Container Shipping Patterns are Being Reshaped

The latest 2Q2022 findings of the Container Shipping Market Quarterly Review produced by MDS Transmodal and Global Shippers Forum (GSF), noted that average earnings per container carried had fallen for the first time since 2020. Total container carryings in the second quarter of 2022 also remained lower than the year-ago level in the same period.

The reported noted a small improvement in the reliability and consistency of port calls in the second quarter. However, suggests it was accomplished at the expense of skipping intermediate port calls. The data reveals a high level of capacity lost to ‘skipped’ ports (see Figure 1).

There are indications that container shipping service patterns are being reshaped. In 2Q2022, there has been an increase in the number of services connecting no more than two regions, together with a reduction in those linking more than two regions (see Figure 2). This means long, multi-port ‘loop’ schedules are being replaced by ‘shuttle’ services with transhipments required at hub ports in order for containers to reach their ultimate destinations.

Mike Garratt, chairman of MDS Transmodal commented, “In the last quarter we have seen global network capacity grow marginally but underlying demand stays flat. Spot freight rates are now falling steadily and it will be interesting to see as a consequence the share of the minor bulk trade that returns to the major lines. The direct connectivity and reliability of making port calls offered to shippers continue to deteriorate.”

Trans-Atlantic Outpaces Trans-Pacific as Most Lucrative Trade

Spot ocean earnings have been sliding since the Shanghai Containerized Freight Index (SCFI) reached a high in January this year and ocean carriers are redeploying ships to more profitable tradelanes.

According to Alphaliner, the calculated revenues per nautical mile (nm) on the main East-West tradelanes revealed the Trans-Atlantic as the most lucrative trade, significantly outpacing the Trans-Pacific. “Shifting extra tonnage to the North Europe – USEC trade can therefore be very rewarding,” Alphaliner noted.

Spot freight rates from Shanghai to California fell below USD 3,500 per FEU last week. Revenue per nm on this route has been halved since July and is down to 60 cents. For both the Shanghai to New York and Shanghai toRotterdam routes, revenues are now at 73 cents per nm. On the Trans-Atlantic from Rotterdam to New York, the figure stands at 217.9 cents per nm.

Plunging spot rates on the Trans-Pacific is a “major concern” for newcomers and non-alliance carriers. While the average revenue on the Trans-Pacific is still more than double compared to pre-pandemic levels, newcomers and non-alliance carriers have fixed very expensive tonnage on the charter market and are typically very dependent on the spot market. A Linerlytica report noted, “Several of the new entrants to the Asia-Europe and Trans-Pacific markets have significant tonnage commitments that will not allow them to easily remove their vessels in the short term.”

Alphaliner has suggested the industry will experience a widening two-tier market differentiated by those carriers who have signed long-term contracts at elevated rates, and those relying on the softening spot market.

New analysis released this week by BIMCO forecasts headhaul and regional volume growth dropping 1-2% in 2022 with 3-4% growth in 2023 as best case. “The fleet supply/demand balance is predicted to worsen, and although carriers can maintain a tight cargo supply/demand balance by adjusting deployment, we predict that freight rates will continue to fall. At the very least, contract rates must be expected to again move below spot rates,” the BIMCO container analysis reported.


Warnings of Capacity Withdrawal by Ocean Carriers as Spot Rates Sink

Container spot freight rates have taken on double-digit declines week-on-week on some of the major trades. The Trans-Pacific Eastbound Asia-U.S. West Coast trade is around 80% lower than at the same point last year according to the Freightos Baltic Index (FBX). Further, the shift of U.S. import volumes from West to East Coast ports was the reason Asia-U.S. East Coast rates have not declined as sharply, noted FBX lead analyst Judah Levine.

The weaker market has also led to a normalization of spot rates between different Asian locations. A sharp divergence had emerged between China-U.S. rates and Southeast Asia-U.S. rates during the pandemic but with the falling spot rates, both trades are currently on par according to Xenata data.

Peter Sand, Xeneta’s chief analyst said spot rates from Asia had been falling considerably since May 2022 and are at its lowest level since April 2021. “We have to remember though, those rates are dropping from historical highs, so it certainly won’t be panic stations for the carriers just yet,” he pointed out.

Most analysis is indicating weaker demand levels. The U.S. National Retail Federation forecast that from July until the year end, every month is expected to show-year-on-year US import declines of -2% to -5%. The same trend is mirrored on the Asia-European trades. According to the FBX, Asia-North Europe saw a -14% decline and Asia-Mediterranean was down -10%.

Sand told participants at a JOC webinar that the outlook remains bleak with little prospect of demand returning. “Most carriers can be profitable with a utilization of 50-60% at today’s rates, but if they continue to fall there will be questions about capacity management, because we cannot rule out rates returning to below pre-pandemic levels, especially with 7m TEU of ship orders on their way and congestion easing. Ultimately, this will require significant idling of ships if carriers are to avoid a big rate decline in 2023 and 2024 – I’m afraid our forecasts are looking pretty weak,” Sand said.

The head of ocean a global forwarder said it expected carriers to swiftly curtail capacity while noting a 40% increase in the number of blank sailings announced for October. The company said this could prove problematic for European exporters. “With all the service blankings, I fear we will be facing another empty container shortage crisis, and it will require some creativity to get the boxes to where they are needed.”

Source: The Loadstar

Second Round of Strikes Planned at UK’s Port of Felixstowe

Port workers at UK’s Port of Felixstowe have planned to stage a second eight-day strike as their pay dispute continues. The Unite union which represents 1,900 port workers, announced the strike will take place from September 27 to October 5.

A previous eight-day strike action last month brought the port to a standstill. Felixstowe port handles about four million containers a year, approximately 48% of the country’s containerized volumes. It is a regular port of call on the mainline Asia-Europe services.

The strike action will coincide with a two-week walkout by workers at the Port of Liverpool, from September 19 to October 3.


Relief on Horizon for Stressed U.S. Chassis Market

The tight U.S. chassis supply has been a contributing factor in port and rail congestion for more than a year. However, relief is coming, according to Bernard Vaughan, a U.S. chassis executive, who for decades served as the chief lawyer for chassis provider Flexi-Van Leasing.

Vaughn, now principal at Vaughan Advisors, told the New York-New Jersey Port Industry Day that significant additional capacity is coming into the market as multiple manufacturers ramp up new production and refurbishment capacity. “While it’s not going to solve all the problems in this complex chain, there will be a material increase in the number of chassis available,” he noted.

Under-investment in new chassis by leasing companies had been one cause for the shortage. Additionally, a 221% duty imposed on Chinese imports in the spring of 2021 limited new capacity. This resulted in significant stress on the intermodal supply chain.

Vaughan said based on conversations within the chassis market, he estimates new production capacity that has come online is between 50,000 to 90,000 new units per year, with 90,000 being the ultimate extent of capacity and 50,000 being a more realistic number of units that will be produced.

Source: Journal of Commerce

U.S. Railroads and Labor Union Reach Tentative Deal

A tentative agreement has been reached between key unions, representing approximately 66,000 workers, and the National Carriers Conference Committee representing the railroads, avoiding a work stoppage that would have begun on September 16. Other unions representing a smaller contingent of workers had reached agreement earlier. But the unions that agreed were the largest group of employees still without a deal.

If a nationwide rail strike had occurred, it would have been the first in more than 30 years at a cost of U.S. $2 billion in lost economic output every day.

According to the Association of American Railroads (AAR) statement, the deal includes a 24% wage increase for employees over five years between 2020 and 2024, and an $11,000 payout to each union member when the deal is ratified.

Source: American Shipper

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