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MARITIME transport

Following the market, has seafreight lost sense of reality ?

Stabilized around 1,500 USD / 40' for nearly 15 years, the transport reference index of a container from Shanghai in China (world’s port Nb 1) to the NEMP (North European Main Ports / Rotterdam-Antwerp-Hamburg-LeHavre) recently neared the 20,000 USD mark ! Beyond this particular axis, all intercontinental trades are concerned.

The main reasons are as follow :

  • With the Covid crisis & China closing end of 2019 / beginning of 2020, shipping lines accelerated capacities’ withdrawal: cargos were given back to their owners or sent to destruction, also to cope with environmental duties.
  • With recovery post-Covid which sped end of 2020 & mostly in 2021, there has been a double impact, with space on cargos all the more weak than demand exploded : all the business that was not shipped in 2020 is now happening and reinforcing the market saturation effect.
  • China, the world's biggest factory for many years, has strengthened its position with the sanitary crisis, as it has restarted before the others.
  • Likewise, USA restarted before Europe, and seafreight rates are even higher than in the old-continent : the transpacific Asia / US West Coast axis (world trade Nb 1) is privileged, which reinforces the imbalance of intercontinental flows.
  • Episodic events, such as the Suez Canal blockage by a container ship for a few days and stopping 12% of world trade, or the transitory lockdowns of some key Asian ports (Yantian, Singapore or Ningbo, for example), as much as the recent dramatic events in the Benelux countries due to bad weather, are creating bottlenecks with disastrous consequences in the long term on the flows’ management.

Everyone - liners, forwarders, shippers and consumers - can already see the consequences :

  • Downgrade in the quality of service: cargos’ schedules less respected, frequent call cancellations and mostly inability to load while prices have been multiplied by almost 15!
  • Numerous port congestions bring historical delays (but who, between the terminals and the cargos, are late ?!), perturbating interland logistics (both export & import).
  • Containers are spread & not necessarily available where needs are. US West Coast situation is a good example, as it has been absorbing and blocking a big part of worldwide containers for the past few months.
  • Communication downgrading: overwhelmed shipping lines’ customer services, remote working’s limits and increasingly random team availability (despite substantial efforts), lengthening of response time for quotation requests, and, for some shipping lines, generalization of call centers thus sacrificing their commercial relationship and the immediate efficiency to find the best solutions.
  • Breakdown of supply chains in companies and stores, and soaring prices of raw materials and capital goods… when they are still available.
  • For the first time ever, air transport is sometimes cheaper than sea transport!

What is the outlook ?

  • It is obvious that the reference index of 1,500 USD / 40’ out of Shanghai mentioned hereabove was way under shipping lines’ cost price. Nevertheless, the right price today is definitely not around 20,000 USD either.
  • 3 months ago, there was no sign of an easing before CNY (Chinese New Year). Since then, eventhough we might have reached a peak, most experts do agree with saying that current situation will extend into the whole of 2022!
  • And for 2023, the gap between the expected capacities' increase (+2.8%) & the scheduled maritime traffic increase (+5%) doesn’t plead for an improvement during 1st semestry.
  • In recent months, ship-owners have placed large orders towards shipyards (and new containers too), often - and this is to be welcomed - with a lower environmental impact, thanks in particular to LNG. But these ships will not arrive on the market before 2023 or 2024.
  • Will shipping lines’ strategy of cargos getting bigger & bigger continue ? If infrastructures & manpower follow, it can contribute to massive savings as well as carbon reductions.
  • More important is the brainstorming regarding industrial relocation in France and Europe. In the medium term, it could contribute to partially balance flows, but it won’t be easy : labor cost remains high, and, in the industry, one or even two generations of workers who have retired have not had the chance to train their successors. Although highly desirable, the reindustrialization process, if it takes place, will undoubtedly be slow.

Due to this observation, future solutions are not yet clearly stated. New ideas come through : anticipation & better reading of customers’ volumes / long-term contracts with higher rates to secure both service & cost / Shipping Act & US Biden administration support / political actions in Europe too towards the European Union.

A real in-depth reflection is necessary to perhaps consider tomorrow’s maritime transport in a different way.

So tell us, what are your thoughts?

#seafreight #freightforwarding #shippinglines #shippers #consumers