5.5 C
Hamburg
Monday, April 15, 2024
Home News Container shipping on the Pacific ‘slides’ into New Year with new challenges

Container shipping on the Pacific ‘slides’ into New Year with new challenges

Ocean Network Express (ONE) brings some welcome news with the first signs that the challenges faced by logisticians are being overcome with eh announcement that its reefer congestion surcharge (CGS) has been suspended at its Tianjin/Xingang terminal effective from 28 December.

One is not alone, MSC also scrapped its Xingang CGS on 24 December, following the alleviation of congestion at the port.

Appreciated as this news is from ONE and MSC, Worldwide Logistics, in the form of consultant Jon Monroe, remains adamant that until there is a drop in volumes, it is hard to imagine that enough equipment can be repositioned to return the industry to earlier patterns.

A view that is emphasised by ONE in its CGS announcement, “The global situation related to Covid-19 continues to be highly dynamic, changing from day by day. ONE will continue to closely monitor all developments and endeavour to provide our customers with further updates concerning any further material changes in circumstances.”

Essentially the message is while there is some welcome relief in the congestion and equipment imbalance, the industry is not out of the woods yet, and that makes planning for the year ahead tricky for US importers.

According to Monroe, beneficial cargo owners (BCOs) require two things, “a reliable supply chain with exact timelines, and a reliable budget that can cover the cost of goods to market.”

Neither of these two requirements have been met in 2020, and only one of these requirements is associated with the cost of freight, although Monroe believes it is too early to tell at what level freight rates will be in 2021. That said spot rates will play a role in contract negotiations.

Nevertheless, Monroe asks some pertinent questions, pointing out that this year there were a number of variables that must be defined for upcoming contract negotiations. “The most important is the sanctity of a contract,” said Monroe, “What does that mean? How can a company hold the carrier accountable to honour the terms of the contract?

“The second of course is the starting point for the ocean freight rates. Thirdly, what form will the premium payment for space guarantee take? And this begs the question, if you have a contract, why should you need to pay a space guarantee? Isn’t this based upon my MQC [minimum quantity commitment] divided by 52?”

Many of these questions will depend on the levels of demand and although demand remains strong at this time and online sales are still buoyant the most accurate measurement of demand in the near future will be factory orders.

“In December, we find many factories backed up with product that cannot be moved due to the lack of containers,” explained Monroe, who added, “Some factories are telling BCOs to slow down their orders or stop placing orders until they get their product off of the factory floor. If this continues (surge of orders and equipment shortage), we can expect the bottlenecks to extend through the middle of the year but most assuredly through the end of the first quarter.”

It is expected that some factories may work through Chinese New Year, though Monroe points out that it is unlikely that “workers will give up their long holiday.”

However, the indications are that “January may be the peak month of the 2020 to 2021 contract season,” as the demand remains in place in the short term.

It is likely that the current state of affairs will prevail in the early part of the New Year, and Monroe warns, “A typical cargo ready date to be delivered in DC, was approximately five weeks in 2019. I would almost double that for 2021 and you will not be caught short.”

Congestion and disruption have seen costs for shippers hitting unprecedented new highs, with severe delays. Freight rates were so high that the cost of transportation was higher than the value of the goods in the box. That fact will require a resetting of 2021 transportation budgets.

Additionally, non-vessel operating common carriers (NVOCCs) have seen costs spiral upwards during the year, with the issue of advancing of funds to pay carriers in the frame. “What was a US$1,500 to US$1,600/container advance earlier in the year, now requires a US$5,000 to $6,500/container outlay,” explains Monroe.

A 400% increase means that many NVOCCs are financially stretched beyond what they are able to cope with. And with January totally booked and many factories booking three to four weeks in advance there “Will most likely be a January premium increase”.

Monroe believes that “Carriers will standardise the [space guarantee] premiums at US$2,000 West Coast and US$2,500 East Coast.” Adding congestion surcharges from 12 January that will have an impact on inland freight movements around Southern California.

However, he said, “The equipment balance is so out of whack, that it is hard to imagine it returning to normal anytime soon. We have both a Covid pandemic as well as a container pandemic.”

Congestion and equipment issues and the disruption to schedules have led to vessels delayed in Southern Californian harbours for up to a week, waiting for a berth.

What is more the congestion on the water is compounded by congestion within US ports caused by the surge in volumes, but also the lack of truck chassis and railway congestion. Inland congestion in the US led to a 12 November CGS for all Intermodal moves out of the ports of Los Angeles and Long Beach, and a charge of US$180/container will be extended to on 12 January until further notice.

Expectations for 2021 are initially, “More of the same”, Monroe explains, “I cannot imagine that the severity of the imbalance can be corrected within the next five to six months. And it will not be possible unless the import volume slows down.”

An analysis of US Census inventory figures by Danish consultancy Sea-Intelligence shows that there is a build-up of inventory levels within the US to quantities that exceed pre-pandemic amounts. According to Sea-Intelligence “This would imply that at some point in 2021, we would be due for an inventory correction.”

If Sea-Intelligence is correct, that there will be an inventory correction later in 2021, but there is no indication what that would mean for the supply chain, its costs and the reliability of services.

Carrier Premium Surcharges. Source Jon Monroe.

Nick Savvides
Managing Editor





Latest Posts

NYK pioneers truck-to-ship fuel ammonia bunkering

At the Sea Japan 2024 event, NYK announced its plans to supply fuel ammonia at the end of May to an upcoming NYK-owned ammonia-fueled...

Vitesco Technologies and DHL form strategic partnership

Vitesco Technologies established a strategic partnership with DHL Supply Chain, where DHL serves as the Lead Logistics Partner (LLP). Commencing in March, DHL will centrally...

Gebrüder Weiss establishes central IT and logistics hub near Austria’s freight terminal

Gebrüder Weiss, a globally operating full-service logistics provider, is setting up a central location for IT and logistics near Wolfurt's freight terminal, ensuring the...

Maersk restructures Europe-West Africa service network

Danish ocean carrier Maersk has announced changes in its Europe-West Africa service network, which will take effect from the 17th week of the year. The...

Carriers spot bargaining room for India-Middle East cargo as Red Sea gains fade

India-Persian Gulf trades seem to be a glaring exception for container lines, as they are rapidly losing the pricing steam they have had from...