Global Trade May Be Slowing, but Costs Continue to Rise

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Sea freight has to be one of the most cost-effective means of transporting goods over long distances ever invented. Even with increasing ocean freight rates, it is often the case it costs as much to ship from Calcutta to London as it does to then clear and haul the container from London to the industrial Midlands.

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But rates are on the rise, just as exporters are feeling the impact of slowing demand.

From the consumer’s (exporter or importer) point of view, lines are adding insult to injury by not only raising rates but increasing transit times.

An article in Uniserve reports that from the end of March, changes to carriers’ schedules on the Asia-North Europe route will be implemented, resulting in longer average transit times as vessel sailing speeds continue to be reduced further. The article notes new schedules will mean that the average duration of a round trip service on the corridor will reach a record high of 11.3 weeks. Since 2007, round trip durations have increased gradually from the previous average of around eight weeks.

The cause is not hard to see.

Overcapacity put shipping lines’ margins under pressure and high oil prices resulted in rising bunker fuel bills. The lines responded by adopting slower sailing speeds to save fuel. Lines also blame the war against emissions, but the International Maritime Organization’s (IMO) new low sulfur regulations won’t take effect until January 2020, so the impact last year was minimal.

However, when fully implemented it means carriers will have to reduce emissions by 85%, mostly by adopting low-sulfur fuel or fitting flue scrubbers, thereby increasing costs either way.

To some extent, lines have been the victim of their own success.

The introduction of today’s mega-ships has had an impact on transit times, as larger ships have required longer port stays to load and unload. The average size of vessels has more than doubled since 2007 – from 7,000 twenty-foot equivalent units (TEU) to above 15,000 TEU — according to Uniserve.

Capacity is also being squeezed as lines continue to remove services.

ShippingWatch reports the liner companies in Ocean Alliance have decided to cancel a total of 10 transpacific sailings in March and April due to weak development in container volumes. Specifically, the cancelations will remove 74,180 TEU from the service to the U.S. West Coast. The route to the U.S. East Coast will also result in a container volume capacity reduction of 35,620 TEU during the period, amounting to some 15% of sailings. Ocean Alliance consists of CMA CGM, Evergreen Line, Cosco Shipping and Hong Kong-based carrier OOCL.

Rates are to go up even further, according to Shipping Watch. In fact, according to analysts they have to go up further or more lines are going to fail as they become further squeezed between higher fuel costs and at best static growth.

The only silver lining for consumers is carriers’ on-time sailings have improved. However, much like airlines, the improvement still isn’t doesn’t yield a great result.

The latest report from Sea-Intelligence on carriers’ schedule reliability shows that 73.7% of the 11,379 arrivals measured in February arrived on time. That is 6.5% points better than February 2018. First place goes to Wan Hai with 88.4%, but bottom goes to Yang Ming, OOCL, Evergreen, CMA CGM and Cosco, with Yang Ming sporting the lowest number at 69.3%.

While the number of on-time arrivals has improved, the average delay for those that haven’t has increased to 4.21 days versus 4.12 days one year ago.

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It’s hard to find any good news for consumers of ocean freight services at present.

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