The year 2020 has not been a smooth sail for many in the logistics business. The avalanche of lockdowns and the slowing of trade has caused heavy losses, pushing many companies to make difficult decisions. Before the coronavirus pandemic, sea-freight was a mainly cheap and stable way of transporting cargo. However, since the multiple lockdowns in different parts of the world, the system became haywire, cropping up many unforeseeable issues. Shipping companies were affected by the pandemic, and many began to install austerity measures. When the lockdowns started to relax, and trade picked up, another concern awaited.
And the trouble began…
Many forwarders have been reporting that there is a severe container and equipment shortage at the Asian ports. The deficit is severe, particularly in the Chinese ports of Xiamen, Ningbo and Shanghai, causing many vessels to leave without a full load. Due to the ongoing peak season for retailers, there has been a limited TEU supply. A large part of the cause was the struggle of Western importers to return the empty containers to Asian manufacturing centres. This imbalance occurred due to the spike in imports in July and August after the re-opening of economies.
The situation is such that forwarders must shell out amounts that are double the usual cost to avail these containers. For example, the cost for an empty container in sea freight skyrocketed from $500 to $1,200 per container! In some cases, forwarders were reporting the price for a 40FT container to be $3,848. As outrageous prices continue to cause nightmares in the freight forwarding business, solutions to stabilise the situation have been few and far between these months. Add to this, westbound vessels, especially towards the UK, are facing unexpected delays and added costs. Though there is a similar container congestion problem in Europe, the UK is facing a unique situation as vessels are being redirected to other ports. Apart from the UK, India is another country that has been affected due to this imbalance as exporters lack containers. On the import side, due to the skirmishes at the Indo-China border, restrictions have been imposed on Chinese imports, causing a significant slump as well.
With rail freight, the situation was such that trains originating from China were full, but there was no load on the way back. At present, the regularity between Chinese hubs and European hubs has decreased to prevent trains from getting trapped in Europe, because of which the weekly operations has not been completely realised. Moreover, limited schedules are being published to narrow the booking range for FCL and LCL. As witnessed, the concerns are equally tenable for rail freight too.
The trade imbalance caused due to Covid-19 has not just caused the dislocation of containers but also forced shipping lines to limit their fleet sizes. Shippers prefer to focus on cost optimisation, whereas many trains are getting stuck in Europe due to a lack of returning cargo. Another rather curious cause of this problem is the slowdown in the leisure and travel industry, which is causing consumers to limit spending on travel. This has led to an increase in the purchase of home goods, clothing and appliance, surprising many carriers with this unprecedented peak caused by consumption patterns.
Possible solutions, if any?
Shipping companies are trying their own individual solutions to find quick fixes to these solutions. In the case of MSC, they are buying second-hand tonnage to increase their capacity. As the rates per TEU has risen drastically, MSC is expanding its fleet to compete with companies such as Maersk. Companies like Maersk, CMA CGM, Matson Navigations have been offering premium services during the surge volumes. These services provide equipment and priority loading, along with shorter transit time. However, the premium charges are steep and are unable to guarantee the equipment. Hapag Lloyd has applied an Equipment Imbalance Surcharge of 175 USD per 40FT HC for those moving westbound from the Far East.
Another way in which ports are dealing with this situation is to reduce free storage time in warehouses so that the empty containers return quickly to Asia. Shipping lines are also redirecting containers to affected parts, as a way to help out exporters. For example, Maersk is shifting containers from the Middle East to India, so that the exporters can get their hands on them.
Clearly, there are no concrete solutions that large liners can offer to the forwarders. Most have been forced to increase the prices, in an attempt to prevent losses and blank sailings. With the unavailability of trains and the pressure on airfreight, a chain reaction of this kind has also surged air freight prices due to the increasing demand. On the part of the forwarders, they are forced to push their clients to deliver early forecasts for their cargo, allowing them to book as soon as possible. Some have even shifted to look at opportunities in air freight. The chain ends at the consignee or the end buyer who ends up bearing the cost and delays. Many expect this situation to last till spring next year, around the Chinese New Year. However, at the time of writing, there is no clear view of the situation after that.