Steering Through Turbulence in the Full Container Market

Making the best choice for your shipment

Full container load (FCL) and less-than-containerload (LCL) are the two main modes in containerized shipping. FCL shipments use the entire container and is made up of only one product for the entire duration of the freight shipment. LCL is made up of several shipments from multiple freight forwarders which are consolidated in one shared container.

The type of goods being shipped, size and volume of the load, where it is going and how quickly it needs to arrive at final destination are key considerations in selecting the right type of move. LCL is a flexible and cost-effective option for transporting smaller shipments as shippers pay only for the volume space used. It is also suitable for less time-critical cargo. “FCL gives greater access to capacity and is typically the preferred method of transporting large-volume shipments. Shipco also offers household goods, reefer, project cargo, exempt commodity, and export/import trucking that give our clients a one-stop-shop service with full visibility through our eBusiness suite of tools on,” says Yang Shen, Vice President - Carrier Procurement & FCL – USA at Shipco.

There is no specific volume determining when FCL is less expensive than LCL since rates differ depending on the route, explains Ulrik Holck, Shipco’s Regional Manager, Carrier Relations, APAC. “Around 12-15CBM is the normal threshold when choosing to move a 20-foot container for example. Lately however, I would say it is more, due to high prices on 20’s,” notes Mr. Holck, adding that the break-point changes depending on FCL costs.

Rates trend down but remain elevated

Despite a softening of overall demand in the global market, rates are still robust due to high port congestion and constrained landside logistics and transport networks. Congestion has been tying up as much as 10% of fleet capacity during the past 18 months reports BIMCO. Clarkson’s July Containership Port Congestion Index report indicates 37.8% of containerized capacity is at port.

The risk of additional lockdowns in China, combined with high inventory levels in the West and inflationary pressures appear to be dampening ex-China ocean freight demand. Subsequently, ocean carriers are competing on price to fill slots yet rates remain profitable to ocean carriers with transport costs for shippers higher than pre-COVID levels, analysis by Drewry shows.

Drewry’s World Container Index of July 28 is -28% lower than the same week last year and-35% below the peak reached in September 2021 (see Figure 1). However, the composite index remains 89% higher than the five-year average per 40ft container. According to the Shanghai Containerized Freight Index (SCFI), containerized spot prices from Shanghai to the rest of the world is about a fifth lower than its peak in January 2022 but still more than quadruple pre-pandemic levels (see Figure 2).

Ocean carriers have widely predicted a year-over-year (y/y) decline in spot rates in the second half of 2022. Yet, several major liner operators are expecting 2022 results to be even better than 2021 because y/y spot rate declines are being offset by much higher contract rates. Lars Jensen, CEO at Vespucci Maritime says in the context of declining spot rates on major trades, it shows “a sizeable part of the market is moving on contract rates”. Drewry estimates carrier profits to surge to $300 billion in 2022.

Shortage of ships worldwide

Around one in ten containerships were non-operational in May due to delays and bottlenecks in supply chains and ports, according to Sea-Intelligence. Container ships are delayed on average 6.2 days. Consequently, there are insufficient container ships to operate all regular liner services. According to Alphaliner, fourteen deep sea liner services are missing half (or more) of the number of ships required to guarantee a fixed weekly sailing frequency (see Figure 3). The analyst notes that five loops are missing all their ships and could be called ‘temporarily suspended’.

Although alternatives in the form of extra ad hoc calls on other loops or deploying numerous ships with flexible routings have been provided, this has undermined regularity. Alphaliner reports a total of 270,100 TEU ‘extra-sailers’ are deployed between the Asia-North America corridor. The additional flexibility has been detrimental to consistency. Global schedule reliability seems to continue to follow the trend seen in 2021, withschedule reliability fluctuating within a small range but at a slightly lower base. Global schedule reliability was recorded at 40% in June.

Demand dips, schedule changes

“Currently space especially to the U.S. West Coast has opened up and you are able to book over allocation. Space to the U.S. East Coast and Gulf region is also opening up more and more. However, carriers will continue to blank sailings. The U.S. East Coast is starting to get hit with multiple blank sailings. Some services are starting to be bi-weekly, meaning there are only two sailings instead of four on the particular string,” says Mr. Holck.

Carriers are using blanking strategies to counter falling demand and “protect profitability”, reports project44. It notes the increasing trend of carriers to divert vessels to “more profitable” routes leaving some network trades as “‘ghost” services so there are no ships assigned.

Blank sailings hits hard

The blanking of sailings is disruptive, even if there is a fixed space plan with the carrier, says Mr. Holck. He explains with an example. “If there was an agreement for 10 x 40-foot containers per week, when it blanks, carriers won’t necessarily allow for the ten to be made up so that 20 containers are moved the following week. This means shippers can easily fall behind in production due to warehouse space issues. Ultimately, they could be forced to stop production if they have no more room at the factory to keep the goods,” Mr. Holck warns.

Drewry’s cancelled sailings tracker reports that across the trades of Trans-Pacific, Trans-Atlantic and Asia-North Europe & Mediterranean, 100 cancelled sailings have been announced between weeks 31 (week ending 7 August) and 35 (week ending 4 September), out of a total of 756 scheduled sailings. This represents a 13% cancellation rate on sailings. During this period, 68% of the blank sailings will be occurring in the Trans-Pacific Eastbound trade. Over the next five weeks, 2M has announced 30 cancellations, followed by THE Alliance and Ocean Alliance with 25 and 21 cancellations, respectively

Managing uncertainty

Being flexible is key to navigating challenges. “We understand the importance of flexibility and reliability in every full container move. Wherever a customers’ cargo is headed, they can choose from a range of service and routing options complete with end-to-end visibility. We are able to provide alternative routing combinations to meet with client’s transportation needs because of long-standing partnership agreements with global, medium-sized and niche carriers,” says Ms. Shen.

Mr. Holck describes flexible routing combinations which include trucking, rail, air and ocean combinations. “Through our airfreight division, we can offer Sea-Air combinations and we also offer rail connecting Asia to Europe. Within USA, we have many options to move the freight via different rail yards, should there be an issue with equipment shortage or availability through the preferred routing. For example, in Ohio, we can switch the routing to / from the Cleveland area by moving cargo via Cincinnati or Columbus if needed. This kind of flexibility might not happen when dealing directly with a carrier.”

A unique position

What differentiates Shipco from a carrier is the ability to operate as an agent to procure transportation services for the benefit of the customer, says Mr. Holck. “We can also operate as an agent on behalf of our forwarding customer, and this can be at origin or destination, if the customer does not have own representation, or is perhaps looking for other options.”

“There is one other significant advantage for forwarder customers through Shipco’s multiple carrier offerings which a single carrier cannot extend. During the peaks, we receive offers by various carriers who will have extra loader vessels calling at certain ports during the peak to clear excess cargo,” says Mr. Holck.

Navigating seasonal peaks

Referring to seasonal trends pre-COVID, Mr. Holck says, “Granted the past 1.5 years have been outside the norm, so pre-COVID, you would traditionally have some seasonal peaks such as Q4 leading up to Christmas and the month leading up to and then after Chinese New Year. The best way to secure space during these times, is to book as far in advance as possible.” Ms. Shen says FCL volumes for U.S. exports are relatively steady throughout the year. “Summer is the traditional peak with increased Household Goods traffic so securing space could be challenging. The best way is to plan shipments early, and in-gate containers on time,” she advises.

Mr. Holck cautions that on select trades, there presents a rate obstacle due to rate validity. “The actual cost at time of booking far in advance might not be available. For example, the FAK market ex Asia is only valid for two weeks at a time. You will not know what the actual cost will be by booking one month in advance, but our customer service experts are on hand to help customers navigate the challenge to find the best way forward.”

Trade imbalance and empty containers

According to Mr. Jensen, trade imbalances continue to increase and will amplify problems related to empty container repositioning. He says, “Staying with TEU*Miles as a key metric, the combined headhaul trades only declined -1.1% in May year-on-year whereas backhaul trade declined a much more substantial -7.3%. Intra-regional trades were down -2.2%.”

Yet, despite several hundred thousand containers sitting idle in North America and Europe, there have been no reports of a scarcity of containers at origin. Mr. Holck observes, “Currently, we are only seeing a small amount of equipment shortage in Asia,” but he cautions that it could easily change in the coming months. “The overall time that it is taking to get the empties back is taking much longer than what we are all wishing for, and carriers have basically stopped offering any additional free times at origin and at destination.” He says that the tightening of detention and demurrage terms is inadvertently helping limit the equipment shortage.

Drewry estimates that as many as 6 million TEU of surplus boxes now exist in the global equipment pool.

Sourcing shifts toward Southeast Asia

American and European companies are reducing their reliance on China due to mounting frustration with China’s zero-COVID policy and concerns about future lockdowns. Roughly 20% of the country, across 41 cities, is currently under some form of lockdown, according to analysis by Japanese bank Nomura. 

Over 98% of U.S. multinational firms surveyed by the American Chamber of Commerce in Shanghai in June have reported an ongoing negative impact from COVID-19 on their business. A survey by the European Chamber of Commerce in China in April found that 23% of the responding firms are considering moving current or future operations out of China because of uncertainty around the length of lockdowns and business disruption. “This as a potential early-warning indicator for shifts in the supply-chain patterns in Asia,” says Mr. Jensen. 

As the manufacturing shift heads toward Southeast Asia, Vietnam remains the preferred regional alternative to China. U.S. research company Descartes Datamyne reports that containership traffic from Asia to the U.S. climbed 4% to reach 1.72 million TEU in June 2022. Traffic from Vietnam grew by 13% compared to China’s 7%. 

Vietnam’s potential

“Demand for FCL in Vietnam has been strong since the start of the pandemic and continues to remain favorable. In a significantly disrupted market struggling with limited freight capacity, congestion and delays, Shipco has been a reliable and dependable alternative solution for local freight forwarders as they are able to move their FCL on Shipco’s contracts,” says Ms. Phuong Cu Thi, Country Manager for Shipco Vietnam.

To navigate market challenges such as vessel delays, equipment shortages and blank schedules, Shipco’s customer service experts proactively collect information while collaborating with relevant parties to find practical alternatives to resolve the challenge, Ms Phuong says. “Our team have made it a priority to familiarize ourselves with each carrier’s handling process and relevant tariff at origin and destination. We also have the knowledge on what extra expenses could arise under what circumstance and how to prevent it. We are able to guide the shipper and consignee in advance to avoid or mitigate as many as possible, potential risks and additional expenses.”

Vietnam is the only country in Southeast Asia to see growth during the pandemic. In 2020, the total value of import and export of goods grew by 5.4% over 2019. In 2021, it increased by 22.6% y/y. In the first 6 months of 2022, the total export and import turnover of goods reached US$371.17 billion, up 16.4% compared to the same period last year. Vietnam's gross domestic product expanded 7.72% y/y in Q2 2022 (April-June) as exports to the U.S. remained high.

“Vietnam remains a promising market, with a growing trend during the past few years with manufacturing companies looking to set up operations in the country. The outlook is FCL will continue to be high in the long run, and we are ready to help find the right solutions to meet the specific transportation needs of our customers,” Ms. Phuong articulates.

Meet Shipco’s Experts

Ms. Yang Shen

Vice President – Carrier Procurement & FCL – USA

Mr. Ulrik Holck

Regional Manager, Carrier Relations, APAC

Ms. Phuong Cu Thi

Country Manager, Vietnam

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