Container freight’s bullish run set to extend

Demand for container freight looks set to remain at very high levels throughout the Lunar New Year, with freight rates from North Asia to the UK at all-time highs as volumes continue to rise.

Importers have been seeking to refill depleted warehouses and ongoing equipment shortages continue to dog the market, leaving rates soaring.

Platts Container Rate 11 – North Asia-to-UK – hit new highs at the start of the year at $10,000/FEU, for from $3,000/FEU on Nov. 30, highlighting the strong demand and ongoing logistics issues. These rates have held firm since then, assessed flat through to Jan. 19.

Underpinning this recent and expected continued upside is the increased Chinese production and exports – an ongoing theme of the latter half of 2020, moves aimed at making up for the idle months at the start of the year when the pandemic first began to bite and strict lockdowns were imposed. Many exporters are keen to avoid a repeat of the 2020 situation, which took almost three months to return to pre-Lunar New Year production levels.

Many market participants expect demand to return faster this year to counter the issues seen at the start of 2020.“It is a combination of spiking demand and endless congestion which is tying up the empty containers,” said a UK-based freight forwarder. “This will push right through into Chinese New Year.”

Demand globally is expected to stay strong until the end of the first quarter, at which point market participants expect to see volumes fall, as they typically do post-Lunar New Year. This should allow carriers an opportunity to rebalance empty container stocks around the world.

Equipment Shortages

A delay in the return of containers to dockside in the US and Europe in the second half of 2020 led to equipment shortages in key exporting regions. As a result, there were fewer free containers to be shipped, resulting in increased competition for these containers and thus higher headhaul freight rates.

This delay in returning empty containers to the ports came as lockdown measures across the world and few employed workers resulted in lower staffing levels at warehouses and distribution centers. This meant turnaround times that typically take just few days were, in some cases, rising to almost a month, leaving fewer containers for ocean carriers to use to transport goods around the world. Carriers have been scrambling to rectify the imbalance of containers on global trade lanes.

As a result, there have been new strategies introduced by some carriers to not take loaded containers on backhaul trips to Asia so that there is a quick turnaround to alleviate the logistical delays there. This is expected to carry on until the end of the first quarter and, accompanied by the employment of sweeper vessels, will hopefully eliminate some of the logjams in the system.“For love nor money you can’t get a box on backhaul,” a UK-based freight forwarder said. “It’s the Wild West at the moment.”

This has caused significant issues for exporters in Europe as they have been struggling in recent weeks to find slots on vessels and this, coupled with increasing container freight rates on both head haul and back haul routes has seen greater costs incurred by exporters.

Trans-Pacific Market

The trans-Pacific trade lane has not been spared from fraught market conditions, arising from unbalanced market fundamentals and surging consumer demand. Freight rates from North Asia to both the East and West coasts of North America have risen dramatically in the final months of 2020 as equipment issues and growing port congestion continue to hamper the flow of cargo.

Platts Container Rate 5 – North Asia to East Coast North America – was assessed Jan. 19 at $6,000/FEU, up just over 22% from Nov. 30.

On top of fresh highs in the spot market, carriers have been heard charging large premiums in order to guarantee slot allocation and equipment. “Premiums and diamond services have taken the place of GRI’s,” said one non-vessel owning common carrier source.

The Port of Los Angeles, the largest container gateway in North America, reported Jan. 14 that it had moved 9.2 million twenty-foot equivalent units in calendar-year 2020, a 1.5% decrease in throughput compared with 2019.“Our container business in 2020 was the most erratic we have ever seen, with volumes plunging nearly 19% in the first five months of the year, followed by an unprecedented second-half surge,” said Gene Seroka, executive director of the Port of Los Angeles.

Ship wait times at the adjacent Ports of Long Beach and Los Angeles have climbed to 10-14 days as terminals continue to grapple with record imports. “2021 will be a flip of 2020, with the first six months or so red hot, and the second half slower,” predicted one trans-Pacific freight forwarder.

Vaccine Relief

As the coronavirus vaccine is administered worldwide through 2021, the global economy is expected to recover. Platts Analytics expects global GDP to increase by 5%, and with a growing economy demand for containerized goods should also increase. With demand rising and carriers now aware of the power of controlling supply through blank sailings, a return of rates below $2,000/FEU along the North Asia-to-Europe routes may be a pipe dream.

Despite this, there are hopes that as vaccine rollout increases across the world, due to the quick nature needed for transport this will offset air freight onto container vessels, pushing up the overall ocean freight demand going forward into the middle of the year.

source: Platts

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