International Freight for Heavy Industry
It’s no surprise that COVID-19 has had a monumental impact on many international industries. For an international shipping industry, already dealing with the concurrent challenges of a global container shortage, huge increases in shipping rates and historically low on-time performance rates, the recent Suez Canal blockage came as an untimely kick in the guts.
International traders are incurring substantially higher costs, in many cases facing increases of 1,000% or more. At the same time, the shipping reliability rate is at an all-time low. For the month of March 2021, less than 35% of international shipments arrived on time. How did things get so bad?
The COVID-19 pandemic resulted in manufacturing shutdowns, massive job losses and stuttering economies, which meant a steep and unexpected reduction in trade – both imports and exports. Container producers reacting to the fall in demand were taken by surprise in the second half of 2020, when pandemic-related cargoes diverted some 25 million containers off their normal routes.
The virus lockdowns triggered a fundamental shift in consumer spending in 2020. Consumers turning to online shopping with consumers using international travel and service expenses for goods instead.
The significant trade imbalances between countries has created severe container shortages in some places, and major surpluses in others. For example, container yards in Australia are no overflowing, to the extent that importers are unable to dehire unpacked containers, while exporters in China are struggling to get containers for their export shipments.
An unprecedented increase in spot rates is attributed to blank sailings coupled with the container shortage and a rebound in demand for goods, especially from China.
The dominos continue to fall with the former causing the global shipping performance rate to lower to as low as 35%, meaning only a little over one third of all shipments (globally) actually left on time and arrived on time. The last six months of 2020 saw a 64% increase in delays for vessels arriving in European ports, and Asian ports performed a further 54% worse than European ports.
So, why are we paying higher freight rates for poorer schedule reliability? Schedule reliability has worsened in 2020 while freight rates have increased dramatically, leading shippers to pay more for less value. On average, 48% of ships are more than 12 hours late due to disruptions along its voyage. Multiple external factors can disrupt a ship on its voyage, such as adverse weather, port strikes, mechanical issues and vessel customs or biosecurity clearances, to name a few.
The pandemic only exacerbated the inefficiencies of shipping – with country lockdowns and more stringent border clearance contributing to lower schedule reliably. Staggered working hours in the port, as part of measures to curb the pandemic, mean fewer staff are allowed to work in ports at any one time, lowering the productivity of each hour in port.
You could say the last thing the global shipping industry needed was for one of the most crucial canals to have a blockage. The Suez Canal handles about 12% of global trade and is a vital channel linking Asia and Europe, as well as being a major conduit for oil. The MV Ever Given is one of the newest container ships in the world, with the capacity to carry 20,124 shipping containers on board.
The prolonged closure of the key route between west and east only made matters much, much worse – costly delays or diversions to longer routes heaped pressure on businesses that are already struggling with container shortages, port congestion and capacity constraints. This blockage of the Suez Canal is estimated to have cost the global economy $13 billion.
In the month since the MV Ever Given was freed, an average of 70.7 ships have transited the Suez Canal each day – that’s 34% more than usual. Despite that, the backlog has not completely cleared. Some vessels are having to wait an extra day to access the canal. An extra day before crossing the canal, plus the impact the 34% increase in vessels crossing, has an on flow effect on the ports of call beyond the Suez, adding to port congestion and further impacting shipment reliability.
Furthermore, the blockage pushed some shippers to air to expedite delivery, resulting in an increase in air cargo volumes of an already overstretched industry.
Along with significant increases in the air we are also seeing record-breaking container volumes in the US – specifically at the Port of Long Beach. The Long Beach port authority said its terminals handled 840,387 TEUs in March, which is normally one of the slowest months for maritime trade. This is just the third time in 110 years that the port has processed more than 800,000 shipping units.
For the time being, the global shipping scene can expect more of the same. Liner services are full. Container bookings are being taken “subject to space availability at the time of sailing”. Larger freight forwarders specialising in container shipping are chartering break bulk vessels to clear backlogs. This increased demand for space is naturally making any available space harder to secure, and more expensive so the cost of chartering multi-purpose and heavy lift break bulk tonnage is also on the increase. RORO carriers are coping with increased purchases of motor vehicles, recreational vehicles, pick-up trucks and boats, resulting from the COVID-19 shift from international travel to domestic holidays, and an increased number of people seeking remote and self-sufficient accommodation, rather than big city hotels.
For now, the best we can do is closely monitor the market in order to understand what is happening, and what is likely to happen, in different trades. When sourcing shipping costs, it’s imperative to check with carriers to determine which ones have space, whether they will commit to a firm booking, and how reliable they are in terms of current on-time reliability. Is the service direct or does it require transhipment? What is the current situation at the transhipment port, in terms of congestion and backlogs?
For the out-of-gauge cargoes typically transported by Freightplus, the availability of special equipment (open tops, flat racks, bolsters, etc.) is also an essential consideration. Quotes that might usually take sixty minutes to put together, can now take days because the process involves thorough scrutinisation of every carrier in a specific trade, to determine suitability for each specific shipment. Is the appropriate equipment available? Is space assured? Is the carrier schedule reliable? Are they dropping port calls from their schedules to avoid congested ports? What is the most up to date rate for the shipment? How long will this rate be valid? With shipping company staff already stretched, it can take days to collate all the information needed to present a quote that can be replied upon.
For more detailed information or advice about specific cargo or destinations, talk to your usual Freightplus contact or send your enquiry to email@example.com for a quick reply.