The disconnect in recovery between Asia and North America/Europe is having an unprecedented impact on the transpacific and Asia-Europe container markets.
The world’s shipping industry had a near-death experience in the early part of the year as China went into lockdown.
To its credit and to consumers’ detriment, the industry has since got a grip of the situation and turned disaster into triumph.
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Container markets see rising rates
Ocean carriers are charging skyrocketing rates. In a bid to maximize returns, they are exacerbating shippers’ woes. Carriers have been shipping empty containers back from destination markets to origin rather than carrying cargoes.
The problem, as laid out by The Load Star, is a shortage of containers rather than space on container ships. That shortage is the main driver of the unrelenting spike in freight rates.
But the situation is made worse by carriers actively working to reposition their empty equipment as quickly as possible back to Asia to take advantage of skyrocketing spot rates. Meanwhile, they do not get those rates on the U.S.-Asia direction.
This has left exporters around the world scrambling for boxes.
Indeed, one U.K.-based carrier executive reportedly admits, “We would much rather stick the empties back on the ship to Asia where we can use them straight away with premium-rate cargo than have them tied up for weeks on an export load from Europe.”
The same predicament pertains to the U.S.-Asia Pacific route.
Rates from Asia to the U.S. are reportedly eight times higher than the U.S. to Asia — $4,000 compared to just $500. The Load Star reported that last week Hapag-Lloyd became the first transpacific carrier to announce a suspension of bookings of agriculture products from North America. The decision by the German carrier, which it is feared will be followed by its peers, has caused a storm of protest from the U.S. farming community.
European container market woes
Shippers’ fortunes are not much better in Europe.
In the U.K., an Evergreen ship was told it would have to wait 10 days to unload its cargo at Felixstowe in the U.K., the BBC reported.
The UK’s problems are acute and come from a combination factors. For one, Brexit stockpiling. Secondly, pandemic-driven PPE imports. Thirdly, problems stem from shipping lines’ desperate focus on getting empty containers back out. All of these factors have combined to cause havoc at all British ports. Felixstowe’s IT problems have made that port the standout disaster story of late.
Not surprisingly, rates are rising, as that is what lines intended.
They have been spectacularly successful at doing just that. Line have achieved dramatic rate rises by manipulating the chaotic and fragmented supply and demand market – for goods and containers.
In previous crises, the lines have not shown the level of cooperation and synchronization they have this time around. That coordination has certainly helped provide a united front and helped relentless rate rises stick.
Unfortunately, there does not look to be a short-term solution.
The run-up to the festive season, although well underway, has some way to run. Recovering demand in North America and Europe will provide the landscape the lines need to keep up the pressure on rates.
Once markets achieve some level of catch-up and reach a new normal, demand may settle down. In turn, the pressure on rates and container space will ease. However, Europe isn’t expected to return to sustained pre-pandemic growth until well into 2022 or 2023.
For now, though, importers should stick with tried and trusted logistics providers to help them through the next 3-6 months.
The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.