Container shortage, Rate increasing, What is going on?

Container Shortage, Rate Increases..., What is going on?

The global supply chain is no doubt impacted by the current Covid-19. But how?

On the transportation side of things, equipment imbalance, shortage of truckers, blank sailings etc., have caused significant cost increases in most markets and trades. Indications are that this will continue.

It is not limited to affecting the logistics industry. It also impacts manufacturers, trading companies and the retail sector as cargo is ordered at Point A and later sold at Point B. It makes merchandise more expensive for the end consumer too.

No doubt that Covid 19 must take the blame for it all. The lockdowns around the world impacted all economies and global trade in a way very few saw coming. What has happened is truly unprecedented.

Port operations were halted or negatively impacted globally. Cargo moved through the ports at a slower pace because cargo receivers stopped containers either at origin or destination ports. With the world ´shutting down´, the ocean carriers had to reduce capacity to cut their losses on empty ships.

There were three months of sluggish volumes globally from April to June, followed by a sudden and relatively sharp recovery in July and August. With other production countries around the world being impacted by the pandemic, China was back in full production, and that availability increased orders from there.

September and October are usually the months when China ships the bulk of Christmas volume around the world. For the US alone, the import from the Asia Pacific was 10% higher in October than September. It was 23.7% higher than in the same month a year ago. (Source: JOC, NOV 10th)

Devanning at consignee facilities also took longer due to the shortage of workforce and quarantines in countries. A 1-2 day churn of a container became a 5-7 day churn – even with Carriers shortening container free time and increasing demurrage & detention charges.

Carriers were not able to get their equipment back to the origins as needed. It further fueled the imbalance. Shippers and Forwarders were refused to booking larger export volumes due to the container shortage and blank sailings. Carriers have stopped taking on full containers on the back-haul voyage to China, to take advantage of the high export rates ex Asia. That has further impacted the global supply challenge. The limited FCL capacity encouraged customers to book what usually would be FCL shipments as LCL, making bookings larger, forcing us to get additional space at high priority rates.

The ports got congested from the surge in volumes. That then affected the trucking industry. Getting containers out and back into the ports took hours or even days. Chassis shortage was also an issue. Road congestion into the ports resulted in truckers struggling to make enough money to cover their cost. Often, they are only able to pick up one container per day due to long lines.

All these challenges combined have increased container rates drastically. Lack of space on vessels meant FCL contracts were not being honored. Cargo owners had to pay a premium, on top of the existing contract rates, to get cargo moving.

For APAC origins to Los Angeles, rates doubled in many cases. From China to Europe, prices more than tripled. In some instances, containers moving at a rate above $8500 per 40´. (Source: HMM notice 02 DEC) On Intra-Asia lanes, rates have also increased heavily, and that is a trade that usually is very stable.

Global demand saw output rise in 22 of 26 subsectors in October. Automobiles and parts, banks, chemicals, machinery & equipment, were the top performers. (Source: HIS MarkitPMI™). Various industry indications are that space constraints will continue at least up to Chinese New Year, that is in mid-February. For Asia to Europe, it' s perhaps even longer.

Aletape China

10-December-2020