Freight Rates Tipped to Drop on Low Containership Utilization

With vessel utilization rates declining, freight rates are under pressure to lower, Sea-Intelligence said, following analysis on the development of nominal vessel utilization, a key parameter in gauging market strength.

Although demand grew marginally in June by 0.6% year-over-year (y/y), it has subsequently been down-trending, following the spike in peak season 2020, said Sea-Intelligence. On the major East/West trades, demand growth has been slowing while capacity growth has increased. Alan Murphy, CEO at Sea-Intelligence described the drop in vessel utilization on the Trans-Pacific saying, “The sharp drop in May was sustained in June as well, with vessel utilization around the 89% mark.” (see Figure 1).

Murphy explained that when capacity utilization is at the 90-95% range, it “effectively means all capacity is fully utilized and spot rates increase dramatically”. He notes that with two consecutive months where utilization has been below 90%, the market can no longer “sustain the extremely high spot rates” and pointed out this was similarly applicable for the Asia-Europe and Trans-Atlantic trades.

“The bottom line is that the average vessel utilization on the major head-haul trades continues to be below the threshold which fueled the record rate peaks over the past 1½ years. As a consequence, spot rates will continue to decline,” Murphy concluded.

Source: Sea-Intelligence

Capacity Gap Separates Top Ocean Carriers from Rest of The Field

There is a substantial gap in fleet sizes between the leading carriers and the rest of the container field. The top 10 container shipping lines operate 21.8 million TEU of capacity compared to the next 20 carriers which have a combined 2.5 million TEU of capacity, according to Alphaliner data.

Proportionally, larger shipping lines have also earned more during the pandemic. Earnings for medium and small lines typically increased by between 100% and 700% between 2019 and 2021 whereas the top 10 carriers increased their profits by between 1,000% and nearly 6,000%, Alphaliner reported.

Olaf Merk, shipping expert at the OECD-affiliated think tank International Transport Forum (ITF), warned that such dominance has led to serious monopoly concerns. “In well-functioning markets, new firms – price fighters – will emerge to provide alternatives to the high prices of the established firms. In container shipping this does not seem to be happening.” Merk said the capacity of firms newly entering the container market is less than 0.5% of the total capacity.

Parash Jain, HSBC’s global head of shipping and ports research, noted ocean carriers’ strong positioning which has benefited from consolidation. “Going forward, we argue that after years of consolidation and the formation of mega shipping alliances, the shipping lines have learnt the capacity discipline and while there might still be volatility in freight rates, the rock-bottom level of freight rates seen in the past decade might no longer persist in the future,” Jain said.


China, Europe and U.S. Continue to Face Maritime Trade Disruptions

CHINA: The heatwave in China has forced some manufacturers in 19 cities and jurisdictions in China to shut down production for six days due to government-planned power cuts. Manufacturing power disruptions are also reported in Shanghai. The interruption is creating more bumps in the road with the approaching seven-day Golden Week holiday in October as manufacturing is typically cut back and vessel capacity tightened during this period.

“Based on the latest issue of Sea-Intelligence’s Blank Sailings Tracker, the number of blanked (canceled) sailings on major U.S. import trades remains constant, and the outlook for the coming 10-12 weeks is very close to being back to ‘normal,’” wrote Niels Madsen, vice president of product and operations at Sea-Intelligence. “It should, however, be noted that carriers have not yet incorporated (hopefully) planned blanked sailings in connection with upcoming Golden Week ex-China, so it is expected that the number of blanked sailings on trades ex-Asia will increase in weeks 40-42.”

Meanwhile, trucking throughout the country is slower than average according to the CNBC China Supply Chain Heat Map. COVID testing on truck drivers is an ongoing challenge, slowing and prolonging goods movement from “days to weeks”, said one global forwarder.

EUROPE: Container congestion is growing at German ports as discussions continue between the union and ports. A global forwarder has warned the backlog of import containers bound for the U.S. will spill into the first quarter of 2023 if no agreement comes to pass by August 22nd.

The CNBC Europe Supply Chain Heat Map shows the impact from stalled labor negotiations even as the strike wave expands in Europe. Around 1,900 dockworkers will begin an eight-day strike on August 21st at the Port of Felixstowe which processes around 40% of all containers for the United Kingdom.

The U.S.: The CNBC U.S. Supply Chain Heat Map shows a slight easing this week with vessels at anchor. “We’re seeing an 18.5% drop, from 70 down to 57 vessels waiting for berths at East Coast ports,” said Joshua Brazil, VP of supply chain insights at project44. “The queue, especially at [the Port of New York and New Jersey] has improved from 15 vessels to 9 vessels over the course of the week. 30 vesselsare still queued at Savannah and 23 are anchored at Houston. However, it’s too early to tell if this improvement is a long-term trend, especially as we head into peak season.”

The wait time for import containers however at the Port of Oakland is still in the low double digits. “The Port of Oakland’s marine terminals are still clearing out the backlog as a result of the trucking protests which shut down the port for a week a month ago,” said Bryan Brandes, the port’s maritime director. “Import dwell still remains a critical issue at the port and we need the imports moved off to allow the lines to restore the services to better service our exporters and importers.”

Source: American Shipper

UK Dockworkers Vote to Strike at Port of Liverpool

More than 500 dockworkers at the Port of Liverpool, are set to strike over pay and working conditions. “The strikes, the dates of which have not yet been set, will bring Liverpool container port, one of the largest in the country, grinding to a halt,” the Unite trade union said.

The dockworkers chose strike action after rejecting an offer of a 7% pay increase from MDHC Container Services. Maintenance engineers at MDHC could also go on strike over the same pay offer. An industrial ballot of more than 60 engineering staff opened on August 15 and closes on August 24. The union warned that strikes by either group of workers would have a severe impact on both shipping and road transport in Liverpool and the surrounding areas.

This new development comes as 1,900 workers at the Port of Felixstowe are scheduled to go on an eight-day strike as of August 21st. The proposed strike at the port of Felixstowe could result in over $800m in trade being disrupted according to new analysis by Russell Group, a data and analytics company. 

Commenting on the ramifications for European liner calls with the potential twin strikes in the UK, Lars Jensen, CEO of liner consultancy Vespucci Maritime said on LinkedIn, “With such large strikes, carriers are likely to have to offload UK-bound cargo in major hubs such as Antwerp and Rotterdam and as a consequence further worsen existing congestion problems on the continent as well.”


Congestion at Germany’s Ports, Rest of Europe Holds Steady

Port congestion continues to build at the German ports of Bremerhaven and Hamburg over the past few months, while the rest of Europe seems to have stabilized since the Russian invasion of Ukraine began in late February, according to data by FourKites.

At Bremerhaven and Hamburg, the 60-day average ocean dwell times (across imports, exports, and transshipments) are at 9.3 days and 9.5 days (see Figure 1). For Bremerhaven, this is a 43% increaseover the low seen in April, and a 19% increase over the start of the year. For Hamburg, this is a 79% increase since the low point in March, and a 22% increase over the start of the year.

FourKites data indicates dwell times at Antwerp (Belgium) and Rotterdam (the Netherlands), remain below the peaks seen in March and April, but have been increasing steadily over the past several weeks. At Antwerp, the 60-day average ocean dwell time is at 7.5 days and is 15% higher than the beginning of the year. For Rotterdam, the 60-day average ocean dwell time is at 6.9 days and has climbed 15% since the low in late June (see Figure 1).

In Spain, the 60-day average ocean dwell time at Valencia is at 8.8 days which is 6% above levels seen at the start of the year. “Across the rest of Europe, port congestion appears to have stabilized for now,” FourKites wrote in its latest release. The 60-day average ocean dwell time across the continent is now at 7.6 days, which is -19% below the peak seen in late March, and -12% below levels at the start of the year (see Figure 1).

In the UK, congestion at the Port of Felixstowe remains low into the second half the year, however port congestion is expected to rise when the August 21st strike by dockworkers goes into effect. The four-week average ocean dwell time at the Port of Felixstowe is currently at 8.8 days average across import, export, and transshipment stops (see Figure 2). This is -20% lower than levels seen at the beginning of the year.

Source: Port Technology

Import Volumes Continue to Grow at U.S. Ports

Highlighting the coastal shifts of imports from the West Coast, July imports to the Gulf Coast were up 24.2% y/y, and imports to the East Coast up 8.3% y/y while West Coast volumes were down -7.0% y/y. Imports to the East Coast are almost on par with the West Coast, with approximately 45% of YTD volume going to these coasts. Compared to last year’s January-to-July import volume, 48% went to the West Coast while 43% went to the East Coast.

Highlighting the coastal shifts of imports from the West Coast, July imports to the Gulf Coast were up 24.2% y/y, and imports to the East Coast up 8.3% y/y while West Coast volumes were down -7.0% y/y. Imports to the East Coast are almost on par with the West Coast, with approximately 45% of YTD volume going to these coasts. Compared to last year’s January-to-July import volume, 48% went to the West Coast while 43% went to the East Coast.

To handle the increased volume at Savannah, the fourth largest port in import volumes, the Georgia Ports Authority has extended its truck hours from 16 to 17 hours per weekday. GPA CEO Griff Lynch said, “Our July numbers should show double-digit growth. We should have some growth in August as well. I don’t see anything dipping down in terms of volume for the next five to six weeks.” Lynch expects an eventual slowdown in imports, but he doesn’t anticipate the volume decline until the fourth quarter.

Following July’s surge in imports and vessel congestion offshore, dry van spot rates from Savannah to Atlanta have reached a 12-month high. In contrast, spot rates to other major destinations, including Dallas and Miami have decreased. Spot rates from Elizabeth, NJ to Atlanta have held steady over the last ten weeks. Dry van loads from Chicago to Atlanta are up slightly but still lower than in August 2021. On the West Coast in Los Angeles, loads to Chicago have increased marginally although decreasing imports into Los Angeles has translated into fewer spot loads to the nearby warehouse market in Phoenix.

Source: DAT Freight & Analytics

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