Shipping spot rates fall but Christmas deliveries still in doubt

The Australian Competition & Consumer Commission has described it as a logistical nightmare, and it’s been haunting everyone involved in shifting freight by sea all year.

At the port of Singapore, container ships are continuing to arrive late due to congestion at other ports. More than 100 ships are waiting to berth and unload off the coast of southern California. The Morrison government called an industry meeting on Wednesday to discuss solutions to freight delays.

The problems in the shipping industry are one aspect of a global supply chain crisis that is pushing up the price of everything from pot lids to used cars and fuelling concerns that the world is heading into an era of sustained inflation.

Amidst all of this, though, some say they see the light at the end of the tunnel. After months of escalating freight costs, the last four weeks have brought some relief. Spot container prices on busy shipping lanes have fallen.

The New-York based freight forwarding company Shifl is among those calling time. Shifl’s data suggests the spot price on the China-US east coast route is around $US13,800 ($18,900) per container, down 29 per cent from $US19,500 in September. China to LA is down even further. The China to Europe and the UK prices have also fallen “quite nicely, and typically prices on all these routes trickle down to other routes”, says Shifl CEO Shabsie Levy.

Other indices also show a trend downward for the spot prices used by those not on long-term or future contracts. Drewry’s World Composite Index registered a 4.7 per cent fall in the first week of November, its biggest decline since November 2017. It held steady this week.

The fall in rates on key routes out of Asia and into the United States and the European Union began in October, has held into November, and should continue, according to Levy.

“We think rates have peaked. There may be a small uptick before the Lunar New Year [on February 1] but I doubt we will go back to the numbers we saw in September.

“What we’re seeing right in Los Angeles, with those vessels waiting to berth today … that’s an indication of what happened three months ago [in prices]. There’s still some catch up to do, but we had a cause for all of this and that was COVID-19.

“Governments were giving stimulus money to people sitting bored at home who used it to buy furniture and everything else. But the world is going back to normal now,” Levy says.

Plateau rather than decline

Other measures show a plateau rather than decline. The ACCC cited data from S&P Global Platts in its report detailing how the pandemic derailed the global container freight global freight supply chain. The Platts Container Index – which, the ACCC noted, showed a seven-fold increase in a little over a year in September – is still hovering at multi-year highs.

“The container market is under strain, with factors such as tight supply, port congestions, schedule delays and firm demand to ship goods all contributing to a challenging market,” says Baoying Ng, global managing editor, container shipping, at S&P Platts.

There’s mixed reports from those whose job it is to get freight from point A to B. Those who have seen some easing of prices in recent weeks emphasise shipping is only part of the story. Choked ports are still struggling to clear containers.

Also, they point out the latest price easing comes after spectacular gains. A year ago, for instance, the spot rate cited by Shifl was about $US4000. Two years ago, it was less than half that.

“The frenzy that we saw several weeks ago, and the month prior, that was all about the Christmas rush and that has abated. Everything that was going to sail for Christmas, has sailed. When all those containers will get unloaded is another matter,” said one logistics player in Singapore.

“So yes, spot prices have dipped but only down from, say, $US25,000 to $US20,000, and you have to add in other charges, like the guarantee fees shippers charge to get a container on a particular ship, for example. So, it’s not a big deal – and we believe they will ramp up again,” he said.

Shipping rates are just one indicator of supply chain efficiency, notes Josh Brazil, vice-president of data insights at Project44. The supply chain tech company keeps tabs on worldwide shipping, which ships are berthing where, which are late, and which are skipping ports altogether in a mad rush to make up time.

“Schedule integrity is a very important contributor to stability in the supply chain. This year we’ve seen those schedules completely disrupted, and they are not getting back on track,” Brazil says.

Every major transshipment port has been rolling over more containers this year, meaning the shipment couldn’t get loaded onto the desired vessel and had to be booked on a future voyage. Blank sailings – which occur when shipping lines cancel planned voyages or stops – have also increased substantially.

Demand trajectory key

“Looking at future blank sailing schedules, we don’t see the situation improving until after the Lunar New Year factory shutdown in China. If demand doesn’t back off, then these higher freight costs will last until the end of next year,” Brazil says.

In addition to global demand levels, each region has its own issues in shifting containers. In LA, the problem is inland capacity – getting the trucks to get containers out of port. In south-east Asia, there have been rolling issues with COVID-19 closures this year.

”All of these have domino effects. We are realising just how sensitive everything is – when a butterfly wing moves on one side of the earth, it has an effect on the other,” Brazil says.

At the Port of Singapore, the world’s busiest port in terms of the number of vessels that dock and second only to Shanghai in container traffic, container throughput was up 3.4 per cent in the first nine months of the year.

The Port of Singapore Authority has increased capacity to store containers waiting to be sent on to their final destination. But with congestion elsewhere causing ships to arrive late the port has not been immune from disruptions, Senior Minister of State for Transport Chee Hong Tat told local media last month.

Others involved in imports or exports say the same factors that drove freight costs up in the first place – a surge in demand and structural factors in the shipping industry – remain in place.

Those dealing in premium goods, where there are alternatives to shipping such as air freight, say global supply chains remain clogged up as well. This is partly because customers are ordering pre-emptively after being caught out by delays earlier in the year.

Australian exporters and importers are still feeling the heat, according to Paul Zalai from the Australian Peak Shippers Association secretariat.

Zalai says exporters are feeling the effects of what he describes as “inadequate services”. Bookings are getting rolled, container availability is stretched and freight rates remain two to four times what they were pre-pandemic.

“While the easing of shipping line rates to some trade lanes is welcome, it is only a very small part of the picture,” Zalai says.

“Price is a significant factor; however, the lack of services is a bigger concern. The federal government is leading the way with trade liberalisation measures such as free trade agreements, but this will count for little if we can’t get our produce on ships.”

Shipping Australia policy and communications manager Jim Wilson says that while “the time of inexorably climbing spot rates appears to have ended”, the China-Australia-New Zealand trade reveals a different pattern, with “both the fronthaul and backhaul spot rates showing a near 2 per cent increase over the last eight weeks”.

The organisation, which represents shipowners and shipping agents, notes there are some signs consumer spending is normalising and this, along with an increase in supply in terms of additional containers and ship numbers, could well lead to downward pricing pressure on freight rates.

Other factors contributing to snarled supply chains will be harder to fix.

“The complicating factor is port congestion and poor port performance, which is a problem all over the world,” Wilson says. “The ACCC report explicitly stated that Australian ports are not internationally competitive. Our ports are not keeping up with trade growth. They have to lift their game. It’s the only sensible conclusion.“

Source: Hellenic Shipping News

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