After a down and up year in container volumes, the current logjams in the system and unbalanced trades will take months to resolve, allowing carriers to profit from high freight rates,and tonnage providers to enjoy lofty charter rates. Once the situation normalises, however –and consumers begin spending more on services and less on goods–structural overcapacity will again become a focal point.
Demand drivers and freight rates
The new year has started on a high for carriers,as the imbalance in the market, congestion in ports,and a general equipment shortage drags on well into 2021. It is a much less positive development for shippers,though;as well as having to pay a much higher base freight rate–and,in many cases,considerable surcharges on top of that–they are seeing long delays in their shipments, causing problems for their supply-chain management.
The current disruptions to container shipping can be attributed to several factors, most importantly the stop-start nature of global container shipping demand in 2020, but also the slower turnaround times in ports as social-distancing measures limit shift sizes among port staff. By mid-February there were 20 containerships at anchorage bound for the port of Los Angeles, a number which in normal conditions is 0. Furthermore, anchorage waiting times are increasing, at around 8 days in mid-February with more ships on their way: around 85% of ships heading to Los Angeles are unable to go straight to berth.
The most obvious example of the disruption the COVID-19 pandemic has caused is US container imports from the Far East.In the first six months of the year,volumes were down by 8.0% on 2019, with every month seeing lower imports than the corresponding month in 2019.The second half of the year was a completely different story.Imports in that period were up by 21.4% from 2019, and more than 1.9m twenty-foot equivalent units (TEU) were imported every month, breaking the 1.8m TEU record that had stood at the start of the year. The new record is 2.1m TEU, recorded when imports peaked in September.
The containerised commodities that have seen the largest increases in US imports from Asia are electronics and furniture, both of which are up by 1.1m tonnes in 2020 compared with 2019. Together,these categories of goods make up 12.8% of total US container imports. An equal share of total imports is achieved by the two other groups of commodities that top the list–namely,plastics and articles of plastic,and machinery.
The strong growth in the second half of the year means that total volumes on the Far East to North America trade are up7.3% this year (1.4m TEU)–and,at 20.1m TEU, they have broken the 20m TEU barrier for the first time. In 2020, volumes on this particular trade accounted for 12.0% of global container demand.
This 12% share is up from 2019, as volumes on other major trades and total global volumes fell in 2020. Globally,seaborne container volumes were down by 1.2% and the two other major trades–intra-Asian and Far East to Europe –also saw volumes fall, by 0.8% and 5.4% respectively. As with the Far East to North America trade, volumes rose in the second half of the year, though the increase was much more muted on the intra-Asian and Far East to Europe trade.
In fact,volumes were up only 2.2% and 2.7% respectively. However, the surge in cargoes to the US,and the stop-start nature of container shipping this year,has led to global issues with the availability of container ships, steep rises in spot rates, a sharp drop in the idle container fleet and, for some ships, a return to charter rates not seen since before the global financial crisis.
Charter rates for a 2,500 TEU ship have risen to USD 20,000 per day, while those for an8,500 TEU ship now stand at USD 42,000. The high charter rates reflect carriers’ strong demand for extra tonnage and their struggle to find extra ships to help ease the current situation, with red-alert conditions throughout their networks.
There is also anecdotal evidence that carriers are being forced to blank scheduled sailings–not because of a lack of cargo demand,as would usually be the case around the Chinese Lunar New Year,but because of congestion in the import ports. This means some ships are unable to make it back in time for their next scheduled sailings, and the small idle fleet means carriers cannot easily charter in extra tonnage.
Despite the continued tightness in the market and lack of space for shippers’ containers, spot rates – after their sometimes-meteoric rise – have plateaued.The price of transporting a forty-foot container from the Far East to Europe was around USD 8,500 in the middle of February, while the price for the same box to get to the US West Coast was around USD 4,000 dollars and to the East Coast USD 5,100. Many shippers are still seeing their spot market costs rising, however,as carriers use their leverage to add various surcharges to the base rate, adding up to USD 2,500 per container to the transport costs.