Asia containers market is expected to face a perfect storm of peak demand, equipment shortfall and port congestion in the second half of 2021.
The equipment shortfall, which began in June last year, may not only continue till the end of the year but is also likely to spill over into 2022. The demand is expected to remain high, particularly due to strong exports to the US and Europe, sources said.
“Traditionally, the demand peaks during July and August as retailers rush in to build inventories before the Chinese Golden Week Holiday in October. As the carriers void a lot of sailings during October, the latter half of the month goes in clearing the backlog and in November we again see a spike in export orders as the Christmas and New Year Holiday get closer,” Dave Li, manager, T.H.I Logistics, Chongqing branch said.
A major part of demand could be attributed to shift in spending to products from services in the wake of coronavirus-related lockdowns.
Even though the economy in the US is gradually opening up, the demand for physical goods is still very strong, according to Peter Sundara, vice president, Global Ocean Product-Global Freight Management, LF Logistics.
“I think we are already at peak … The outlook is very strong, at least until Q1 next year. Having said that, with aftermath of Suez Canal blockage and now with Yantian port congestion, carriers were voiding sailings to get back on the schedule. We believe that at the end of July, the schedule could be back on track but this depends on how soon port congestion eases,” Sundara said.
The companies were trying to augment their inventory, but combined with record sales and congestion, they were unable to move fast enough, a US-based inland logistics manager said.
“With force majeures appearing one after another (now Shenzhen), the only prediction one can make is continued chaos meaning freight rates will keep climbing north,” Nick Coverdale, founder, Agreefreight said.
Congestion at Yantian port
Yantian port in Shenzhen reported congestion, with sources saying that the impact may be larger than anticipated and may leave lingering effects on other key ports across Asia.
The operations at Yantian port came to a halt in the last week of May after coronavirus cases resurfaced among the port workers. Amid the stringent preventive measures, major carriers have omitted more than 100 ships calls at the port.
“Yantian port can now handle 500 boxes a day compared to nearly 30,000 boxes before. This is a big issue because Yantian is a major market in China. The vessels can’t call Shekou or Nansha because these ports don’t carry the capacity to handle such volumes, so, carriers are looking at having more calls in Hong Kong or additional calls in Shanghai or even have an additional call in Xiamen or some other ports,” a logistics provider based in Hong Kong said.
Diverting calls will impair other ports’ efficiency, resulting in more congestion issues, according to a source based in Singapore.
Even the situation on the back-haul was not helping the matters as congestion persisted both in Europe and the US. The vaccination is going smooth and the port staff is returning to work, yet the congestion is severe, sources said.
“If you look at the West Coast now, it takes 6-7 days to clear. In Europe, Hamburg is congested, Rotterdam is congested. Some carriers are not even calling Hamburg, they omit Hamburg, they go to different ports. So, all those boxes lying in these major locations couldn’t come back and to add to that, the blank sailings are happening in Europe, you don’t have a weekly schedule to go and pick these empties back,” Sundara said.
Voluntary Rate Increases
Amid the shortage, some customers are coming forward to voluntarily offer more money than the others to get a secure space and timely loading, a logistics provider based in Hong Kong said. “We are calling it Voluntary Rate Increases, or VRS.”
This was underscored by carriers announcing port omissions at the last minute only to come back later with less capacity.
“By the time, the vessel is half-laden with restricted capacity. The customers have no other option but to offer whatever it takes to get their cargo loaded. This is pushing the premiums higher,” a freight-forwarder based in Singapore said.
The premium rates for North Asia to East Coast North America were heard around $12,000-$14,000 per forty-foot equivalent unit, or FEU, as of June 16, and for West Coast, around $9,000-$10,000 per FEU.
The Freight All Kind rates for the same routes were also at record highs.
On June 15, Platts Container Rate5 — North Asia to East Coast North America — was assessed at $6,800 per FEU. PCR11 — North Asia to UK — was assessed at $18,000/FEU, up $3,500 from a month ago.