“We still see an enormous surge in demand that is overwhelming the shipping industry,” said Hapag-Lloyd chief executive Rolf Habben Jansen. “This has had a huge impact on spot rates, and there are still operational challenges and capacity bottlenecks.
“I don’t think we’re going to see an easing of that before the fourth quarter. It looks as if it will be a busy year.”
Congested ports remained at the heart of the problem, not only in the US but in Europe and Asia too, where a combination of surging demand, unexpected volumes and pandemic-related restrictions were causing difficulties.
“Terminals cannot run at full capacity, yet they have to deal with record volumes,” Mr Habben Jansen said during a presentation to customers. “As a consequence, ships are delayed.”
Hapag-Lloyd’s own average delay has gone up 160% to 3.9 days. This had a related impact on container availability as it took longer to get equipment back. Average usage time for containers had risen from 49 days to 58 days.
“That means we need 20% more containers to transport the same amount of goods,” he said.
The equipment shortage should normalise when schedule reliability picks up again. But realistically, schedule reliability would not get back on track until at least the third quarter, he added.
“If boxes move the way they should, there are enough containers in the world.”
The traditional slow season had failed to materialise this year with volumes staying consistently high in the first quarter and into the second quarter.
“We have a season that is comparable with what would normally be the peak,” said Mr Habben Jansen. “But the challenges we face on the port side will ease, so I’m cautiously optimistic that by the third-quarter peak seasons we will start seeing a gradual improvement.”
But with demand set to remain high — Hapag-Lloyd expects volumes to be up 5%-6% this year — freight rates will also remain elevated.
That, however, is not necessarily a good thing, according to Mr Habben Jansen, as rates for some shippers and lower cost cargoes have become prohibitive.
“That is one of the reasons we would like rates to go down, because then I think more commodities will move again,” he said. “The spot rates we see today are a temporary thing and we will get back to a more normal situation, allowing these cargo flows to come back.”
Shippers hoping to sign up to contracts in an effort to reduce rates will be disappointed, however.
“The further we get into the year, the amount of space is simply limited,” he said. “We’ve been recommending since late last year to lock in volumes. Many of done that, but that means that the remaining space today is rather limited.”
Moreover, when rates normalise they will land “a bit above” where they were in the past.
“A number of the structural cost factors have gone up, mainly around charter rates and bunkers. I still expect them to be in a double-digit percentage above where they used to be, but that is a very steep decline from where we are today.”
That will come as cold comfort to shippers witnessing yet more spot rate records being broken this week, particularly on routes to Europe.
But there is little a carrier can do to lower rates in periods of such strong demand.
“In the end it is market forces that drive these short-term rates,” Mr Habben Jansen said. “The way to get out of it is to either close longer-term contracts or otherwise wait until the craziness is out of the market.
“The prices that people offer for containers are still going up. The reality is that we are in an open market and we’ve seen many years when rates were low, when market forces also determined that.”
For now, though, the inflationary pressures that are a consequence of the large stimulus packages would keep rates elevated.
Blank sailings point to ocean space shortages well into the summer.
Analysis of container line sailing cancellations from late April to mid-June show that carriers are cancelling sailings well into the summer, according to analysis by logistics visibility specialist project44, indicating that the current undercapacity within many ocean freight markets “will remain a headache for the foreseeable future”.
Among the three major alliances, it reports that there is a significant variance in blank sailing rates, with “certain carriers like HMM skipping ports more often than not, with an average rate of 67%” in the period under analysis: from 26 April to 13 June.
On the other end of the spectrum, CMA CGM posted a 20% average blank sailing rate for the same period, leading Ocean Alliance to achieve the best schedule reliability, in terms of blank sailings.
For the 2M alliance, both Maersk and MSC posted a weekly blank sailing average of 45%, earning the lowest overall performance for any of the major alliances, project44 reported.
It noted that carriers, for their part, “are contending with a number of impediments to schedule integrity, with port congestion distorting sailing schedules as ships wait to unload. On the US West Coast, dwell times in April 2021, measured from vessel arrival until container gate-out, were lasting over a week.”
But with the figures distorted somewhat by lines attempts to recover from the blockage to the Suez Canal from late March, “one bright spot for shippers is a general reduction in blank sailing rates as schedules move closer towards late June”, project44 noted. “In addition to CMA CGM, which has a 4% blank sailing rate for the week 06/07-06/13, Evergreen’s rate for the same time period is 13%, and OOCL’s is 12%”.
With “maxed-out vessels skipping more ports”, project44 is warning shippers “to adopt proactive supply chain strategies that anticipate delays”, adding. “With more assets and cash tied up in transport, project44 advises shippers to prioritize visibility and take steps to head off supply chain breakdowns.”
Josh Brazil, VP for ocean markets at project44, commented: “Not only do blank sailings reduce the number of containers that shippers want to ship out from the affected ports, but they also disproportionately affect lower-paying shippers, with carriers favouring cargo from higher-paying customers. This dynamic could drive up shipping prices further, as competition heats up for limited preferential space on ships.”
With project44’s involvement in the ocean freight visibility market, not surprisingly Brazil highlighted the benefits of such visibility for supply chain planning within such a volatile operational environment, noting: “The challenges that shippers face simply underscore the importance of visibility. Aside from paying higher fees, there’s not much we can do to speed up a container once it’s on its way; but with real-time visibility and predictability, shippers can proactively manage their supply chain and mitigate the worst effects of rising blank sailings.”