Supply Chain Archives | Page 82 of 88

Global air freight market and situation update

Aug 26, 2021 | Air, China, Coronavirus, Sea/Air, Supply Chain

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Many carriers have withdrawn their capacity agreements and are now quoting daily or weekly rates based on a spot basis only.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

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

Aug 25, 2021 | Sea, Supply Chain

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.

US landslide problems continue to grow, as shipping lines announce they are not accepting bookings requiring inland delivery

Aug 25, 2021 | Sea, Supply Chain, United States

Container imports at the US’ ten largest ports increased 14.3% year-over-year in July and ocean freight supply chains, now in their second year of extreme dislocation, are threatened by shipping lines suspension of merchant haulage.

The complete erosion of sailing schedule reliability, ships waiting longer to berth, sub-standard port operations and delays unloading containers are among the major issues facing US importers. In fact this is similar globally – but the impact in North America is much greater with the continent predominantly land locked.

Drivers who transport ocean containers in the Midwest and South Central US are quitting in alarming numbers this year because rail terminal congestion has lowered their daily productivity and pay.

Drayage operators at the Port of New York and New Jersey expect capacity to tighten even further in the coming months as cargo volumes show no signs of slowing and drivers exit the business because of the increasing hassles they face pulling containers. In addition there has been a huge surge in demand for domestic haulage, which is seen as a better long term and more rewarding career. Sound familiar?

Approximately 40% of all containerised freight flowing through the United States arrives or departs through Los Angeles and Long Beach ports. With 31 vessels at anchor recently awaiting berths at LA/LB terminals, up from 20 in mid-July and 10 in June, it is clear that the ports are still struggling to address the congestion that has plagued the west coast throughout 2021.

National and regional drayage providers in the Southeast are fully booked, with smaller truck carriers charging premiums to pull import containers from Charleston, Savannah, and Norfolk.

And now shipping lines, many of whom have already stopped supplying chassis over the last 5 years, will no longer accept bookings through to door and those that do still offer it are passing on costs if delivery cannot be arranged within free time. This is the case from both coastal ports and inland rail heads and depots. It’s a major issue.

This is a potentially devastating development, that could see some shippers face massive rent charges, as the typical free period of 5-7 days will be woefully inadequate in the face of a two to three week wait for haulage and dwell times at inland ports exceeding seven weeks.

There’s a shortage of chassis, to move containers, everywhere, reflecting a market that has been tight since at least November 2020.

Low inventories reflect the longer dwell time for a chassis on daily rental, averaging about five days more than it was last year. The longer dwell time stems from a mix of tight warehouse space leaving containers on chassis longer and truckers holding on to chassis for longer periods, with daily rentals kept for up to 20 days.

The biggest drag on haulage productivity is the increasing difficulty truckers have in returning an empty container to the same terminal where they are picking up an import load, with less than 40% of empties returning to the same location.

Once freight is routed inland, a causality dilemma (i.e. chicken-and-egg) follows with chassis scarcity and slow rail service, each causing further impairment to the other.

Add in labour ‘issues’ throughout all phases of the supply chain, most notably COVID-related absences and difficulties finding truck drivers and warehouse workers, and the supply chain storm is near perfect.

The US has been grappling with a chronic lack of drivers for years, but the shortage reached crisis levels when the pandemic sent demand for shipped goods soaring, creating a surge in early retirements, with turnover rates over 90% for large long haul carriers.

August is the beginning of the US ‘peak season’ from Asia, with many retailers advancing their shipments this year to ensure that sufficient inventory will be available during the holidays.

The number of imported TEUs in August is expected to increase 12.6% year-over-year to 2.37 million, which would surpass the record just set in May and a full-year target of 25.9 million TEUs, 17.5% higher year-over-year and another record is anticipated.

On the inland transportation side, many of the supply chain’s problems have been placed on the railroads, but they maintain that a lack of capacity in the terminals is the reason for service issues.

Issues beyond the railroads’ control, like shortages of drivers and chassis are the reasons why trains are being delayed.

Dray capacity is a particular issue, with containers stuck in stacks because the chassis needed to put them into service are not available.

In July, the Union Pacific railroad suspended international container movements from West Coast ports to Chicago for one week to allow the network time to catch up.

In short, it’s everybody’s fault, and nobody’s, because the volume surge has affected every part of the supply chain. There is no single participant – shipping line, railroads, truckers, marine terminals, or cargo owner warehouses and distribution centres – that can clear the bottlenecks and congestion singlehandedly. Every touch point of a container or kilo of cargo is effected with each impacting on the next in the supply chain.

And, along the way, as delays mount, prices rise along the supply chain. Terminal operators start charging for chassis and containers sitting too long in their facilities. Shipping lines keep raising rates and adding surcharges, like congestion fees, while transport operators start charging container storage in their yard, and add driver surcharges, to improve retention.

While congestion and/or disruption is unavoidable at many locations, we work closely with our colleagues in the US, to do everything we can to ease its impact and provide alternative solutions where necessary.

We will continue to monitor and report on this developing situation, to keep you updated as conditions change.

If you have any questions, concerns, or would like any further information regarding the situation in the United States, please don’t hesitate to contact Kevin Lake, who leads our North American operations.

Why container transit times matter

Aug 25, 2021 | Metro, Sea, Supply Chain

The circulation of container equipment and vessel schedule reliability continues to be a struggle, with our own analysis confirming that transit times from key origins increased by an average of 14 days and while some improvements have been made, we expect these to be undermined by the Yantian and Ningbo terminal closures.

Aside from the pandemic itself, there is not a single root cause for the continued supply chain disruption we are facing. The situation is an intertwined blend of port congestion, vessel shortages and schedule disruption, container equipment shortages, chassis shortages, rail shortages, and driver and truck shortages. This is a Global situation and not unique to the UK and Europe further magnifying the impact at every supply chain ‘touch point’ of a container movement in transit.

However, there is not really a shortage in the number of containers and vessels available to handle the amount of cargo in need of shipping.

The real problem is that it now takes much longer to move the cargo (and the equipment carrying it) which removes large amounts of capacity and that is what creates the shortage in the number of containers and vessels available.

Without enough capacity to move cargo in need of transport, freight rates surge as shippers decide not to risk losing the sale of the cargo against paying elevated rates to try to ensure their product arrives into market for manufacture or sale, or both.

The long list of global operational challenges in 2021 is keeping the level of available vessel and equipment supply under severe pressure, including port congestion, bad weather delays, labour disputes, shortages of truckers, Suez, Yantian, Ningbo, insufficient rail capacity, empty box shortages in key locations, and quarantine and social distancing in terminals, depots, warehouses, and for vessel crews.

All these elements combined slow down the circulation of container equipment and slow down the progress of vessels travelling from port to port.

Only about 40% of container ships arrived on time in the first quarter of 2021, with average delays stretching to more than six days, which is far behind pre-pandemic reliability levels of 70%.

Our review of four key China origins - Ningbo, Qingdao, Shanghai and Yantian - confirms that between last October and February 2020 transit times from each origin had increased by an average of 14 days and while some improvements have been made, we expect these to be undermined by the recent terminal closures at various Chinese ports and throughout Asia.

When carriers report on transit times they do so based on pier to pier, or quay to quay, performance and do not take into account vessels held at anchor, the time taken to unload the vessel and make containers available for collection, or the inland leg to final delivery.

It is also worth noting that carriers do not take into consideration omitted ports and what happens to consignments that are offloaded en-route, or transhipped as a result to the final destination.

For shippers, any lost days are critical, because they have inventory (and cash) potentially tied up for extended periods, waiting for containers to arrive, unload and progress through to delivery.

Higher freight costs and delays are particularly hard for smaller businesses, with less stock on hand, to buffer supply disruption, which is why we have worked so hard to expedite the movement of landed containers to delivery. With the average time of 7 days between container arrival and final delivery, being maintained from August 2020 to last month. However even this element of a container movement is being disrupted with the inland issues with well-publicised driver shortages over recent months.

Metro negotiate rate and volume agreements with carriers across all three alliances, which means we can access the widest pool of equipment and offer shippers the biggest range of service offerings, port-pairings and rates.

We will always keep you informed of the market situation and provide clear guidance on alternative options for critical cargo, when necessary.

Please contact Elliot Carlile or Grant Liddell to learn how we can support your supply chains, even in the most challenging market conditions.