SOARING RATES in unprecedented market

Stubbornly high spot rates setting their new record highs for several months continuously, especially from China to the U.S. West Coast and European ports. What’s more, new contracts being signed by some of the biggest shippers indicate that the spike won’t be a short-term blip.

In comparison with previous months, the data on container trade shows that, in the first 3 months of 2021, the average prices of 20-foot containers in Europe was increased by 57%. In April, the price increases were particularly harsh. The increase continued throughout May and June with new increases seen in July 2021. Meanwhile, the Shanghai Containerised Freight index rose 1.8% while the Drewry’s World Container index increased by 2% in the last week of May, resulting in the rise of Trans-Pacific rates to the west coast of the United States which led to price increases around the world. The Drewry’s World Container Index is currently about 300% above its value for the same period in 2020.

With the continuation of extraordinary demand from China, resulting in operational challenges along the supply chain, carriers are implementing a Value-Added surcharge (VAD) for all cargoes moving under regular FAK Guidelines. The surcharge will not affect any mid-term or long-term contracts and is meant to replace some other ad hoc surcharges like SGF (Shipment Guarantee Fee). The VAD surcharge will take effect from August 15, 2021, and to be paid on collect basis at US and Canada destinations.

Cause of the unprecedented increase in rates
The covid-driven phenomenon is contributing to the early peak season where shippers wanting to move and get their goods in the warehouse early, or at least on time. In addition, without full capacity of manpower at the ports, port operators find themselves having to deal with record volumes due to the reopening of economies globally. And with the supply chain disruptions from the Suez Canal blockage and Yantian port partial-closure continuing to impact pricing and equipment availability, more incidents, accidents, or disruptions will have disproportionate impacts.

Combination of numerous factors contributing to the congestion, and with the increasing pressure that the shippers are facing as they struggle to find space for their cargoes, worsen the entire situation. Thus, leading to the continuation of high freight rates as space-on-board become limited.

With global port and inland infrastructure already at full capacity or even exceeding, there is simply no possibility of handling more volume. The carriers continue to struggle to recover equipment or getting a berthing window. It is easier for them to take a vessel out and blank a sailing, rather than operate all their vessels and add-on to the congestion. Many carriers are struggling to get their schedules back on track which has a significant impact on the consistency and predictability of service.

The current problems are just too broad to be remedied by any short-term fix and are creating ripple effects across the supply chains globally. Carriers are accumulating delays, restricting the acceptance of new reservations, transporting more freight, which could lead to a further increase in freight rates.

Shippers with high volumes are more likely to move their cargoes at better rates, which gives them an advantage over shippers with low volumes.

Taking the example of Hapag-Lloyd, according to their CEO, Habben Janses, the average delay accumulated by the company increased 160% and now stands at 3.9 days. A problem that has had an impact on the availability of containers since more time is needed to recover the equipment. Now, up to 20% more containers than usual is needed to ship the same quantity of goods.

As a result, and according to market experts, no drop in the freight rates and spot rates is expected before the fourth quarter of 2021.

Series of hurdles
The Covid-19 has caught us off guard, without knowing what to expect and how to handle the situation, with port capacity at its limit and shortage of manpower, an unusually high number of vessels could be seen at a standstill. Most of them remained anchored, waiting for a mooring space to become available in the ports.

A highly unusual situation compares to previous years. Ships had to wait several days to enter ports but the delay rarely exceeded one week previously. Thus, when adding this waiting time to the standard transit time for cargoes from their loading port to their landing port, the total shipping time now has almost doubled compared to its usual.

The key source of this problem started in the first half of 2020 when most countries going into lockdown mode while China was coming out of it. As a result of Covid, the entire world began to buy Protective Medical Equipment from China but once these containers had arrived and were unloaded in American or European ports, there were not enough cargoes to fill these containers for re-shipping as the production has stopped in these countries. Many empty containers have piled up where they were not supposed to be. Very soon, there was a shortage of shipping containers which is causing a severe shortfall in the capacity, in turn, aggravated by the problem of lacking port capacity and vice versa. Shippers are exploring alternative routes such as air and rail freight to move their shipments. This has created a vicious circle that is worsening as economies are opening up again.

Agility and Resilience to hurdle ahead
With the current unpredictable situation, Logfret always stands in the position of our shippers. Our commitment to solving shippers’ key concerns and even raising their expectations through our industry’s best digital freight solution, NEOLink.

Getting onboard availability and real-time transparency has always been the key concerns of shippers around the world during this tough period. No one likes to have their cargoes being pushed back without a definite shipping date nor without knowing the status of their cargoes. With the current lack of shipping capacity and soaring price, constant communications are so important, and with the right information feeding to shippers is so crucial.

To date, the only way for a traditional freight forwarder to obtain information on the availability of rates for a specific route is to pick up the phone and call the carriers. To avoid manual and inconvenience caused to the shippers, carriers such as MAERSK with MAERSK SPOT or EVERGREEN with GREENX, set up online portals offering spot rates that allowed forwarders to book their shipping operations at the exact rate indicated, with a guarantee of shipment. FREIGHTMART by OOCL displays the number of available slots remaining or available spaces remaining. However, these spot rates indicated are instantaneous, thus prices may fluctuate from one moment to the next. This might add-on extra pressure on freight forwarders, forcing them to submit quotes to shippers and making the bookings within a very short period, which at times might lose the spot rates offered to shippers, causing conflict between shippers and freight forwarders.

How NEOLink, powered by Logfret improves your supply chain process?
NEOLink brings you efficiency and convenience of self-service 24X7, no time difference, no downtime.

Sending rate requests with the expectation of receiving numerous quotations for comparison. With just a click on the selected quotation to make your booking online.
With the same login, you can track your shipment online and analyze the matrix reports generated from the system.

This is our commitment to shippers and raising their expectations through our industry’s best digital freight solution (NEOLink), taking shippers’ businesses to the next level.