Freight rates continue to spike as the box/ container logjam worsens. Carriers tell Drewry how they plan to help repair the system.

A new year, the same vertical take-off for container freight rates. The worsening blockage of the container shipping supply chain has propelled East-West spot rates by a further 23% after three weeks of 2020, compared to the end of 2020

Moreover, there are significantly higher rates out there when factoring in so-called premium guaranteed products that some carriers are offering to desperate customers.

To repeat one of the most over-used words of 2020, we are in unprecedented territory; it is hard to think of a time with as little visibility of the current market, or predictability of the near-term outlook as now.

None of the carriers and forwarders that Drewry has spoken with were confident enough to given a prediction on when the current crisis might end, but the consensus view was that we’re talking months rather than weeks.

“While visibility remains limited due to the many factors at play, this is a temporary situation both in terms of buying patterns and equipment and vessel availability. We expect things to normalize during H1 2021 – whether in March or May is difficult to say,” one carrier told Drewry.

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It seems likely then that cargo owners will have to endure these very high freight rates for some time, but we might see some of the more outlandish ‘premium’ rates disappear much sooner.

With long queues gathering outside major ports around the world, carriers have probably passed the sweet spot. Congestion created the demand for those premium products in the first place, but the problem has deteriorated so quickly that we might have tipped over to the point where they will struggle to deliver on promises and be forced to refund the guaranteed element of the freight rate (in at least one carriers’ case they are liable for a 200% refund).

Historically, the liner market has been very inelastic to freight rates, and while there is no evidence yet to suggest that demand has been impacted by higher transportation costs, cargo owners will soon have to consider moderating orders due to the severe delays.

This is important because it now means that carriers have a vested interest to help repair the supply chain. With competition regulators breathing down their necks, it also gives lines an opportunity to showcase their good side.

In order to avoid delays and improve port congestion, Drewry expects carriers to adjust their operations down to fit with the struggling landside operations, giving them space and time to get right. This will involve more flexible services that avoid the most congested locations.

This could potentially offer a new revenue stream to carriers to charge higher rates on unaffected services, but in general we see premium services becoming less marketable as the crisis abates.

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Additionally, the carriers we spoke listed other measures being undertaken to improve the situation include:

• Deploying all available vessels, both owned and chartered
• Significantly higher investment in new and second-hand containers
• Abandoning blank sailings related to Chinese New Year and instead use the sailings to reposition empties;
• Shifting allocation between lines and ports to match demand with equipment availability;
• Faster turn-around times for containers (release control, early returns, low empty dwell time);
• Maintain a close dialogue with authorities and unions to solve the challenge of safely replacing vessel crews and increase personnel in ports and inland terminals/warehouses.

All of the carriers surveyed were in agreement that the root cause of the current crisis is the suddenness of the demand surge that caught all stakeholders off-guard. Restocking in the US and Europe, combined with a dramatic rise in e-commerce sales (see Figure 4) at the same time as the pandemic was restricting port and warehousing personnel and trucking capacity conspired to dramatically lengthen container turnaround times.

More eCommerce trade has reduced the amount of available warehousing space and one carrier told us that they have seen more containers being used as an extended storage / ad hoc warehouse facility, contributing to the delays in box turn times.

Ultimately, there is no quick fix solution for the container supply chain. It will take all of the measures as outlined above, but perhaps most significantly it will require a respite from the demand deluge. Drewry expects the landside bottlenecks will force a level of demand self-correction, while the speed of the vaccine roll-out will also play a key role by increasing logistics personnel numbers and slow the growth in e-commerce as fewer social restrictions should push more expenditure towards services.

Source: Hellenic Shipping News