As ports and hinterland transport struggle to keep up, delays at ports are soaking up capacity leading to frustration on the shippers’ side and leaving carriers struggling to keep up all the while making record profits, shipping organization BIMCO reports.
Drivers of demand and freight rates
The container shipping market has frequently appeared in the headlines over the summer as freight rates and port congestion levels continue to reach record highs. Port closures caused by COVID-19 outbreaks on the export side as well as capacity problems on the import side are all contributing to ships getting stuck in record-breaking queues and missing planned port calls by weeks.
At the end of August, over 40 container ships were waiting to berth outside the ports of Los Angeles and Long Beach alone, with 90% of those arriving at a port having to wait at anchorage before a berth became available. COVID-19 disruption at major Chinese and Vietnamese ports have also resulted in long queues of ships waiting in this part of the world. In other cases, liners actively avoid certain ports in their schedules.
The delays mean that more ships are needed to maintain scheduled sailings. Alphaliner has estimated that the number of ships on the two main east-west trades (Far East to Europe and Far East to North America) rose to 10.12m TEU on 1 July 2021, representing 41.4% of total fleet capacity and up from 34.6% a year earlier. Capacity on the Far East to Europe trade has risen 19.7% over the past year to 5.25 million TEU, while capacity on the Far East to North America trade has risen 30.6%.
Even with these extra ships, carriers are struggling to meet their scheduled departures, which leads to cancellations of sailings or port calls because the supply is not there rather than due to a lack in demand.
However, adding capacity on already congested trade lanes does little to solve the fundamental problems. The limiting factor is not capacity on board ships, but rather how many containers the ports and hinterland connections can manage, as well as storage space in temporary container yards and final destinations. Adding more ships means more revenue for carriers, but also longer waiting times outside ports and increasing capacity issues on the smaller trades where the added ships are taken from. This is clear in Africa, where capacity has fallen by 6.5% year-on-year. The large year-on-year increases in capacity can also be contributed to the sharp reduction in the idle fleet compared to July 2020.
Compared to volumes, the 30.6% increase in capacity on the Far East to North America trade is in line with a 28.3% increase in volumes on the same trade in June 2021 compared with June 2020. Volumes reached 2.0m TEU in July compared with 1.9m TEU in July 2020, which was up from 1.8m TEU in July 2019. Comparing the first 7 months of 2021 with the same period in 2020, accumulated volumes are up by 33.3% at 13.6m TEU. Compared to pre-pandemic 7M 2019, volumes are up by 26.6%.
Conversely, on the Far East to Europe trade, capacity has increased at a rate almost twice as high as volumes. Compared to July 2020, volumes are up by 13.8%, while they were up only 0.1% compared with July 2019.
In the first half of 2021, growth on the Far East to Europe trade was much more in line with that in the rest of the world than the transpacific trade. Excluding volumes on the latter, global container shipping volumes were up by 9.3% from the first seven months of 2020, but by just 3.0% from the same period in 2019. This is in line with supply growth and further proof that the current strength of the market is not caused by fundamentals but rather by congestion issues driven by strong growth on the world’s second busiest trade.
On the world’s largest trade, intra-Asia, volumes in the first seven months of the year have risen to 26.8 m TEU, an 11.3% increase from the first seven months of 2020 and up 7.8% from 2019.
Higher freight rates are the main attraction for capacity being moved from smaller trades to the main east-west lanes. On the Far East to North Europe route, base spot rates stand at USD 13,526 per FEU, with long- term rates at USD 6,544 per FEU. On the Far East to US West Coast trade, the spot and long-term rates were at USD 7,868 per FEU and USD 4,378 per TEU, respectively, on 31 August. Additionally, some shippers are paying thousands of dollars in surcharges to ensure their load gets on board a ship in time.