefers has increased by 4.8% this year. The growth was mainly pushed by more meat, citrus fruits, and exotic products.

In combination with the shortages in reefer equipment and shipping capacity, the increase in rates was mostly felt on the East-West connections. The average rate rose by 32% compared to the second quarter of 2021. By end of the third quarter, Drewry expects even an increase up to 50%.

Predictions show these increased rates to remain even when the container industry cools down. The lack of reefer equipment will be the main price-driver, not the overall shipping capacity. Reefer vessels, which take refrigerated cargo in their hulls without the usage of containers are becoming more scares as a result of the IMO2020 emission regulations. Drewry even expects that refrigerator vessels will lose an additional 10% of market share in the next years to the benefit of container vessels.

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