The shipping industry demonstrates some record breaking activity: record ocean freight rates, record poor schedule reliability and record profits for carriers. This is a situation that shows no signs of easing up and spells trouble for the busy ‘seasonal’ period ahead, says Hillebrand Group Ocean Freight Director, Emmanuel Olivier.
Record ocean freight rate increases:
In September this year, the shipping industry’s main global ocean freight indexes reported consecutive rate increases for the sixth month running. For the first time ever, the Drewry index broke the $10,000 USD price tag for a 40ft container, whilst Xeneta’s short term rates index was four times higher than in January 2020.
Record poor schedule reliability:
During July and August, on-time performance fell to a troublesome -35%. This is seen as a result of continued and extreme after effects from global port congestion and closures, a shortage of containers, vessels and space, blockages in the Suez Canal, industrial actions, bad weather and Covid-related slow-downs.
In August, only 20% of global container ships were on time (Europe Asia trade) - a record low!
Record profits for carriers:
So, while world trade is under massive strain and the supply of materials and goods unable to meet demand, container shipping lines are benefiting from everyone’s misfortune.
- Maersk published its 2021 full year EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) expectation at a jaw dropping 22-23 billion USD!
While this sounds unfair and somewhat immoral, it is actually a positive for all of us. Profit leads to investment and the shipping industry needs to further invest not only in fleet and assets, but also into the next generations of greener energies which ocean vessels will have to comply with in the years ahead. We can only hope port infrastructure and haulage receives a likewise injection of funds.
Does this mean high freight costs, surcharges and service disruption have become the norm?
Late 2019, the start of the Covid-19 outbreak, carriers pulled capacity from the seas, resulting in around 2.7 million TEUs sitting idle by May 2020. Then, in the third quarter of 2020, there was a sudden upturn in demand from the US in the third quarter 2020, initiating the current market disruption. Shipping lines seemed hesitant to redeploy, resulting in the slow introduction of idled container fleets and the unfortunate current situation.
Here are some quick figures to demonstrate:
Container demand increase:
+13% YOY September
+6% vs 2019
Nominal capacity grew:
+4% in 2021
+15% vs June 2020
It’s not news that ports around the world are struggling: the average waiting time for vessels currently exceeds seven days, while approx. 70% of global container shipping vessels are late in accordance to their planned schedules. As of October 10th, in excess of 300 vessels around the world were queuing to berth at port, of which close to sixty are in Los Angeles/Long Beach alone!
What to expect next…
Including their order book, the top eight ocean freight shipping lines, organized in 3 alliances, still control close to 85% of the World’s capacity. The injection of capacity to help the global container shortage and vessel capacity expected in 2022 looks pretty low. Lower than in 2021 in fact, and certainly lower than container demand growth expectations.
Shippers should focus on...
- Increasing inventories, anticipate and allow for longer lead times
- Anticipate reduced container free times
- Provide reliable forecasts to help with equipment needs
- Consider groupage/LCL solutions
- Consider air freight for urgent shipments