Antwerp

Unrelenting pressure on global sea freight supply chains

Sep 9, 2021 | ,

The core problems impacting containerised shipping - the slow circulation of ships and containers, port disruption and the HGV crisis - are clearly worsening, as they diminish available capacity supply and continue to drive spot rates to record levels on pretty much every lane and every combination of port pairings.

It is this loss of effective capacity when ships take longer to discharge and load at ports, and containers are not picked up or returned quick enough that contribute so much to the record spot rates we are experiencing, as well as high demurrage and detention costs, with ever-lengthening transit times.

When containers take longer to be repositioned back to origin ports, they are not available to pick up new loads, and when ships are anchored waiting for berths, they miss their scheduled departure dates, which leads to more cancelled sailings and the removal of much-needed capacity.

Vessel schedule reliability dropped 3.8% month on month to 35.6% in July, down a massive 39.7% from last year, as the average delay for late vessel arrivals continued to deteriorate.

If vessels and containers were circulating normally, many experts insist there would be no capacity problem, even with the high levels of demand we are experiencing.

As it is, many of those same experts believe we could be well into 2022 before we see the congestion begin to ease, simply because a complex system of millions of assets will take a considerable time to return to a normal circulatory flow.

The series of supply chain shocks we have already seen this year - including the Suez, Yantian and Ningbo closures - combined to slow down the circulation of containers and the progress of container ships travelling from port to port, reducing the ability of shipping lines to satisfy the sustained strong levels of customer demand.

Illustrating this fact, Hapag-Lloyd has expanded its container fleet by 12% since the onset of the pandemic and has announced an order for an additional 75,000 containers, which will expand its fleet by a total of 15%, but because the average time it takes containers to return to origin has expanded from 50 to 60 days, the increase has not resulted in an increase in effective capacity.

This asset slowdown is a global phenomenon that will not ease until volumes do, and it is the peak-season volumes, stimulus spending, and restocking of depleted inventories that makes it likely that this may not happen until after the 2022 Lunar New Year.

Port dwell time has been increasing, often because of logjams at receiving warehouses, or increasingly longer to pick up from the terminal due to scarcity of haulage capability, and there are very real fears that shipping lines may cease carrier haulage services entirely, which would put an intolerable burden, on an already overstretched merchant haulage sector.

Slower asset circulation is also siphoning significant effective capacity from vessels, with 20–25% of transpacific container capacity and 12–13% of Asia–European capacity lost to congestion and delays, which means approximately 10% of the global fleet is absorbed by congestion/delays.

The reality is that carrier ordered new build vessels, and greater significant supply to the container industry is not due to deliver until 2023, with most of the alliances and major global container operators. So unless there is a fall in demand, then the current situation looks likely to continue for the foreseeable future, into 2022 and possibly beyond.

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

For urgent and must have shipments from Asia, we have access to freighter capacity from our Sea/Air hub in Singapore and can move consignments of up to 200cbm per flight to Europe as an alternative to air freight from many origins.

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. 

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.

No sign of China air boom busting

September Update: Air cargo under serious and sustained pressure – and it has only just begun….

Sep 2, 2021 | , , , , , ,

Industry data released today shows that international demand for air cargo capacity versus a shortfall in supply pushed average global air cargo rates up 112% beyond their pre-COVID level, as lockdown in Vietnam and the closure of cargo handling terminals at Shanghai highlighted the fragility of Asia supply chains. 

Dhaka in Bangladesh is also very challenging, for a multitude of reasons, from airport construction through to carriers cancelling large amounts of their schedules. That’s without a huge outpouring and swell of demand for air cargo throughout the world’s major markets – it’s not unique to the UK and Europe.

Even before the latest disruptions in Shanghai and Vietnam, air cargo capacity was tight due to fewer international passenger flights. With restricted travel globally, on every conceivable trade lane, very full flights are elevating rates significantly on prime intercontinental trade routes.

Shanghai’s Pudong International Airport (PVG) operations have been hit by a series of COVID cases that have resulted in passenger carriers cancelling services and diverting flights to other airports. In addition crew isolation requirements on arrival and reduced airport warehouse staffing continue to have an impact on physically loading and unloading arriving cargo freighters.

Shanghai’s problems contributed to a 10% drop in volumes from China to Europe in the last two weeks of August, while westbound capacity was reduced by 18%, with spot rates increasing by 20% in the last week of August.

Disruptions to cargo operations are expected to continue for the foreseeable future and while China Eastern Airlines (who have their own ground handling) has restored some services, it remains unknown when flight schedules will normalise, with limited air cargo capacity likely to further increase spot rates.

Stringent quarantine rules mean that only 1/3 of ground handling workforce is available at any time and air crew can only fly one flight every three weeks on long haul sectors where they have to disembark on arrival. Resulting in cancellations with an impact on cargo both in and out of the region.

Some cargo and charter operations have been suspended at Shanghai, Guangzhou and Beijing due to workforce issues and If nobody can handle the aircraft, or there are not enough crew, then airlines will have to suspend their schedules, until the situation improves and rules are changed.

While we are hopeful that the situation will improve in days, or weeks, we have to consider the impact of a prolonged disruption during the main peak season. Which is yet to come and looks to be challenging with ‘distressed sea freight’ and further disruption.

The biggest shippers (BCO’s as they would be known in the ocean freight market) have been accessing charter capacity, but that option is increasingly difficult, with scarce aircraft availability and insufficient handling capability, even at inland airports.

The situation from Singapore is no less challenging, with carriers diverting capacity from Europe to US services, with yields approaching levels achieved in the earliest PPE days of the pandemic. Or to put it in perspective, very much higher than on the European routes, resulting in airlines seeing greater returns on the American markets and further restricting capacity into the UK and Europe due to the limited uplift and capacity.

In southeast Asia manufacturing delays are adding to air freight demand, as shippers try to  recoup lost lockdown time with air freight with Hanoi, Ho Chi Minh, Phnom Penh and Bangkok all facing high demand for air freight to Europe and the US.

Simply, the carriers have more demand than available capacity and are offering space to whoever pays the highest rates, mirroring the ocean freight dynamics of the last 18 months.

The air and sea freight markets from India are severely compromised, leaving many shippers to hold their shipments at their supplier’s warehouse, as the cost of freight exceeds their margin, while other importers fret about target deadline to meet their sales.

Imports into India from APAC are also disrupted with raw materials drastically delayed due to late arrival of vessels, which has increased production lead time, with late shipments being converted to air. Expectations are that this ‘peak’ could extend to mid-November.

In Bangladesh air cargo backlogs are growing daily, while in Sri Lanka there has been a sharp increase in demand out of Colombo, with Etihad cancelling its ‘Preighter’ services, Qatar pulling flights “for technical issues” and others also cutting flights. It’s not a normal environment for air freight in August as we slip into the traditional months of air freight peak.

But with demand remaining high and retailers wanting to move product as swiftly as possible, rates have rocketed over the past week, even with transit times increasing by four to five days.

The global air freight market is solid from a demand viewpoint, but the infrastructure that supports it is fragile and subject to major disruption, which simply drives rates up further. As evidenced by the closure of air cargo operations at Shanghai Pudong, the world’s third largest cargo airport, after a handful of COVID cases.

However, on the upside, Metro continue to be creative with our solutions and are always considering and operating every option of service available to satisfy and achieve deadlines based on customers’ requirements and expectations. Including the hybrid sea/air platforms through various hubs. 

Innovation and delivering solutions is what we always do on all modes. With air freight we do it quicker and are agile to assist in every eventuality, today. 

Please call Elliot Carlie or Grant Liddell NOW for further recommendations and advice. 

As much visibility and planning in September that you can provide will ensure that we can in the last quarter of the year assist in achieving a tailored and bespoke platform to deliver your product to market – at the right time when it is needed. 

Please engage now – a collaborative partnership is always how we achieve your goals.

Qatar unloading

Global air freight market and situation update

Aug 26, 2021 | , , , ,

Peak Season for air cargo traditionally arrives in the latter half of September. It’s predictable although always a pain to negotiate and ensure that product, raw materials and components are available for the busy back end of the year, including the traditional retail festive season.

This year air freight has become an essential mode earlier than usual in August. As a result of production delays during the manufacturing process, ocean freight turmoil, airport closures, productivity delays and, of course, COVID-19 impact and regional lockdowns affecting all of the aforementioned. We are seeing a surge in demand and reduction in airline capacity we are experiencing.

Over the last week alone we have experienced  Shanghai Airport – Pudong – operating at 20% capacity due to air crew restrictions resulting in flight cancellations and operational issues with whole cargo terminals shut down and staff having to isolate on a cyclical basis. Dhaka Airport is also suffering from delays, with overwhelming demand for air freight uplift, due to ocean freight failures and lockdown fallout, with the consequences being catastrophic. 

These occurrences are not unique and are being seen throughout the Indian subcontinent, southeast Asia and China, along with many other trade lanes globally, causing instability and unreliability in the critical express air freight market.

Airlines are increasing rates by the day and westbound cargo rates have increased significantly in a week. Export cargo from Europe has also been traumatised by the further reduction in capacity, with carriers having to cancel scheduled cargo flights due to air crew restrictions. 

Passenger driven demand has still not returned and the long-haul market looks unpredictable and doubtful for the rest of the year, resulting in a continued reliance on cargo-only capacity and flights, in the form of pure freighters and passenger converted aircraft. Carrying only cargo on all major routes, from Asia to global destinations. 

Many carriers have withdrawn their capacity agreements and are now quoting daily or weekly rates based on a spot basis only.

And this is in August with four months of the year to unwind and assuming/hoping there is no further disruption to ocean freight services, which seem to be occurring on a regular basis.

We continue to keep our customers and partners updated with developments, which are occurring on an almost daily basis, from and to all regions of the world in relation to air freight services, including charter operations and alternative sea/air and truck/air modes of transport.

If you have urgent and time critical movements please contact Elliot Carlile or Grant Liddell for immediate advice and a solution that will deliver based on transit versus cost. 

We anticipate a very hectic ‘peak period’, but will always share and recommend the best fit to ensure your supply chains and business continue to function.

Please contact us for the latest updates, if we have not proactively shared any specific requirements over the coming weeks and months. We are continually reviewing the platforms and initiatives that we roll out to customers, to ensure your goods are in the right place at the right time. Always.

ship and graph

Global demand isn’t booming, but shipping rates are – and why is that?

Aug 25, 2021 | ,

Despite all the hype, Maersk has calculated that global container shipping demand is only up 2.7%, leading some analysts to assert that there is no COVID-era surge in global cargo demand, but there is a massive spike in supply chain disruption, which is the primary catalyst for driving rates up.

Maersk, who’s rates are up an average of 63% versus pre-COVID levels, estimates that global container shipping demand was up only 2.7% in the second quarter versus the same period two years ago in 2019, while the Drewry World Container Index of spot rates is 6.7 times what it was two years ago.

Global demand for the first part of the year is up a few percent on 2019, but data analysts point out that we did not have a capacity problem then and we should not have a problem now, because there is no reported huge global demand boom when you look at the facts.

The FT reported in July that that the Chinese economy seems to have already slowed and the words “Europe” and “boom” have not been connected for a long time, while the UK’s GDP grew 4.8% in the 2nd quarter.

But congestion curbs effective capacity and ocean freight capacity is being heavily curtailed by this phenomena, with equipment tied up on land and at sea and vessel schedules being disrupted resulting in the ‘conveyer belt’ being broken. Basically slower vessels in the wrong place ultimately means lower supply despite increasing new builds being introduced. Paradoxically.

In normal times a container would ship from the factory in Shanghai to Europe in 32 days, now it takes up to 70 days, and then the same container has to be returned (usually empty).

Not surprisingly, the spot rental for containers from China to Europe has risen from an already high base at the beginning of the year, by almost 150% in the past couple of weeks.

Container lessor Triton International controls about 40% of the container leasing market and has seen second-quarter income increase 148% from the same quarter last year, encouraging them to order more than 1.1m TEU of new boxes to add to the 7m they already hold.

Some of the decisions made by shipping lines over the last few years have definitely exacerbated the current situation. Carriers are now ordering new boxes to mitigate a decade-long tendency to reduce their equipment inventory. Carriers ordering a new vessel used to order three boxes for every unit of capacity on the ship, they then cut that down to two and we are suffering the effects of that now.

Just recently, Maersk sent out a customer advisory pleading with customers to return equipment more quickly, stating: “We do not anticipate the congestion decreasing any time soon. On the contrary, the industry overall is forecasting higher volumes into early 2022 and beyond.”

Carriers need more tonnage as ships get stuck in congested ports, particularly in the US and Asia, with some carriers reporting that they need 25% more fleet capacity to continue carrying the same amount of cargo.

Lars Jensen, the respected consultant, estimated last month that as much as 10% of the world’s liner shipping capacity has effectively been made redundant due to port congestion issues.

The limiting factors mean that while you can transfer vessels and containers from one trade to another, you cannot relocate ports from one trade to another and it doesn’t help if the supporting infrastructure and trucks are on a trade, if they are needed on another.

And the congestion drivers just keep coming: from the anchorage situation off California, to the Suez Canal blockage, to the closure of the port in Yantian; and now the Ningbo closure.

In the background minor, and often unseen, operational mishaps have a disproportionate impact on the global situation.

Vessels are always breaking down somewhere and normally the line would charter a replacement vessel or shift the cargo to another service, but now, there are no vessels left to charter and alternative services are all booked with every container slot utilised.

So these operational mishaps simply add more cargo to the pile of cargo that can’t move. Then the carriers try to ‘repair’ the damage and delays and that in itself has a knock on effect with the intended solution and remedy!

As bad as it may seem, everything we are currently experiencing is temporary, because when congestion does finally clear, spot rates willprobably fall and while the correction could be quite rapid. It’s unlikely that freight rates will go back to anywhere near where they were pre-pandemic. But they will settle and be consistent and predictable from a planning and budgetary perspective, which is necessary for any business to operate and cost their products and services in an annual period.

It is important to note that for the shipping lines, overall global demand and short-term consumer demand on individual trade lanes (transpacific and Asia-North Europe), are two entirely different issues. The first may guide strategic decision making on fleet size, while the second generates tactical moves, like transferring vessels to more lucrative routes, to meet short-term demand, creating shortages elsewhere.

The critical takeaway from this report, is that overall global volumes have not increased significantly, so when demand diminishes, equipment and vessel availability will naturally improve and rates will soften.

We negotiate rate and volume agreements with carriers across all three alliances, which means we can react quickly to market changes and offer shippers alternative services, in line with their deadlines. 

Our fixed validity contracts provide supply chain security and peace of mind, but with space and equipment in such short supply, we recommend a minimum of four weeks visibility and booking window, to secure space on the vessel and get the right equipment positioned.

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.

Category: Supply Chain

China | Coronavirus | Sea | Supply Chain

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