2020 will definitely be a special year for the shipping world and especially for container freight. To clearly understand the current situation, it is important to look at the previous months of the year that bring us to this market situation. Discover our interview with Christopher LEROY, our marine expert, who comes back to the reasons for the situation, as well as his article which explains in more detail the issues raised.

A TURBULENT START TO 2020

To begin with, the month of January was challenged by the application of the IMO 2020 regulations at the global and at the French national level by major strikes. All the carriers have maintained a capacity control plan with more than 500 ship cancellations on the East/West axis recorded between January 2020 and October 2020. This represents an increase of 162% on the Northern European route, for example (source: Drewry's weekly Containership canceled sailings reports).


SCHEDULES SCARRED BY THE COVID-19 PANDEMIC

These blank sailing did not have a quick impact on the market, particularly with the timing of the Chinese New Year combined with the different phases of containment of the COVID-19 pandemic. Cancellations have allowed supply and demand to be balanced. The tensions on the container market were relatively limited until the end of April, as was the case for the transpacific market, where freight rates were 11% lower than in 2019, reaching market levels at the end of October 2020 of +105% compared with the previous year.

Initially, only the Transpacific market was affected by the ongoing ship cancellations and the recovery of activity. The other markets were not directly impacted by any onboard premiums. However, pressures were such that shipowners began to allocate equipment and capacity resources to the American market from the summer onwards. It was not until August that tension began to emerge in most markets, with a shortage of space at first, followed by a shortage of equipment. During September and following the intervention of the Chinese authorities and the FMC, which allowed the addition of capacity on public works without a decrease in rates on this trade.

The golden week was supposed to break a tight world market, and allow to enter a period of "slack season", but this without relying on still strong demand and strict management capacities within the three major alliances.


THE LACK OF EQUIPMENTS

We are now in a configuration where the challenge for the market and the various carriers is to move the containers back to the Asian zone as quickly as possible in order to be ready for the Chinese pre-New Year needs. This objective is particularly visible on the export markets with the choice of many carriers to promote the return of empty containers to the right place, to the detriment of full container shipments to Asia, where the return of available equipment is more uncertain. Some congestion situations in Australian, American, or British ports also accentuate the lack of equipment.

The acquisition of new equipment is also an option used by shipowners to meet market needs, and here again, the purchase prices of containers have almost doubled since the beginning of the lack of equipment. This does not stop shipping lines from announcing the delivery of nearly 50,000 TEUs to Asia in the coming weeks. However, a return of the equipment to the loading sites threatens to turn an equipment shortage into a capacity shortage. Considering that some shipping companies announce a repeated weekly backlog of around 6,000 TEUs per week and that we are observing a capacity 10% lower than the demand.

All these elements have led the market into the situation we are currently experiencing, where the lack of equipment and capacity for all shipping lines combined with strong market demand is driving shipping lines to increase freight rates significantly and combined with the application of PSS, premium rates and other congestion surcharges.


ACCELERATION OF PSS ANNOUNCEMENTS FROM NOVEMBER

Indeed, since week 45 we have seen an acceleration of Peak Season Surcharge (PSS) announcements in effect in the second half of November or early December, particularly in the Asia / Europe market. In some cases, PSS rates reached USD 1,000, so that the market players' benchmark indicator, the SCFI index, has beaten for the second consecutive time its highest level since its creation in 2009, with FAK rates in excess of USD 5,000 on several European destinations.

In addition to these elements, it is important to note that oil prices have rarely been so favorable to transport, with a decrease since the beginning of the year that has allowed a barrel to reach less than 30 dollars in April and is now around 60 dollars, so that companies have even temporarily revised the routings of their ships to avoid certain canals such as Suez or Panama in order to avoid major costs in their routings to the detriment of the delay. 
 

DECREASE IN THE RELIABILITY OF SCHEDULE

In this particular context where the financial aspect seems to have taken over, it is legitimate to wonder where the service is at. Several studies of sea freight intelligence indicate a decrease in the reliability of schedules of nearly 15% compared to last year. Stopover schedules are respected in about 65% of cases for two-thirds of the companies that make up the TOP 15 of the world's shipping lines.


It's difficult today to formulate any long-term forecasts, however, the Chinese New Year 2021 (12/02/2021) seems to be the common reference point for shipowners and shippers for a favorable evolution of the market. Thus, the coming weeks will continue in a very challenging context. 

With its expertise in the world of sea freight, Bansard International supports you with the latest market news, a "multi-carrier solutions" approach in order to best meet your needs and offer you the solution that best suits your supply chain. 
 

Christopher Leroy

Head of Sea Freight Procurement