A conversation with Edward Aldridge, Agility’s Ocean Freight Chief.
Shippers were hoping to see a return to normal in ocean rates, capacity, container availability, and port operations after the December holidays and Chinese New Year. That hasn’t been the case. Why?
One reason is that consumer demand remains very high. Products that people want to support life at home during the pandemic – computer monitors, fitness equipment and other goods – are going from order to factory production to export to consumer as fast as possible. There’s nothing going to replenish what’s at the warehouse or in inventory stock. Consumer spending is intense everywhere, but especially so in the United States, where we’re seeing volume throughputs at West Coast ports that are 30% higher than normal for this time of year.
You see the same thing in Europe with restaurants closed, the inability to travel, borders basically shut and other restrictions in place, even within the European Union. People are thinking, what can I order online to get me through this period?
Then there’s the ongoing container imbalance.
That’s right. The pandemic left the industry with hundreds of thousands of shipping containers out of position and unavailable to manufacturers shipping from China and other Asian exporting countries. We still have a serious imbalance. The carriers are desperate to speed containers back to Asia from other markets – container velocity is their priority. So they are eliminating “free days” – the grace period that shippers traditionally get to unload containers and return them. Shippers rely on free days, which essentially give them free storage and allow them flexibility when it comes to scheduling trucking and movements to warehouses or distribution centers. Free days in the U.S. can be five to seven days. Now we’re doing “live unloads” to get the container back immediately. You can always pay extra if you don’t have the ability to return the container right away, but the premiums are higher than shippers have ever seen before. In the Middle East, free days historically were up to 30 days. When you take that away from shippers, you get chaos.
The other issue is that carriers are so focused on meeting the demand in North America and Europe, and pushing so hard to get containers back to Asia, they have been skipping the secondary port calls on some “pendulum service” routes. That means when a ship from China calls at LA/Long Beach, it’s turning right around and going back to Asia rather than taking cargo to the west coast of Latin America. Or if it’s going to Rotterdam from Asia, it’s steaming right past Middle East ports without stopping.
We have seen a slight easing of the container shortage in China, but it’s still very severe in Southeast Asia – Vietnam and Thailand, for instance.
What about rates? They have been up at $6,000 to $7,000 per container along Trans-Pacific routes.
They actually can be that high, depending on the location. We’ve also seen spot rates of $12,000 to $13,000. That has really squeezed shippers of lower value products. The fact is we’re in a situation where there’s more cargo than there are slots on ships.
It’s quite a change for the carriers. Five to seven years ago, carriers had so much capacity and a corresponding shortage of cargo. Effectively, they were subsidizing slots on their vessels and selling space at a loss.
How will the global vaccine rollout effect ocean freight?
The vaccination rollout will affect containerized shipping and logistics. As more people are vaccinated, more will be able to travel, then will come the return of passenger flights. With that will come the addition of belly cargo capacity back into the air freight market. That will allow shippers to shift some cargo from ocean back to air – high-value goods like consumer electronics that were diverted from air to ocean when air cargo capacity got so tight. That will help take some of the pressure off of ocean rates and capacity.
Do you expect any permanent changes in ocean freight?
There is a recognition that we need to look at things like order visibility, predictive analytics on vessel scheduling, things like that. A more efficient supply chain, essentially. I’m talking from order all the way through to final delivery with a high level of flexibility for it to be efficient. Adding more containers by producing more and getting them in position, that won’t answer for an inefficient supply chain. For many years, there’s been a huge amount of emphasis on the ocean rate — what rate can I get? In the last 12 months, people have shifted their focus away from the lowest rates they can achieve. Now it’s what do I need to do to be more efficient and react to ongoing problems and supply chain challenges? It’s an understanding that, yes, the pandemic has affected the supply chain significantly, but next year it might be something else, a year after something else.
This article is shared by courtesy Agility – a leading provider of supply chain services and an investor in supply chain innovation. Read full article.