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India exporters face more challenges

Jun 27, 2024 | , , , , , , ,

Shipping lines are imposing surcharges and raising freight rates as capacity from India to Europe, North America and The Rest of The World tightens. Indicative of why this is, can be seen with exports to the US up 13% and significant ocean network changes expected on the India-North America trade lanes.

With demand strong and vessel capacity tightening – not helped by port congestion – Indian shippers face additional surcharges to secure confirmed bookings.

Rate increases
One carrier is charging an equipment imbalance surcharge (EIS) of $300 per container, while another leading carrier is imposing an emergency space surcharge (ESS) of $500 per container from 1st July, with other carriers expected to follow suit.

This looks to be a consequence of the Far East challenges, now impacting a wider spread of manufacturing regions across Asia.

As capacity problems grow and carriers are already able to fill most vessels through to the end of July and into August, freight rates are also moving significantly higher, with one carrier imposing a hefty increase of its freight-all-kinds (FAK) rates through July, with prices likely to mirror the elevated levels seen at the beginning of the year.

The India-US trades have also seen a stream of general rate increases and peak season surcharge (PSS) announcements, ranging from $500 to $2,400 per container and with service cuts to try and support “schedule recovery” capacity will get tighter still. This is without the current week’s spot rates, which are at even higher rates into the US and Europe and still rising.

Disruption
Vessel delays have been easing at key gateways in North and Southeast Asia, including Singapore, Ningbo, Qingdao and Klang in Malaysia and equipment availability is improving, but congestion is spreading to India.

India’s largest container gateway, Mundra, is hugely congested, which is affecting quay operations and the movement of containers between CFSs and terminals, with some carriers skipping the port to enable vessels to return to Asia faster.

About 50% of Mundra’s traffic moves by rail, but backlogs for railed freight have increased from the normal 7 to 9 days to 15 to 20 days, while a new process of issuing port entry permits appears to be a major source of frustration, with truckers facing longer waits to move containers in and out terminals due to their inability to secure entry permits promptly.

India to US
India and the United States last week committed to address barriers to trade, technology and industrial cooperation, in a bid to boost bilateral trade from the current $200 billion annually, to $500 billion in the coming years.

Ocean Network Express (ONE) injected additional capacity into the India-USEC trade lane last month via a standalone loop known as WIN and given that the India to US market is forecasted to keep growing, we would expect to see more container shipping service expansions, including upsizing in different forms.

Hapag-Lloyd is withdrawing from the Indamex service that it has operated in conjunction with CMA CGM for decades and from early August is launches a standalone service (TPI) on the route, which will rotate Port Qasim (Pakistan), Nhava Sheva and Mundra, and then New York, Norfolk, Savannah and Charleston before returning to Port Qasim.

CMA CGM is launching a revamped India-USEC routing, with additional stops at Savannah and Charleston, providing a 77-day round-trip via the Cape of Good Hope.

The changes unfolding on Indian trades may be setting the scene for the Gemini Cooperation alliance between Maersk and Hapag-Lloyd, starting early next year.

CMA CGM and Hapag-Lloyd have other ongoing joint service arrangements on trades out of India, either on a vessel or slot-sharing basis and it remains to be seen if and how those services will be repositioned.

Our commercial and operations teams work closely with our partners across India and the United States, processing air, ocean and sea/air shipments.

If you have any questions, rate requests or would like any further information on our capability in either country, please EMAIL our Chief Commercial Officer, Andy Smith.

Dubai

New Silk Road will link the Gulf to Europe

Jun 27, 2024 | , , , , , , ,

Turkey, Qatar, and the UAE are joining with Iraq to develop a new land corridor – Development Road Project – which will connect the Gulf to Europe.

The Development Road Project is a multi-billion dollar land corridor that will stretch 750 miles from the Persian Gulf to the Mediterranean Sea, establishing a network with railways, roads, ports and cities, to significantly reduce travel time between Asia and Europe via Turkey.

Estimates for the costs of the Development Road Project range from $8 billion to $15 billion, and possibly up to $20 billion, which may be financed by the UAE, Qatar, or another country, with the entire project expected to be completed within five years, once the funding is secured.

In May 2023, Baghdad hosted a summit which brought together transport ministers and officials from the European Union, the World Bank, GCC, Iran, Turkey, Syria and Jordan to discuss the establishment of the Development Road initiative.

The Development Road, dubbed the “Iraqi Silk Road”, gained further attention during the G20 Summit in New Delhi last September, when the project was discussed as an alternative route to the Suez Canal, to aid faster and more efficient trade between Asia and Europe.

The project is expected to turn Iraq into a transit hub and compete with Egypt’s Suez Canal, strengthening Iraq’s geopolitical position in the region and the world, while supporting security and stability in the region.

In April 2024, a quadrilateral memorandum of understanding, regarding cooperation in the Development Road project was signed by the transportation ministers of Iraq, Turkey, Qatar and UAE, with railways and highways connecting to Iraq’s Great Faw Port, aimed to be the largest port in the Middle East.

The project is planned to be completed in three stages by 2028, 2033 and 2050 and will open Iraq to the world through Turkey. It will generate $4 billion annually and create at least 100,000 jobs.

We will keep you advised and updated as this initiative proceeds, sharing any important developments and seeking market opportunities as they materialise.

If you have any questions or concerns about the ‘new Silk Road’, or would like to discuss the potential implications and benefits of this initiative, please EMAIL our Chief Commercial Officer, Andy Smith.

US ports to offer storage while others struggle

Sea freight rates from Asia continue to spike and remain on an upward trajectory

May 30, 2024 | , , , , , , , ,

Between the start of April and last week, average spot rates from the Far East into North Europe increased by 31%, the US West Coast 30%, Mediterranean 25% and US East Coast 22%, with spot rates to Europe currently $6,000-$7,500 and analysts suggesting they may hit $10,000.

Market demand reached record levels in Q1 2024, up by 9.2% compared to Q1 2023, and coming at a time when the Red Sea situation was already putting pressure on shipping capacity, rate increases were inevitable. But it is the speed at which market turmoil has developed, that is creating nervousness in the market, with spot rates to Europe rising 6% in the last week.

Schedule reliability is still far from pre-pandemic levels, with Q1 on-time performance mooted to be just 27% which, combined with pockets of congestion, port omissions, delays and missed departures is having a massive impact on equipment availability at export hubs.

COVID-19 supply chain disruption is fresh in the memory of shippers and fearing a squeeze on capacity during the peak season many are importing more goods now. The traditional peak period, like the weather, is changing its seasons.

Much of these increased volumes are moving on the spot market, which is putting upwards pressure on rates, particularly as rising port congestion and equipment shortages are further diminishing available capacity. 

In addition, with the delays and the  impact on shipping schedules, caused through both carrier voluntary or involuntary port blankings, contract capacity is being reduced or completely removed, against agreements made earlier in the year, or at the backend of 2023. Sound familiar?

Long term rates on major trades have remained relatively flat in Q2, but with reduced space availability they are not covering the forecast allocations forcing shippers to find alternatives for the shortfall in demand for box movements. 

Short term spot and FAK rates are the only real mechanism as an alternative solution and this is currently absorbing all available container slots in the westbound Asia/ Europe trades.

Meanwhile, carriers will continue to make money from the spot market’s additional volumes ahead of the traditional peak season and that is what we have seen in the rate increases in May that look to continue, and possibly accelerate, as we enter June. 

The shipping lines are not the cause of the current situation, but there are advantages to a commodity driven model, where demand exceeds supply from their perspective.

However, the large BCO shippers are too aware that the bigger the gap gets between the spot and contract markets, the greater the risk that more of their cargo may get rolled, in favour of higher-yielding containers. This creates further demand and a willingness to pay higher rates, to ensure that product is shipped and deadlines can be met.

Even if there is capacity in the market, the fear factor can push up rates and shippers could be facing months of further elevated rates and increased delays, if higher demand continues to overtake available capacity.

However, the duration and scale of these price spikes could be less severe than those seen during the pandemic because volumes are increasing and not surging, which should mean that ports will (in time) be able to handle the higher volumes and strategies developed during the pandemic, like off-port container yards, are already in place. 

It is unlikely that this can be sustainable long term for any party or for the length of time seen during the Covid Pandemic days of lockdowns and increased consumer spending. There are other factors at play, in creating a similar environment to 2020/21 market conditions.

As we advised many weeks ago, the next large scale disruption which is beginning to really have a major effect is the lack of equipment where it is required in the manufacturing regions of Asia, due to shortages of available empty containers that are either ‘stuck’ on longer transiting vessels, or laying idle at destination (such as the Med) awaiting evacuation back to Asia. 

The impact in China is becoming very acute with a lack of available empty boxes creating bottle necks throughout the main gateways and congestion and queueing times increasing daily for vessels.

In addition, if the demand increase has been driven by an early start to the peak season, then we may expect demand-side pressure to begin easing off in a few months, although volumes and rates are likely to remain elevated for a while longer, due to the turbulence that is a consequence of the market conditions that are currently at play throughout the globe.

We will continue to update on the evolving situation, which is gathering pace due to many factors and dynamics. We do not foresee any short term rectification of the current market conditions which will undoubtedly continue to pay havoc with supply chains. 

We will always offer the best options available, being creative with the solutions that we offer – based on customer requirements – ensuring we always deliver against deadlines.

With carriers in the ‘driving seat’, they are cherry-picking which contracts to honour, rolling lower-yield containers and blanking vessels, to try and recover schedules.

With the market this challenging, there is no ’silver bullet’ and many shippers that try to play the spot market are coming unstuck.

Metro are leveraging our long-standing carrier relationships and sensible annual contracts, to guarantee our customers space and set rates.

To learn how we can enhance your ocean freight solutions, please EMAIL our Chief Commercial Officer, Andy Smith. 

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Global port congestion threat to capacity

May 30, 2024 | , , , , , , , ,

The Red Sea crisis and the much longer sailing distances triggered by the diversion around Africa’s Cape of Good Hope (COGH) soaked up existing market overcapacity, which was just enough to cope with the extended COGH transit times, provided there were no additional disruptions to maritime supply chains.

The demand spike that began in Q1 caught everyone by surprise, but while speeding up vessels may have released additional capacity, increasing port congestion has eradicated any benefit from that capacity and is exacerbating an already serious situation.

Port congestion in Asia and the Western Mediterranean has been gradually worsening for several months, but it is only now becoming plain that with zero excess capacity in the market to deal with new problems, port congestion is a critical issue.

Shanghai, Ningbo, Qingdao and Singapore are particular chokepoints, with the latter’s berthing delays reaching seven days, forcing some carriers to omit planned calls, which will exacerbate the problem at downstream ports, that will have to handle additional volumes.

The delays have also resulted in vessel bunching, which contributes further to berthing delays and operations at downstream ports.

A current example of the accumulative impact of port congestion is ONE’s vessel, the MOL Presence, operating its Japan-Straits Malaysia loop. The vessel was six days late when it called at Hong Kong on the 12th May, which increased to seven days when it reached Port Klang in Malaysia, while congestion at Singapore means it would be 10 days late calling there on the 23rd May.

In terms of sailings on the westbound trade, 128 container vessels arrived in North Europe during April against an advertised 169. That’s a 25% reduction against expectations.

Western Mediterranean ports have been handling massively increased volumes as carriers from Asia drop boxes destined for the eastern Mediterranean and while they managed Q1 throughput, they are operating close to operational capacity, which means that any continuation or increase in volumes could lead to potentially serious congestion.

Port congestion and the consequential delayed vessel schedules is also creating issues with empty container availability, as boxes become delayed in transit, resulting in lower stock availability in the regions and at ports where they are needed. This impact is escalating daily on some trades and we will continue to update as this next challenge evolves at a fast rate.

The disruptions and higher sea freight prices from Asia could push even more volumes to sea/air solutions, that offer massively faster transit times than ocean, while being far less expensive than air freight.

It is important to note that while we are seeing dramatic increases on trades out of the Far East, the export spot market remains flat and there is also little movement on the Transatlantic trade.

We work closely with our network and carrier partners to monitor port congestion and equipment availability across Asia and Europe, with contingency plans to ensure product is delivered to market, without delay, until congestion finally subsides.

To learn how we can help you avoid disruption and port congestion, or to request our regular ocean market report, please EMAIL our sea freight director, Andy Smith, who can advise on the best solutions for your ocean supply chain. 

Category: International Trade

International Trade

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