Port congestion is still serious, and container freight will reach 23,000 USD/FEU!

Port congestion still exists, coupled with unabated demand, and the peak season is coming, container freight rates may rise further, reaching a maximum of 23,000 US dollars/FEU.

U.S. port congestion is still serious

The traditional peak season for container shipping is approaching, and serious congestion of container ships in US ports still exists. It is worth mentioning that the Port of Oakland, which was originally used to relieve the congestion crisis of the Ports of Los Angeles and Long Beach, surpassed the Twin Ports of California, Los Angeles/Long Beach, to become the latest Congestion center.

Maersk, the world's largest container shipping company, warned in a customer advisory report on Wednesday that Los Angeles and Long Beach "have an average of one to two weeks waiting for ships and remain tight." The company also said, “The situation at the Port of Oakland is even worse, where the waiting time has now been extended to about three weeks.”

The serious delays in the ports on the west coast of the United States have also had a serious impact on the on-time rate of the liner. Since ships cannot return to Asian/Chinese ports in time for loading, this means that congestion in US ports has actually reduced capacity. On the other hand, US import demand is still soaring, which will put more pressure on the already tight container shipping market.

Maersk said that so far this year, the company has lost 20% of its capacity from Asia to the West Coast, which has caused "blank voyages" in operations due to the above-mentioned reasons. The company currently predicts that from now to the end of June, its Asia-US West Coast capacity will lose 16%, and from now to the end of August, it will lose 13%. Maersk admitted: "Unfortunately, this means that Maersk may not be able to fully fulfill the initial allocation of capacity to all customers."
Consolidation analyst Lars Jessen said that as the transit time of the end-to-end supply chain from Asian factories to US ports to US inland destinations has doubled, the shortage of space and equipment on the trans-Pacific eastbound route has reached an unprecedented level. Level. For example, he said that it originally took 35 days to travel from Shanghai to Chicago, but now it takes 73 days.

For importers, this will mean longer delays and higher freight rates that may hit new highs at any time.

Peak season is coming

To make matters worse, this year's peak season is expected to be earlier than in previous years, which means that traffic congestion will further intensify. (The data is here: U.S. container cargo demand is still skyrocketing)

According to Maersk, "The peak season is expected to begin earlier this year, as retailers are preparing for a strong back-to-school season, which may merge with the peak season of the year-end holiday that usually starts in August. "Unfortunately, this will put more pressure on the already strained network and may cause further supply chain disruption. "

As of this Wednesday, there are about 10 container ships anchored in San Francisco Bay near Oakland. In the farther waters, there are 15 or more container ships floating in the Pacific Ocean.

On Wednesday this week, the waiting situation of container ships at anchorages in the interior and offshore
Since Oakland is a much smaller port, for example, Oakland's import throughput from January to April is about one-tenth of the total throughput of Los Angeles/Long Beach. Therefore, the number of ships waiting in Oakland has a different meaning from the number of Los Angeles/Long Beach.

To make matters worse, there are currently two berths temporarily suspended in Auckland. On May 14, the engine room of a container ship named NYK Delphinus owned by ONE caught fire. On May 18, the vessel was anchored in Oakland. AIS data showed that the ship was still at anchor on Wednesday. In addition, due to the need to install a quay crane, a berth at the Oakland International Container Terminal has been unusable for a long time. Fortunately, the berth will resume operations at the end of this month.

In addition, Maersk and Hapag-Lloyd both reported that Auckland is also facing a bigger problem, that is, the shortage of labor on shore. Maersk said in a customer report last week that “because the current demand cannot meet the required labor demand, the docks of most ships can only accommodate two groups of workers per ship.”

Hapag-Lloyd also informed customers on Tuesday that “a large number of imported goods and labor shortages are the biggest cause of (Auckland) continued congestion and delays in ship operations.”

Container freight may soar further

As port congestion still exists, coupled with the expected higher import volume of goods, container freight is likely to usher in another round of skyrocketing.

According to calculations by shipping consulting company Drewry, since the beginning of May, the spot freight rate from Asia to the West Coast of the United States has risen by about 4.3% to US$6,358 per FEU. In addition, since the end of April, the Xeneta index shows that the short-term freight rate of the same route has risen by nearly 13% to US$4,607 per FEU. Although the two indexes differ in the level of spot exchange rates, they both reflect a substantial increase in basic freight rates in the past month.

Consolidation analyst Lars Jensen said that next month, freight rates on eastbound trans-Pacific routes may surge again, but if ports in North America and Asia can solve the root cause of the pressure on freight rates-port congestion , Freight rates may stabilize in the third quarter.

Jensen said that the congestion at the ports of northern China and Southeast Asia, as well as the ports of Los Angeles-Long Beach and Oakland, has in fact caused container ships to be "idle" at anchorages for several weeks. Taking the on-time rate data as an example, the on-time rate of ships on the west coast of the United States increased slightly by 3.3 percentage points in March, but it was still only a pitiful 14%. According to data from sea intelligence Maritime Analysis, in March this year, the on-time rate on the east coast of the United States also dropped by 1.1 percentage points from February to 12%, which is one of the worst records ever.

Jensen said that due to the slow departure of ships from Asian ports and delays when they arrive at US ports, the capacity of ships and equipment is restricted, and cargo owners are bidding against each other to obtain space and container equipment.

In a webinar hosted by Flexport on Tuesday, Jensen said, “Due to insufficient capacity, shipper/consignor competition has forced freight rates to continue to rise.” He expects that strong consumer demand that drives U.S. imports from Asia to record levels will continue until Summer and autumn peak season.

The Drewry Freight Rate Index shows that this spring, the spot price of a 40-foot container from Shanghai to Los Angeles has been between US$5,600 and US$5,700. However, the spot freight soared to US$6,000/FEU in mid-April and reached US$6,358/FEU on Wednesday.

Anders Schulze, vice president and head of global shipping at Flexport, said: "On June 1, we will see an increase in freight rates again." Shipping companies may at least honor the overall submission to the Federal Maritime Commission. Part of the plan for freight rate increases (GRIs). Prior to this, a number of shipping companies had submitted applications for the GRI program of US$1,000 per FEU to FMC.

Previously, shipping companies seldom fully fulfilled the GRI plan, but if demand exceeds supply, as in the current eastbound trans-Pacific route, although the price per FEU has risen by US$100 to US$200, bookings in June are still quite strong. The shortage of space at the loading port is also intensifying.

An executive of a shipping company also said, "The current shipping companies are also doing their best, but there is indeed no more space."

According to Drewry, although the spot freight rate on the West Coast now exceeds US$6,000 per FEU, Schulze said that cargo owners actually paid far more than this for obtaining container equipment and space on the largest trade route in the United States. price. He said that if the various surcharges for locking containers and spaces are included, the actual freight rate of the West Coast route will eventually be around US$8,000 to 11,000 per FEU. According to Schulze, although Drewry and other freight indices show that the freight price on the East Coast is about US$8,000 per FEU, the range of 11,000-US$20,000 per FEU is the true price required to complete the cargo transportation. He believes that the East Coast freight rate can be the highest. Up to USD 23,000 per FEU.

Space is not fully guaranteed

Hayden Swofford, an independent administrator of the Pacific Northwest Asia Shippers Association, said that although some shippers believe that paying these high freight rates will guarantee them access to equipment at Asian loading ports And accommodation, but this may not be the case.

Swofford said, "The higher surcharge may only give you preferential treatment, but not a guarantee that you will get anything."

Contract freight rates are also soaring like never before

Not only the spot/spot freight rates are rising sharply, but also due to the hot spot freight market, the contract freight rates are also and will continue to rise sharply.

Xeneta data shows that in May, the container contract freight rate rose sharply by 9%, setting a record high.

According to the latest data of Long-Term XSI®, the contract freight index under Xeneta, the global benchmark index is currently 34.5% higher than that at the beginning of 2021, a year-on-year increase of about 33.5%. The index concentrates the freight rates of leading freight companies and freight forwarders. And all major routes have seen growth, with the Far East export and European import routes increasing even more (both increased by more than 50%).

Xeneta CEO Patrik Berglund said, “After years of turbulence, the shipping company is determined to seize the current opportunities and take advantage of the huge consumer demand and growing online retail through new strategic initiatives. For example, Hapag-Lloyd It is now planned to implement the US$3,000 FEU GRI on the Far East-U.S. route from mid-June. Given that the fundamentals are so favorable, they are likely to be able to achieve the plan substantially."

He said: "The lack of empty container equipment and the continuous impact of the coronavirus, coupled with unforeseen factors such as the blockage of the Suez Canal, have put tremendous pressure on the supply chain and brought the production capacity to the breaking point." This also makes the shipper. Faced with great pressure, even after signing a long-term contract, in order to be able to seize the lucrative spot freight rate, the container shipping company may also drop the container or even break the contract.

Patrik Berglund also said that due to, for example, the reduced inventory of US retailers and the growing demand, it will be difficult to see an immediate reduction in freight rates in the short term. "Of course, we are very aware that after a year of ups and downs, things may change overnight.