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Under “normal” circumstances, the world’s ocean carriers work stealthily behind the scenes, transporting goods from country to country with little or no fanfare or attention. And unless a major snafu like the Ever Given’s blockage of the Suez Canal threatens the industry and the customers that it serves, for the most part we take for granted the fact that ocean shipments will get from point A to point B within a reasonable timeframe.
The global pandemic changed that and also turned phrases like “port congestion,” “supply chain interruptions” and “container shortages” into everyday vernacular for the typical consumer. Credit the container ships that, depending on which month is in question, stacked up outside of US ports like Los Angeles and Long Beach in the hundreds. This and other developments shed new light on the vital role that ocean shipping plays in the world’s supply chains.
“Across all segments of the shipping industry, one thing that everyone agrees on is that there is no quick solution to the supply chain disruptions and challenges that have been experienced in 2021,” The Maritime Executive points out. “The major carriers, as well as the ports, are warning that the surge is likely to persist, which will continue to drive shortages, lack of capacity, and increasing rates.”
Peak Season Concern
Maersk was already urging shippers to plan well ahead for the peak holiday season as far back as September. And while congestion at California ports was capturing headlines, The Maritime Executive says that similar issues were radiating through ports around the globe. Predictably, ocean carriers’ schedule reliability declined, with delays of up to 30 days on some China to EU routes, and nearly 22 days on some China to U.S. routes (as of November).
“The surge is being driven by Americans shifting their spending away from services, such as restaurants and vacations, to home improvements, office equipment and other consumer goods,” WSJ reports. “Port leaders say importers are also stocking up on additional inventory after the shortcomings of just-in-time supply chains were exposed in the early weeks of the pandemic.”
The congestion is expected to continue deep into 2022, the Wall Street Journal reports, as the crush of goods from manufacturers and retailers looking to replenish depleted inventories pushes past shipping’s usual seasonal lulls. “I don’t see substantial mitigation with regard to the congestion that the major container ports are experiencing,” Executive Director at the Port of Long Beach Mario Cordero told WSJ. His opinion is being corroborated by numerous other port directors. “Many people believe it’s going to continue through the summer of 2022.”
When Will Rates Level Off?
As with any supply-and-demand scenario, high demand for containers and low availability of equipment came together to create a rising ocean shipping rate environment in 2021. According to Moody’s Investors Service, these rates are likely to remain at record levels in 2022 as “demand significantly outpaces capacity in an environment that will further drive up carrier profitability,” JOC reports.
The publication says global demand is forecast by analysts to outstrip container shipping capacity in 2021, and that Moody’s expects volume growth of between 5 and 7 percent against capacity growth of 4 percent. “The supply-demand imbalance has been in the carriers’ favor for months,” JOC points out, adding that operating profits of the 11 reporting carriers, measured in earnings before interest and taxes (EBIT), reached $16.2 billion in the first quarter, greater than the sum of the previous 10 first quarters combined.
“With peak season now fully underway, container freight rates continue to smash past previous historical records,” Splash reports. “A combination of healthy demand volumes, extensive port congestion and shippers facing order backlogs and the risk of empty shelves during the holiday season has driven spot freight rate assessments on key trades far beyond anything witnessed before 2021.”
To shippers looking for a sign that ocean rates may begin to recede, Splash says the current environment will likely endure at least into the third quarter of 2022. On a positive note, it adds that it is “quite possible that when the market does eventually see a correction, it will be fast and sharp. This aligns with our gut feelings as forecasters, but the question of timing remains frustratingly uncertain.”
Peter Nordstrom, Executive Vice President, Head of Ocean Services, Americas Region DB Schenker says, “As shippers continue to work through the current ocean shipping challenges and plan for success in 2022, DB Schenker is working closely with its wide network of global carriers to ensure that loads are covered and capacity is available for its customers. The environment as a whole remains extremely challenging, but with a reliable, global logistics provider in their corner companies will be best positioned to overcome these obstacles and ride out the storm.”