Empty Containers Stuck in the Port of Rotterdam may Worsen Asia's Container Shortage

Empty containers needed by Asian exporters are getting stuck in the Port of Rotterdam as a growing backlog of undelivered goods at the European hub forces shipping lines to prioritize loading full containers. The Dutch port has been swamped by both goods and empty boxes offloaded from other European maritime operations which has coincided with a drop in the number of ships sailing from Europe to China after Shanghai authorities locked down the city in March. 

“Terminals are allowing shipping carriers only a limited capacity for empty boxes and are focusing on transporting loaded containers,” one global freight forwarder said, “Containers are piling up at the terminals, and more and more containers cannot be returned on departures, including those to Asia.”

Although authorities in Shanghai lifted restrictions this month, shortages of vessels and delays at European ports are forcing export goods to compete with empty boxes for space on ships headed to China, threatening to fuel another wave of disruption to Asia, logistics firms said.

Factories in China will require empty boxes to make up for lost orders during the past few months and will be hampered by the shortage of ships and equipment. The volume of trucked container goods into Shanghai from nearby provinces in China has recovered to 71% of levels seen on March 12, according to data from FourKites. Meanwhile, trucking shortages and industrial action in the U.S. and Europe are holding up deliveries.

Supply chains have been struggling to recover from China’s COVID-zero policy and Russia’s invasion of Ukraine, which has led to companies shunning the over-land railway that could have otherwise relieved pressure on logjammed ports. 

The situation has meant longer waiting times for vessels at all major North European ports. About 60% of the vessels traveling from Europe to Asia in April and May of this year were delayed, and there were 13 ships waiting for a berth in Rotterdam as of June 17, the global forwarder said.

Source: American Journal of Transportation

Falling Container Spot Rates Puts Pressure on Trans-Pacific, Asia-Europe Contracts

Ocean carriers holding profitable long-term rate agreements with their customers could soon be under pressure as spot market prices fall below contracted levels on the Trans-Pacific and the rate gap narrows on the Asia-Europe trade.

The average contracted rate on the Trans-Pacific has been below the spot market since June 1. Spot rates have fallen 11% so far this year, according to Xeneta, and narrowing the rate differential (See Figure 1).

Asia-North Europe average spot rates have fallen close to 30% since January and is just $450 above the long-term contracted rates which have risen 12% this year. With weakening demand from European economies coming amid fast-growing inflation and a cost-of-living crisis, it is a matter of time before the spot market drops below contract rates.

Bjorn Vang Jensen, vice president of global supply chain advisory services at Sea-Intelligence Maritime Analysis, said different market dynamics were driving rate movements on the Trans-Pacific compared with the Asia-Europe trade. He said Trans-Pacific spot rates were unlikely to remain below contract rates for a sustained period. “Yes, there will be blips, but not a trend, and if demand from retailers falls, manufacturers starved of inventory will pick it back up, and the peak season is getting into full swing as well.” 

Jensen said it was a different picture in Europe where demand has dropped off faster than in the U.S., leading to a substantial downward shift in rates out of Asia to both the Northwest continent and the Mediterranean. The general consensus is that if spot rates on Asia-Europe fall below agreed long-term rate levels, shippers will certainly try to renegotiate their contracts.

Jensen said it was a different picture in Europe where demand has dropped off faster than in the U.S., leading to a substantial downward shift in rates out of Asia to both the Northwest continent and the Mediterranean. The general consensus is that if spot rates on Asia-Europe fall below agreed long-term rate levels, shippers will certainly try to renegotiate their contracts.

Source: Journal of Commerce

Second Best Year for Air Cargo Market Despite Softening

Air cargo revenues have doubled over pre-pandemic levels, marking 2022 as one of the industry’s strongest years ever the International Air Transport Association (IATA) said. Air cargo is expected to continue supporting the industry’s performance. Volumes are projected to rise this year even as cargo yield moderates with the additional belly capacity from passenger aircraft returning to service. 

IATA Director General Willie Walsh said in opening remarks to the group annual general meeting in Doha, Qatar, “Cargo is performing well against a backdrop of growing economic uncertainty.” Cargo revenues are expected to tally $191 billion, a 6.4% reduction from 2021’s peak of $204 billion and nearly twice the $100 billion achieved in 2019. Airfreight will account for 24.4% of total passenger and cargo airline sales, IATA estimated. With passenger traffic decimated by the pandemic, cargo represented 36.2% and 40.3% of airline revenues in 2020 and 2021, respectively, compared to about 12% in the preceding four years (see Figure 1).

Airlines are projected to carry more than 75 million tons this year, which would represent a record high even as growth has flattened on a seasonally adjusted basis. IATA is projecting air cargo volumes to be 11.7% above the pre-pandemic level following 2021 growth of 6.9% versus 2019.

Global merchandise trade growth is expected to moderate to 3% this year, according to the World Trade Organization. IATA forecasts the value of international trade shipped by air this year to be about $8.2 trillion, up from $7.5 trillion in 2021, as inflation increases the cost of goods. 

Marie Owens Thomsen, IATA’s chief economist, last month estimated a 20% chance for a recession next year but said economic activity and air cargo would still be relatively solid in 2022. Softer market conditions are expected to knock down cargo yields by 10.4% from last year, IATA predicted. That is a small retreat for per-unit profits but doesn’t undo the increases of 52.5% in 2020 and 24.2% in 2021. Yields are being propped up by strong shipping demand combined with 5% to 10% less cargo capacity, and airline surcharges for recovering extra fuel expenses.

The guidance suggests the air cargo market is poised for a very strong third quarter that makes up for the slow start to the year. IATA’s projections are matching up with with feedback from air logistics providers that say they expect an early peak season this year as companies rush to expedite delivery of shipments that were backlogged in China because of quarantine edicts that limited factory, port and airport operations in major cities. 

Source: American Shipper

Expectations for a Busy Summer: U.S. Trucking

Jonathan Gold, National Retail Federation (NRF) vice president for supply chain and customs policy, said retailers are getting an early head start on the back-to-school season. “We’re in for a busy summer at the ports. Back-to-school supplies are already arriving, and holiday merchandise will be right behind them. And the big wild card is what will happen with West Coast labor negotiations with the current contract set to expire on July 1. We continue to encourage the parties to remain at the table until a deal is done, but some of the surges we’ve seen may be a safeguard against any problems that might arise,” he said. 

The NRF expects near-record import volumes again at key U.S. retail container ports this month based on the latest data. Retailers are working to meet still-strong consumer demand and protect themselves against potential disruptions at West Coast ports, according to the monthly Global Port Tracker report released today by the NRF and Hackett Associates.

The volume of loads moving between Los Angeles and Chicago is up 13% m/m and 16% y/y and may soon start to see a surge in volumes based on JOCs Intermodal Savings Index (ISI). The JOC ISI, which compares truckload and intermodal rates on 115 US lanes, indicates the average shipper saved 10% nationally in May shipping via rail, down from 30% in January. When domestic intermodal savings for shippers are 10% or less, trucking becomes more attractive because the premium over rail is only a couple of hundred dollars, and trucks provide a faster and more reliable service than trains. 

Both load and equipment post volumes in the DAT freight network were relatively flat last week. The load-to-truck ratio (LTR) is almost identical to this time in 2020. Looking at the LTR components, loads posted are now 12% lower than 2018 levels but equipment post volumes are the highest they’ve been in six years for the third week of June. As a result, last week’s dry van LTR increased slightly to 3.53. 

Source: DAT Freight & Analytics

Lockdowns and Supply Chain Issues in China Could Change Asian Supply Chain Patterns

A survey by the European Chamber of Commerce in China indicates European business are becoming less tolerant of China’s zero-COVID approach. Almost a quarter of European companies in China are reviewing their investments as ongoing outbreaks trigger lockdowns. Some 23% of the region’s companies that responded are “considering shifting” current or planned investments in China to other markets. 

The massive uncertainty caused by the Chinese COVID policy represents the most prominent challenge for the business sector, the survey found. “The Chinese market has lost a considerable amount of allure for many respondents, with 78% reporting that China’s Covid-19 measures have made it a less attractive destination for investment,” reads the report commissioned by the chamber, and conducted by management consultants Roland Berger. To a lesser extent, the conflict in Ukraine has also had an effect on the willingness to invest, with 7% considering leaving China due to the war.

Shipping analyst & CEO of Vespucci Maritime, Lars Jensen, interprets the survey replies as “a potential early-warning indicator” of changes in Asian supply chain patterns. Sharing his insights, he highlights the fashion and textile sector which is important for container traffic. 80% of respondents in the sector consider China a less attractive place to invest. “Across the board the sentiments are very negative, and this adds further weight to the assumption that we will see a shift of some – not all – manufacturing away from China in the coming years,” Jensen writes.

Maersk CEO, Søren Skou, said in a statement to the Financial Times that he sees little evidence of reshoring but rather than companies in the U.S. and Europe are spreading production around Asia “We don’t see our customers moving production back to Europe. They’re spreading it around in Asia,” he said. 

Source: ShippingWatch 

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