Market Situation - Container flows - update December

Africa

The volumes to West Africa typically go hand in hand with the oil prices. Many local, producing, oil countries benefit from the months-ongoing high pricing of crude oil, boosting their local economies. The volumes on West Africa have been strong for a longer period.

Not only the strong cargo demand is pushing rates upwards, in the past months capacity has not been re-activated to cover West Africa. The vessel sizes that usually are active in this area are still being utilized on the Transpacific-trade and Intra-Asia trade where they generate much higher revenue for the operating shipping lines.

East Africa (and connections to South Africa) is struggling with delays in the standard transshipment ports in the middle east (mainly Jebel Ali) where they are facing a big backlog of containers. Dropping containers for connecting vessels is only adding to the problem. Therefore, shipping lines are increasing the rates, even more, to cool down this market so they can evacuate idle containers.

Additional news: MSC offers 5,7 billion euro for Bolloré Africa Logistics

MSC will take over 100% of the activities of Bolloré Africa Logistics which includes all transport- and logistics-activities of the Bolloré-group in Africa. In March 2022, all checks need to be concluded to get the green light to make it official however it is unlikely that the deal will not be completed by that date.

With this takeover, MSC wants to make clear it is not their ambition to come on the turf of freight forwarders or NVO’s. They see this as a strategic investment in the local assets to get control over the port activities and an established network in Africa. The African ports are from an operational point of view by the most expensive ports in the world with many container movements in the harbor areas and delays on the vessels’ side.

With these additional 15 container terminals, soon in the control of MSC, the shipping line hopes to make these ports more efficient for their own benefit and the benefit of shippers and receivers. Their current presence gets a huge boost as they only had terminals in Togo and Cote d’Ivoire.

Asia

China remains very strict when it comes to new COVID cases and the local authorities take firm actions to prevent possible outbreaks. Reuters pointed out last week that multiple companies have suspended operations in one of the busiest manufacturing hubs in Zhejiang. On top of, tens of thousands of people are in quarantine and several domestic flights have been suspended to contain possible outbreaks in Ningbo, Shaoxing and Hangzhou for two weeks. These three cities accounted for more than 50% of the province's economic output of around 6.46 trillion yuan ($1.02 trillion) last year. Many of Zhejiang's goods are for export. The lockdown is putting exporters on edge remembering the partial port closure in the summer in Ningbo. As per our last messages, the effect on port activities will only be limited this time.

As a result of quarantine measures, same as last year, the feeder operators in South China have announced the service suspension from late December 2021 to mid-February 2022. This suspension is because the COVID-19 quarantine is required for ship crews traveling between South China and Hong Kong upon their return from the Chinese New Year 2022 holidays. Taking this situation into consideration, the shipping lines will temporarily suspend cargo acceptance to South China with final destination under the Pearl River Delta Area and Fuzhou until further notice. Shipments will still be accepted on mainline services to main ports such as Hong Kong, Yantian, or Shekou.

Please keep in mind that during the feeder operator suspension period, any additional costs and liabilities related to detention charges, terminal storage, or terminal charges incurred at the transshipment ports of Hong Kong, Shekou, or Yantian after container discharge will be for the account of the cargo owner as the shipping lines will not accommodate this.

Apart from the operational hassles, commercially the rates remain at a very high level compared to previous years, even compared to last year, according to the World Container Index of Drewry, the current East-West rates are 170% higher. Nonetheless, the high peaks of rates on the services to North Europe of close to 20.000 USD / 40’ have simmered down to levels of around 15.000 / 40’ according to the SCFI in the first half of December. To the Mediterranean ports, the rates are slightly lower (+/- 14.000).

It is to be seen what the effect will be before the Chinese New Year if we will reach higher peaks again in the spot pricing because to keep the pressure on the capacity the shipping lines are reducing their port calls on the Asia-Europe services in January. 2M has already reported that 2 of their 6 loops will serve only two ports, being Rotterdam and Bremerhaven.

A survey was done by Alphaliner clearly shows a significant decrease in the number of port calls made on this trade in the past 5 years. The shipping lines are convinced that a ‘hub and spoke’-system will help them to become more reliable in terms of sailing integrity. Not only in Asia but also in Europe the shipping lines want to prevent extra delays. The consolidation of port volumes is not only done on the Asia-Europe trade but also on the Transpacific trade.

On the transpacific, it seems we are in a similar situation as on the Asia-Europe trade. The backlog of the past months in Asia is keeping the rates at a high level although the demands are no longer on an explosive surge. The logistical issues with shortages of containers and delays in the ports in Asia, Europe, and North America however keep on crunching the overall capacity. In that light, Hapag Lloyd reports that port waiting times in Asia have gone up by 146% compared to the previous year and with the congested terminals the port efficiency is going further down. (in Europe +54% and Northern America even +300%)

Europe

Like the rest of the world, COVID keeps on putting serious stress on public and professional life. As several European countries are seriously thinking of going (again) into a strict lockdown with the closure of all non-essential stores and schools, this will have its effect again on the industries and cargo movements alike.

The Netherlands is the first EU country to re-enter a lockdown due to the new Omicron variant until at least mid-January. Germany has announced that it would ban all travelers entering the country from the UK, apart from German nationals and transit passengers. As of last Sunday, everyone entering from the UK will need to go in quarantine for 14 days. A full ban will be enforced if the Omicron variant cannot be slowed down.

We would almost forget in all the ‘COVID-turmoil’ that Brexit is still an ongoing item for the UK. The referendum on Brexit already dates back to June 2016 however it is still causing problems for the movement of cargo and people and this pandemic only complicates it all. With quarantine measures and customs rulings that are in place because no ‘overall’ agreement is being reached. The current discussion on the border in Northern Ireland is a big hurdle to take it. The UK wants goods to flow freely between Great Britain and Northern Ireland however the EU is not willing to agree on this just now.

On the Trans-Atlantic trade, the capacity to ship out of Europe (mainly Germany, Netherlands and Belgium) to the US, Canada and Mexico will be cut due to the implementation of a winter program by the 2M alliance. (More info on this can be found in the segment of North America further in this document.)

Additional news: CLECAT investigates if the actions of Maersk are not in conflict with the European law for competition

Forwarders organization CLECAT is investigating if the ways of Maersk, where they are evolving more and more towards freight forwarding activities, do not create an unleveled playing field and are causing unfair competition.

CLECAT is referring on one side to CBER (Consortia Block Exemption Regulation), where shipping lines that are a part of an alliance are allowed to share a wide range of data for operational uses. Some of this info can be considered as ‘commercially sensitive'. According to CLECAT, the current regulation must be updated to be in line with the current digitalization in the maritime industry which is not the case today. CLECAT sees these vertical integrations within the shipping companies as a possible threat.

With the three major alliances on the East-West trade in place, CLECAT points out we are in an oligopoly and we need to be careful to protect our supply chains for the future as the stability and reliability of sea connections have never been as poor as today. Nonetheless, the freight rates are surging. CLECAT asks the European Commission to protect the interests of the cargo owners and the industry and hopes to regulate the vertical integrations which are happening within the shipping lines.

Middle East / Red Sea

Kuwait has issued a decree banning the entry of commercial vessels carrying goods to and from Israel from its territorial waters as from the beginning of December. The Kuwaiti decision contrast to other parts of the Gulf as last year, Israel opened diplomatic and trading ties with old foes, Bahrain and the UAE. Followed by that decision shipping flows have grown significantly over the past year. Kuwait has been a consistent hardliner against Israel vowing it would be the last to normalize any form of relations. Last week government representatives spoke out strongly in favor of Palestinian causes at the United Nations and it was followed by the decree against shipping.

Apart from any political decisions, the major problem in the MEA area remains. The availability of empty containers to service their own export needs is still the main concern for local exporters. Although the region is not the biggest producing area in the world, it has always been a repositioning area for the shipping lines connecting empty equipment to Asia. In the past, this was an interesting ‘leg’ on which the local producers could benefit from relatively low rates to Asia. With the current pressure remaining on getting empty equipment to the Asian region, the shipping lines are not very keen on shipping to the Middle East as they want to prevent additional time losses to get their container available for the profitable Asia-Europe and Transpacific trade.

The current situation creates however a stalemate where the local industry is screaming for empty containers (even at premium rates) and the shipping lines are refusing to position containers because the rates are not ‘high enough’… To accommodate the export shipments, some ‘smaller’ shipping lines see some avail and will set up a dedicated service between South East Asia and the Middle East. China United Lines (CUL), Emirates Shipping Lines (ESL) and Global Feeder shipping (GFS) will start in late January with a weekly service connecting South East Asia, Western India and the Middle East.

North America

Winter is not coming, winter is here. Bad weather is forcing the 2M alliance to go into a ‘winter program’ on the Trans-Atlantic trade. The bad weather has disrupted the schedules for 2M partners (Maersk and MSC) so severely that they will be canceling several shipments during December up to February to get the schedules back on track.

However, all ports, a different one each week, will be transferred to the services in order to maintain the scheduled transit times. Savannah, New York, Norfolk and Charleston will all be affected. Even New Orleans and Mobile will be serviced only every 14 days instead of every week as the calling of these ports will alternate week by week.

The port of Savannah is struggling most of all ports on the US East Coast with congestion. On average 20 vessels are awaiting a berthing window. Therefore, the Ocean Alliance and THE alliance decided to skip the port entirely. The services of THE Alliance and Ocean Alliance will be diverted to Charleston or even Jacksonville. As of January, depending on the situation, Savannah will be re-activated.

The main reason to skip the port is not the average delay of 9 days to berth a ship, it is particularly because the port of Savannah has no more space to position incoming containers. To relieve the stress somewhat, the Georgia Port Authorities will deviate containers to three inland locations, the most peculiar one is a small airport in Statesboro, a 1-hour-drive West of Savannah. An unused airstrip will be used as a temporary location to store containers. The two other yards is the railway yard in Dillard in Southern Norfolk and the Hulsey Yard in Atlanta.

This is again a prime example of why we are being faced with container shortages on a global scale. Because of fewer workers in the factories or warehouses, fewer truckers and other workforces, all being absent due to COVID or quarantine measures, the entire supply chain is slowing down. The dwell- time (or idle time) of containers in Savannah has increased from 4 days up to almost 9 days for incoming containers, 8 days for export containers, and even 17 days for empty containers!

On the US West Coast, the problems are even worse compared to the East Coast. More than 100 ships are waiting for a berthing space at LA and Long Beach port. According to the latest data from the Marine Exchange of Southern California, these vessels are spread out across 1,000 miles of North American coastline, stretching deep into Mexico. The vessels are anchored, loitering, waiting for space at America’s top gateway.

Prior to the pandemic, a typical transit time for ships from Asia to North America would be around 14 days. Today some voyages are taking longer than 45 days to berth. This again is a very clear example of how this situation is soaking up enormous capacities on containers as in shipping capacity.

Last month, American authorities pushed the vessel ‘parking lot’ away from the California coast, asking ships to idle some 150 miles from the coastline. People living and working at Newport Beach, south of Los Angeles, had expressed their concerns about the air quality with all these ships just loitering around near their beaches.

Additionally, the authorities have asked for enough distance between the waiting vessels. No, not to be mistaken with the social distancing we as people need to consider but the distancing of the vessels is to prevent problems if stormy weather would reach the area. Now, they are spread out 1,000 miles including many in the relatively calm waters south off the coast of Mexico.

As another clear example of the scale of the extraordinary backup on the Pacific, the 13,000 teu Maersk Esmeraldas left the port of Xiamen and two days later she remains at anchor not far from the Chinese coastline with a scheduled arrival in Los Angeles on January 11 making for a 30 days transit time (if the berthing window is reached).

The ports of Los Angeles and Long Beach yesterday announced that the planned container excess dwell fee has been put on hold for another week until December 27th. The fine was first mooted in October but has yet to be introduced because the situation is simply not under control and the shipping lines will not accept, or be able to transfer, these types of fines in the current situation.

Latin America

The same scenario as pointed out in previous market updates remains. Mainly in Brazil the space restriction and the shortage of containers are still impacting all flows and are causing a general disruption. In terms of rates, it is ‘stable’ for the moment, but the levels are very high. The situation remains very uncertain and the shipping lines have no clear indications for the beginning of 2022. At these high rate levels, some carriers feel comfortable enough to confirm spot rates valid for 2 months. This seems obvious but this was not common in the past 1,5 years.

The key to going back to a ‘normal’ market is like in many other areas to clear the backlog of containers in the ports.

Additional news: MSC takes over Log-In Logistica in Brazil

MSC has offered to take over Log-In Logistica Intermodal SA. Log-In is specialized in cabotage containers along the Brazilian coast extending up to Argentina, the Plate area, and Uruguay. On top they have terminal operations.

This takeover is in line with the strategy of MSC to have more control on port operations (similar to the move by MSC on Bolloré Africa). The offer was already done in September this year however got final approvement today.

General

• IMO 2023 – more strict regulation

In 2023, the IMO regulations to reduce the green-house-gas-emissions of sea vessels are going into the next phase. While 2023 still seems far away, we will already be confronted with this in 2022 as shipping lines will need to prepare themselves to be ready to reach the deadline. In 2023, the limit of CO2 emissions is becoming stricter with the introduction of the Energy Efficiency Design Index (EEDI). Most of the older existing global fleet will not meet these new requirements. Especially in the bulkers and tankers segment, it is estimated that only 25% will be compliant.

The easiest way to get the energy efficiency index down is to reduce the engine power, as in slowing down the vessels. Another solution is the retrofitting to clean technologies such as batteries or scrubber systems. These technologies will have a positive effect on the EEXI however will not be sufficient on their own. Therefore, slowing down the vessels will be the only option for most of the global fleet.

These past months we have all learned (the hard way) that longer transit times, be it due to delays in the ports, new routings, bad weather and so on, mean a severe reduction of capacity both in containers as in space on the vessels. It is clear that this will have a significant impact on our already troubled industry.

Charterers are therefore hesitating to make long-term agreements lasting beyond 2023. Which increases pressure on ship owners to decrease freight rates to get deals. Odd price fluctuations in freight rates and fuel prices are to be expected as different players ‘bet on different horses’. Currently, everyone from ship owners to charterers, brokers and shipyards are feverishly trying to figure out how the new regulations will impact business. Is it time to sell, invest, or wait?

• The UN warns for the impact of high container rates on inflation

According to UNCTAD (the UN council for trade and development), the transport costs have quadrupled in the past 10 years. A container from China to the US costs today 348% more compared to prior to the pandemic. UNCTAD expresses their concern because these high prices will indefinitely impact consumer prices and will put pressure on the buying power of all consumers. The ongoing uncertainties keep the overseas transport costs at high levels and economies who are ‘import-dependent’ are faced with indexations of more than 7,5% risking these local countries to slip into a weak(er) position compared to producing areas. It is no surprise that the report mainly points out commodities such as electronics, furniture, textiles and others to most likely increase by more than 10%.

• CMA CGM pays 3 billion dollars for CLS-activities of Ingram Micro

Shipping company CMA CGM has acquired the Commerce & Lifecycle Services from Ingram Micro, a company with HQ in the US. With the integration of CEVA logistics, this combines for the fourth largest logistics group worldwide. The deal is still to be approved however this will normally be concluded in the first half of 2022. With the takeover, CMA is buying in on mainly the e-commerce and cloud-based logistics technology platforms.

• COSCO creates a logistics giant in China by merging 5 companies

The China Logistics Group is being introduced as an integrator and organization company for worldwide flows. CLG is a new government-owned consortium composed of China Railway Materials, China National Materials Storage and Transportation Group, Huamao International Freight, China Logistics and China National Packaging Corporation. With this merger, the Chinese government attempts to offer some solutions on the overall supply chain issues.

• Amazon is entering the container industry

For many years, Amazon has been building its own air cargo fleet under brand names such as Prime Air and Amazon Air. Given the current market conditions, they are also entering container logistics to be able to transport their e-commerce shipments from China.

With their own container fleet and own container vessels, Amazon is trying to act as an alternative for the currently available shipping services. Because they have this fleet ‘in-house’ they jump on opportunities to steer away from congested ports such as LA/LB. Amazon sails to smaller ports in Washington as an alternative.

Walmart, Costco, Home Depot, Ikea and Target have tried to copy this setup this year by chartering multi-purpose vessels which are built to ship wood, grains and agri-products with mixed results.

Amazon is today still a ‘small’ player in international (container) logistics, focusing on some dedicated routes from China to the US and although the big container lines have made more money this year than the ‘FAANG’ (Facebook, Amazon, Apple, Netflix and Google) the risk exists that when the FAANG is entering the international shipping industry, on a similar (aggressive) way as the shipping lines are doing with regards to ‘vertical integration', the landscape of international container shipments can change drastically. We might soon see a ‘fruit’-logo on a container vessel rather than on your tablet or cellphone.

What these FAANG companies do well is marketing. Something which the shipping lines are not really doing. At least not to the general public. Everybody was confronted with international logistics in 2021. Be it via news reports of the Ever Given, empty shelves in the stores, or your bike parts that are simply not being delivered. If a company like Amazon then reports to their receivers that they are chartering their own ships “to get round port congestion”, in our industry we think, “That’s silly, because why would they get berth priority?” and “That will be massively expensive!”. However, it is all about marketing and about painting an image that shipping lines are profiteering and driving up prices to the point where global inflation is caused by the shipping lines. At least that is the story that is being told to the general public. The real question is, are FAANG-companies paving the way to compete with the shipping lines?

As an endnote, we want to thank our customers and partners from the bottom of our hearts for their support during this turbulent period. Best wishes to you and your families for a prosperous, healthy and different 2022!

For additional questions or remarks, you can always reach out to your MPL-contact or info@manuport-logistics.be.