2020 supply chain challenges continue into 2021

The COVID pandemic massively impacted freight infrastructure operations, rates, vessel space and equipment availability last year and is showing little sign of ending any time soon.

Sea freight rates from Asia are at the highest levels ever seen, equipment shortages continue at virtually every origin and schedule reliability continues to be impacted by continuing port congestion.

The European Freight Forwarders Association (CLECAT) and the European Shippers’ Council (ESC) believe that the current shortage of empty containers came about because of the unprecedented number of blank sailings, up to 30% on some trades, combined with the lack of reliability with 2020 closing out with just 50% of vessels arriving on time.

In the face of mounting global criticism, the World Shipping Council, the container shipping line’s chief lobby group, told the trade press that the extraordinary situation seen in the ocean liner space was beyond anyone’s capabilities and that “No one could have planned for the type of surges that are stressing the container transportation network today, because the demand swings are unlike anything ever seen.”

The availability of container equipment availability has become the primary supply chain issue for shippers, with access to vessel space continuing to be an intermittent problem, while congestion at main EU/US ports has been the biggest issue impacting shippers and shipping lines, hitting the line’s schedules and a major factor in driving soaring freight rates.

The catalyst for the current market situation is overwhelmingly COVID, with the roots going back to 2019 and the beginning of 2020, with 4% of the global container ship fleet removed from service for retrofit of scrubbers ahead of the IMO 2020 regulations. 

The beginning 

0n the 8th December 2020 in Wuhan, Hubei province, the first COVID-19 case was officially confirmed. The city of 11 million people entered lockdown at 10am local time on the 23rd January, with residents confined to their houses and transport networks shut.

Surrounding cities and provinces soon ground to a halt, with 56 million people under effective quarantine within days.

Factories across China quickly closed and remaining closed after the New Year holidays, with demand for sea freight falling by 20-30%, as the lockdown spread globally. 

Anticipating an extended slowdown in global demand, carriers began to blank sailings, hand back leased containers and cancel orders for new equipment. Decisions that directly contributed to – and extended – the current supply chain issues.

Recovery

The first lockdowns in the EU and US began to lift from April through June, encouraging importers to start robust replenishment programmes, catching the shipping lines out and giving them confidence to restore blanked sailings and recover returned leased container equipment.

But the container equipment market quickly began to dry out as demand increased and, with production halted for six months at two of the main manufacturers in China, there had been no additional stock added globally since February.

In another complication, many container ships could not change crews during the early pandemic phase, with some crews onboard for over a year, breaching regulations and meaning ships were often idled while changeovers could be arranged. Vessels fell off schedule and were consequently located in the wrong position to meet renewed demand.

The manufacture and availability of new of containers continues to suffer from the production halt in 2020, with availability problems really coming to the fore from September.

Massive demand for PPE and hygiene products, followed by huge consumer spending on home office, DIY, sports and home entertainment created an upward demand curve that maintained momentum throughout the remainder of 2020, when every expectation had been for demand to decline.

Congestion

Disruption and delays began to build at at EU and US ports following the replenishment phase, as volumes from Asia began to increase. 

Container ports had to implement COVID-safe working practices and deep-cleaning protocols, which meant they were unable to keep terminal operations optimised and return the containers fast enough, which was a major contributory factor to the shortage of equipment in Asia.

The significant congestion at UK container ports which commenced in the Summer at Felixstowe, before filtering out to Southampton and London Gateway, continues to impact supply chain and vessel operations.

Some shipping lines continue to divert from the UK, due to port congestion, preferring to offload UK-destined cargo in continental European ports including Rotterdam, Zeebrugge, and Antwerp, but with no guaranteed timeline for those containers to feeder back to the UK, the situation requires urgent resolution.

Situation

Three or four weeks ago, locating 40’ high cube containers at primary Asia origins was near impossible and now standard 20’ boxes are increasingly in short supply.

Continuing consumer demand and restricted equipment capacity is directly affecting what some shippers are prepared to pay to ship. But even at $8,000, $9,000, or even $10,000 a container, there’s still no guarantee the lines will accept the cargo, as they are taking in the highest-paying freight only.

Towards the end of 2020 shipping lines imposed peak-season surcharges for the first time in seven years at $1,500 for a teu  and up to to $2,500 for a 40’, which increase in line with the base rates and mean that UK rates are currently higher than base European main ports, with $2,000 to $2,500 difference between rates to Rotterdam and UK ports.

Some lines are not currently willing to quote to primary UK ports, which means that the cost implication of using secondary ports like Liverpool or feedering those boxes into the UK needs to be accounted for, but many of these feeder services are already at capacity.

At this time shipping lines continue to alter schedules and divert ships, but the hope is that in the months ahead, as global vaccination programmes spread, work-practices will ease and a greater availability of work forces in warehouses and terminals in Europe and other destinations will allow the faster turnaround of vessels and repatriation of equipment.

Over 40 years we have built a global network of strategic partners and investments to protect our customers and keep their supply chains moving, whatever challenges may arise in 2021.

Our team’s knowledge and experience, together with our award winning MVT digital platform, add value, visibility and flexibility to our customers’ supply chains.