Have Asia-US, Asia-Europe container rates peaked?

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Shipping lines have understandably come in for a huge amount of criticism over a doubling of ocean freights — in many cases, much more — over the last 12 months and a host of knock-on issues around container availability and vessel space.

Shipments have been delayed both at origin in Asia and at destination in Europe and ports on the US’s West Coast, like Long Beach and Los Angeles where vessels cannot get in to discharge because of port congestion.

While some of the criticism is justified, last year lines certainly idled ships and blanked services (made already scheduled sailings unavailable), sometimes at short notice.

As the months have gone by, we can see the current situation has more to do with red-hot demand than it does the machinations of the shipping line alliances.

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Lockdowns put pressure on shipping capacity

As first China went into lockdown and then Europe and, intermittently, the US followed, H1 2020 production and shipments were pushed back into H2. As a result, that created unprecedented pressure on shipping capacity. In addition, equally unprecedented demand for PPE equipment, which soaked up already scant container space.

Combine those factors and you have a recipe for disaster.

Once containers arrived in Europe there weren’t the cargoes to rapidly turn them around for return. Containers built up and ports became more and more congested.

In short, those factors converged for the perfect storm. DP World, which manages Southampton and London Gateway ports, reported import volumes from Asia have been arriving later resulting in bunching and forcing vessels to wait for berths. Meanwhile, high stack density (>120% in December) has ships staying on berth longer.

Empty containers cannot be stored at the port. As such, they are building up in remote sites with around 20,000-plus empty twenty-foot equivalent units (TEUs) waiting at one stage.

Volumes dip in 2020

Global cargo volumes in 2020 fell only slightly last year.

Volumes in 2020 totaled 11.8 million TEUs compared to 12 million in 2019, Shipping Watch reported.

Much of that volume, however, was concentrated in the latter half of the year. That created a massive squeeze on capacity and a rapid escalation in shipping rates.

Importers’ ire will not be assuaged by the shipping lines’ current financial reports, of which Hapag-Lloyd is the first to come out this week. The company made US $3 billion in operating profit compared to $2.2 billion in 2019. Revenue grew while the number of containers shipped fell. Margins mushroomed on the back of strong demand.

In the US, the situation is worse than in Europe. A further Shipping Watch post reports the ports of Long Beach and Los Angeles have some 30-plus vessels waiting for berthing spots, equivalent to 300,000 TEUs.

Operator Flexport’s vice president for ocean freight, Nerijus Poskus, is quoted as predicting this will rise to 50 vessels in the coming weeks and will not be resolved before the early summer.

Easing congestion

Lines continue to blank or pull services. However that is so far happening less than last year. Now, the aim is to ease congestion at destination and try to reposition empty containers back out to origin. The alliance that includes Hapag-Lloyd this week announced 21 canceled sailings between Asia and North America in February. The move is ostensibly aimed at easing the congestion.

Rates eased on European routes ever so slightly in December. That opened the possibility that rate rises have peaked.

Nevertheless, for importers who have not already pushed shipment onto suppliers, beware fixing long-term cost and freight (CFR) contracts at current rates. They could stay elevated for weeks, maybe even another month or two.

But rates should ease by Q2. Long-term contracts may find themselves stranded above the tide line on what may prove to be today’s high rates.

We are not quite ready to call the peak, but we must be close.

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