Taking advantage of current market dynamics shipping lines are trying to move the biggest shippers - retailers and manufacturers - onto two-year terms for 2022, with some container carriers trying to negotiate even longer periods, of three or even four years.

Contract rate spreads from base ports in China and other parts of Asia are in the top two quartiles of the highest spot rate levels (which is extremely high for BCO’s) with rates for 20’ containers being quoted at much higher than 50% of the 40’ price, placing a penalty on the smaller containers.

While some carriers have walked away from their contracts, pushing importers to costly spot (FAK)  and premium rates, others are looking to shift some BCO customers and logistics providers onto long term contracts, but there are questions about what dynamics the lines are looking at. Because, even with rates at all-time highs, ships full and capacity reduced by congestion and a lack of equipment, the market’s peak may have been reached. 

Rates on a few trans-Pacific trades did soften as a result of China’s Golden Week holiday, but the market has picked up again very rapidly, because backlogs continue and demand for space is still strong as consumers continue to consume and low inventory levels need replenishment.

If the power-cut enforced closures of factories in parts of China continue, it may well allow Asian, US and European ports to catch up with the processing of containers through their terminals, which will assist with the mitigation of congestion and allow shipping schedule reliability to improve. However it may just suppress demand temporarily, if manufacturers’ backlog of orders simply pile up.

It is clear that the carriers expect continued pressure on lead times and costs through to the end of next year. At a time they are making record profits, they have also been ordering new vessels (equivalent to 5m teu of new capacity) with the first deliveries coming in 2023. And with 2023 not too far away, carriers may find themselves with more capacity than demand once again.

It may be that some lines, particularly those with long-term exposures to very high charter rates, have been looking to lock-in contracts at long-term rates that will allow them to meet those obligations.

The current logjams and challenges within global supply chains will be worked through as demand settles to more realistic levels and with an order-book that now stands at around 20% of the fleet, it is very likely that some sort of discounting may begin in the market, before those vessels are delivered.

It should be noted that the majority of this new capacity will be provided by ships carrying more than 20,000 TEU and this could simply reignite much of the current global port disruption, because many ports do not have the infrastructure with cranes, equipment or capability to handle Ultra Large Container Ships (ULCS), which can be 61 metres wide, 400 metres in length and require 17 metres depth clearance.

Carriers that have secured capacity at very high rates with long contracts beyond the 2023 period, when much of the order book will be delivered, may be desperate for market share, but with the three alliances functioning so well, don’t expect it to be any of the big lines.

The leading shipping lines got through the tricky second and third quarters of 2020 much better than they had expected through cutting capacity, so even though their share prices fell the lines were in good shape financially.

Carriers have been forced to become very effective at managing their capacity and they will evolve into the post-pandemic era in a much stronger position, so while some may falter, the majority – certainly the larger lines – will maintain healthy returns.

Global supply chains are likely to be under intense and sustained pressure for some time yet, and we will continue to share with you the most important developments so that you are informed and prepared to make critical decisions ahead of potential issues. 

We negotiate rate and volume agreements with carriers across all three alliances, which means we have the freedom to react to market conditions and changes. 

Please contact Elliot Carlile or Grant Liddell to discuss your supply chain expectations and deadlines to ensure your business is ‘future proofed’ for the rest of 2021 and 2022.

With global supply chains continuing to struggle against pandemic-related congestion and disruption and traditional peak seasons being extended, or seemingly never ending, we are anticipating a pre-Chinese New Year rush in December/ January and would recommend planning supply chains well ahead for 2022. ‘Forewarned is forearmed’ as the saying goes...

Despite inventory levels sitting at their lowest ever recorded levels and cargo volumes continuing to remain strong, some container shipping lines are taking steps to “rationalise” their service coverage, by reducing the number of port calls, in an attempt to speed-up schedules and improve reliability on its Asia-North Europe loops.

And the increasing number of ship diversions in North Europe is adding to problems for exporters experiencing booking cancellations, due to the last-minute decisions by carriers to skip ports making the uplift of laden containers impossible.

The decision to omit scheduled port calls due to berthing delays, while succeeding in turning ships around in North Europe at a quicker pace, is creating a build-up of frustrated exports and cancelled empty evacuations at several ports.

Over-landed UK cargo is now stacking up at Rotterdam and Antwerp, with carriers looking at other ports, such as Zeebrugge and Wilhemshaven, to discharge UK import bound boxes, which ultimately have to be sent on an additional short sea voyage to their final destination.

Without any spare capacity to relay the containers back to the UK, carriers are turning to feeder operators, who say that even when they find ships, the chances of getting a berth to load or to discharge the boxes back in the UK are slender, and they could be sitting outside ports for several days. This is compounding issues rather than resolving them unfortunately.

Often feeders cannot get alongside, as deep-sea container ships, that had arrived after the feeder, are given berthing preference by the port and it is not unusual for it to be the same shipping line that fixed the feeder movement.

There are reports that Felixstowe, London Gateway and Tilbury are all currently refusing to accept any ad hoc feeder vessels and while landside congestion at Felixstowe is easing, some carriers have previously advised that operations were being impacted by very severe trucking shortages across the country, leading to high yard density in the ports.

It is anticipated and widely accepted that the issues we see currently within the logistics sector and the high freight rates across all modes will continue next year without much compromise until the second half – hopefully with a ‘correction’ in a very strained global shipping market leading back to some sort of sustainable normality.

Metro will always provide you with the latest market information, insights and options, so that you can be proactive in securing your supply chain. 

We always favour engagement and a collaborative partnership approach with our customers and encourage the sharing of forecasts, so that we can secure volumes and book space, well in advance. 

For further information and to discuss your ongoing requirements please contact Elliot Carlile or Grant Liddell.

Despite continuing global demand and freight rates breaking all records, vessel schedule reliability hit an all-time low in August and now ports have begun to turn away empty containers, due to the build-up of equipment that is delayed in its removal as a consequence.

Although schedule reliability has hovered between 35%-40% for most of the year, on the main ocean trade lanes, it dropped to 33.6% in August which, according to Sea-Intelligence data, is an all-time low for the 10 years it has tracked global schedule reliability.

Maersk, the best performing big carrier, is planning port omissions to improve schedule reliability, which are almost certain to include UK ports. This will create even greater delays for importers as containers destined for the UK are unloaded in ports on the Continent and require being feedered back to the final destination. Yet we hear today that Felixstowe is refusing to accept Maersk, Evergreen and CMA empties, as they have exceeded storage limits. (NOTE - We are taking immediate action to mitigate impact on our customers. See below.)

On an annualised basis, global reliability in August 2021 was -30.1% lower than August 2020, which continues the astonishing trend of yearly declines of over -30.0% in each month in 2021 so far. Bear in mind this is the global average considering all trades and there will be an even greater impact on specific shipping lanes. In addition this measure is only based on the quay to quay sector of a container movement and does not include further impact at origin or destination. If it was possible to assess and quantify the door to door comparison it is likely that 90%+ of movements have been lengthened since the pre-pandemic transit levels.

The schedule reliability decline is being shown most starkly on the Transpacific trade where performance has dropped to a staggering 9.9% (with the three alliances only averaging between 3.4% and 7.8%) the first time any of the 34 trade lanes has dropped below 10% since measurements were started 10 years ago.

The physical number of vessels deployed on liner services is a contributing factor in port congestion and the ensuing impact on schedules, with NAWC moving from an average of 1.9 vessels per week in 2019, to 5 in 202 and spiking further in 2021.

On Asia-North Europe, under normal circumstances, very few extra vessels are deployed and the initial impact of the pandemic was muted. This started to increase in 2021 and worsened due to the Suez Canal blockage, which has left ports handling more vessels than they are used to, which in turn adds to the bottleneck problems.

Unsurprisingly the average delay for late vessel arrivals also continued to deteriorate, increasing monthly by half a day to 7.57 days in August.

Maersk Line, was the most reliable top-14 carrier in August 2021, with schedule reliability of 45.6%, followed by Hamburg Süd with 38.0%. Another three carriers had schedule reliability between 30%-40%, with only three carriers recording schedule reliability of 20%-30%.

Six carriers had schedule reliability of under 20%, with Evergreen recording the lowest August 2021 schedule reliability of just 11.5%. Only HMM recorded a M/M improvement in schedule reliability, of  1.6%, while no carrier recorded a Y/Y improvement, with the smallest Y/Y decline of -24.2% recorded by Maersk Line.

To improve schedule reliability Maersk has announced its plan to adjust vessel voyage numbers on Asia-North Europe services to match the corresponding actual weeks of departure. Blaming strong demand and network disruptions for hammering their schedule reliability.

Maersk is reducing the number of port calls to improve reliability and suggest that customers will want to plan their supply chains well ahead, particularly for the upcoming peaks.

China’s October Golden Week, Christmas and Chinese New Year will drive strong demand for container shipping for the last quarter of 2021, but port congestion, especially in Asia and Europe, and service delays are expected to put even more pressure on service schedules.

It is estimated with the delays and lengthening of the transits in the supply chain this is causing the equivalent of 10-25% reduction in container capacity and equipment availability with boxes being in the wrong place at the wrong time and unable to be utilised. In addition the impact on ports in creating congestion and the consequences of vessels arriving in bunches (as has been widely reported on the west coast of the USA) this creates further delays on arrival at destination, further diminishing reliability and the conveyance of products to market.

With network utilisation likely to remain above 95% for the largest carriers, due to current high demand and the virtual withdrawal of supply, with the extended shipping times, it is likely that the lines will implement extra loaders and ad hoc port omissions to help them improve reliability.

Repositioning empty equipment is critical, and as boxes remain in Europe, USA and other regions the severity of container shortages increases across Asia, which the lines have used to justify recent reductions in arrival free time and increases in storage fees.

The decision by the Port of Felixstowe to reduce empties is profoundly disturbing and while the lines are offering alternative restitution depots, these will all likely incur additional cost.

Our transport team has arranged some short term solutions to protect our customers, but clearly the situation will delay import activity, lead to build-up of empties inland and deteriorate, if it continues into next week.

We negotiate rate and volume agreements across all three alliances, so that we can access the biggest range of schedule reliability, service offerings and rates.