July 2021 International Market Update

An update from Sunset’s International Team:

The following information from our friends at JAS Worldwide details the current International market conditions. Customer communication is vital with the instability of international trade. Please read the following updates and we offer the following precautions:

• Advanced notice up to six (6) weeks will help alleviate some of the delays that many importers are experiencing.
• While costs increase, Sunset can continue to provide options and guidance to mitigate costs based on customer needs.

Sunset is here to help with the most basic or complex shipments.  Email [email protected] to speak further about how to manage any International needs that arise.

UPDATE: via JAS Worldwide

Ocean Market Update:

Global

The operational challenges within container shipping have now persisted for half a year, and they are seemingly nowhere nearer to getting resolved. If anything, they mainly appear to be getting worse.

Aside from the pandemic itself, there is not a single root cause for the problems. The situation is one of intertwined bottlenecks of port congestion, vessel shortages, equipment, chassis, rail, and truck shortages. On top of that, shippers are attempting to service a massive boom in consumer demand for imported goods.

In essence, there is not a shortage when purely measuring the number of containers and ships available versus the amount of cargo in need of shipping. The problem is that it now takes much longer to move the cargo — and the equipment — which in turn soaks up large amounts of capacity.

This means that we are at the point where there is not enough capacity to move the cargo in need of transportation. This is what has caused the extreme surge in freight rates as shippers weigh the choice between losing the sale of the cargo versus paying the highly elevated rates.

Perhaps worse, the extreme shortage of capacity means there is no buffer capacity to handle the more typical disruptions seen in freight transportation. The shipping industry is pushing a growing pile of cargo in the hope that bottlenecks will ease and we will finally get surplus capacity able to move this pile of goods, but every small operational mishap causes this pile to increase. This includes vessels put into quarantine because of COVID-19 infections among the crew, ports slowing down because of the pandemic, vessels unavailable because of mechanical failure, ports shut down because of weather or strike issues, or vessels afflicted by accidents such as fires.

Under normal circumstances, many of these would be smaller, localized problems. Right now, every one of these incidents increases the pile of cargo we are pushing ahead of us, and the larger the pile gets, the longer it will take to revert back to normal.

With Malaysia now in lockdown amid a new wave of the pandemic, the Port of Yantian partially closed because of a COVID-19 outbreak, and with Hamburg now badly afflicted by congestion, it appears the direction of the market for now is to continue to increase the proverbial pile of cargo.

Rates

Spot rates are vastly exceeding any previous records.

• Trans-Pacific spot rates: including equipment charges and space priority premiums, have risen to between $8,000 and $11,000 per FEU from Asia to the US West Coast, and between $11,000 and $20,000 per FEU to the US East Coast.
• Asia–Europe trade-lane: various spot rate indices are exceeding $10,000 per FEU, and this is before paying add-ons for equipment and capacity assurance. Increasing anecdotal evidence of rates approaching $14,000 to $15,000 per FEU from Asia to North Europe is emerging.
• Trans-Atlantic West bound trade-lanes: the spot rate at the end of May reached $3,325 per TEU, almost double the $1,838 per TEU recorded on March 31st. Trans-Atlantic rates are 100 percent higher this week than during the same period in pre-pandemic 2019.

BAF

Due to increased demand, there is now a greater demand for fuel. BAF levels are starting to rise and there will be more increases in BAF in the coming months. Q3 BAF levels will be approximately 20% higher than Q2 2021.

Schedule Reliability Further Deteriorates

Global schedule reliability continues to be extremely poor and deteriorated again in April compared to the past several months, with a poor reliability of only 39.2%.

• Statistically, Maersk is the most reliable carrier (46.6%) with Evergreen taking over as the carrier showing the poorest schedule integrity of 27.6%.
• None of the top 14 carriers recorded a Y/Y improvement in schedule reliability, with all carriers recording double-digit declines of over 27 percentage points. Hapag-Lloyd recorded the smallest Y/Y decline of 27.3 percentage points, while Evergreen recorded the largest Y/Y decline of a staggering 47.5 percentage points.
• Delays on individual trade-lanes can be far worse (see details per trade-lane below). It is important that these delays are taken into consideration when reviewing your supply chain.
• The global average delay for LATE vessel arrivals also increased as well and is now at 5.68 days.

Not only is there severe vessel schedule integrity, but the number of containers being rolled continues to be at an all-time high. According to the latest statistics from Ocean-Insights, 39% of all containers are rolled at least one time. Data from Port Klang, Rotterdam, and Piraeus all showed endemic congestion, posting rollover rates of 64%, 54%, and 59% respectively.

Congestion continues to be a major factor at many ports globally, including ports in the USA, Canada, South Korea, China, Singapore, and the United Kingdom.  Congestion challenges will continue for months to come due in part to the increased volumes, and specifically because of the Suez Canal situation.

Until the congestion improves, expect on-time performance to be extremely poor.

Yantian Port – Covid 19 procedures

Due to a recent outbreak of Covid-19 in the port of Yantian, the government has implemented strict procedures. As a result, the situation continues to deteriorate as more positive COVID cases have been confirmed in Shenzhen where Yantian port and Shekou port are located.

Terminals:

Yantian International Container Terminal (YICT) yard density remains elevated with disinfection and quarantine measures being continuously implemented by local authorities to prevent the spread of COVID-19.  We continue to see terminal congestion and expect vessel delays upwards of 14 days in the coming week.

• Yantian International Container Terminal (YICT) updates:
  • Operation in the eastern area of the terminal where mother vessels mainly berth continues to experience the low productivity which is about 30% of its normal level.
  • All operations in the western area of YICT have been suspended until further notice.
  • From 00:00 AM 31st of May, export laden container gate-in has resumed. In the meantime, from May 31 to June 6, CY-open will be available only 3 days prior to vessel ETA, AND only after the terminal confirms the advance reservation made by trucking companies for laden containers gate-in.
  • Import laden container pick-up, which is mainly concentrated in the eastern area of the port, maintains normal operations.

• Shekou port updates:
  • Shekou Port, covering Chiwan Container Terminal, Mawan Container Terminal and Shekou Container Terminal, have updated their control measures to account for the COVID-19 prevention period and to ensure terminal safety:
    • From June 6 to June 13, export laden container gate-in will be accepted only 3 days prior to vessel ETA.

• Nansha port updates:
  • From June 7, export laden container gate-in will be accepted only 7 days prior to vessel ETA in Nansha port.

Key Highlights:

• Due to further measures being implemented by terminal providers, increased congestion and vessel delays of upwards of 14 days are expected in the Yantian port.
• From June 6 to June 13, export laden container gate-in will be accepted only 3 days prior to vessel ETA in Shekou port.
• From June 7, export laden container gate-in will be accepted only 7 days prior to vessel ETA in Nansha port.
• Nansha port traffic congestion and 9-hour waiting times for empty container pick-up and laden container gate-in.

Carrier profitability

Carriers are beginning to announce their Q1 2021 profitability reports, and across the board all carriers announced a very successful Q1. Here are just a few results:

• The first-quarter increase in rates and volume pushed Maersk’s total revenue up 30% year-over-year to $12.4 billion. Group earnings before interest and taxes (EBIT) rose sixfold year-over-year to $3.1 billion. Net profit reached $2.7 billion compared to $209 million in the first quarter last year, and not far off full-year 2020 net profit of $2.9 billion.
• Hapag-Lloyd banked a $1.45 billion net profit in the first quarter, blowing past its $1 billion full-year 2020 net profit in just three months, with the significant increase in global demand that drove first-quarter earnings expected to sustain momentum through at least the first half of the year.
• CMA-CGM First-quarter revenue stood at $10.7 billion, up 49.2% from the first quarter 2020, which was impacted by a slowdown in international trade due to lockdown measures, particularly in China.
• EBITDA came in at $3.2 billion, representing an EBITDA margin of 29.7% (versus 13.5% in the first quarter of 2020). Net income was $2.1 billion.

By trade-lane:

• Asia to Med / North Europe  
  • Data from Container Trades Statistics show that despite strong year-over-year demand growth on Asia-Europe through the first quarter, volumes from April 2020 to March 2021 are up less than 1% (100,000 TEUs) compared to the previous 12-month period. Most of that growth came in the first quarter of this year, but even that is only up 1.5% compared to the first quarter of 2019.
  • It is expected that strong demand will increase over the summer months as importers try to build up extremely low inventories. For shippers, intensifying demand means that they can expect growing space limitations as carriers cancel sailings deep into June to recover schedules blown off by lengthening port delays.
  • Carriers will continue to implement “structural” blank sailings on the Asia-Europe trade-lane and skip ports at least until late June as they struggle to get ships back on schedule. This dynamic will drive up shipping prices further, as competition heats up for limited preferential space on ships.

• Asia to Middle East
  • Carriers cancelled / blanked 20 sailings on dedicated loops from Asia to the Middle East in May, reducing capacity by approx. 11%. Therefore, rates are expected to continue to increase in June as a similar level to the May increases – approx. $280 per 40’ container.

• Asia to Oceania  
  • Freight rates from China to Australia weakened by approx. 11% (or $470 per 40’) between April and May. This was the fourth consecutive month for decreases due to a slacking in shipping demand after the May holidays in China.
  • Port congestion in Australia also eased slightly, leading to some of the carriers suspending their PCS .
  • Expect rates to be restored on the back of 4.5% decrease in capacity and congestion at Chinese ports affecting schedule reliability.
  • Schedules are delayed but comparatively more stable than the East <> West trade-lanes and rates are relatively stable compared to other trade-lanes. If space and equipment shortages deteriorate it will put more pressure on the rates.

• Asia to NORAM
  • The Transpacific container shipping system is sagging under a seemingly unending deluge of imports from Asia into North America. Blank sailings/schedule recovery programs taken by the carrier continue in June and July (and well into Q3 2021) as carriers struggle to get vessels back into proper rotation, leading to reductions in capacity. FAK rate levels continue to rise and importers are often shelling out more than double the posted rates to secure ship and container equipment capacity.
  • Marine terminals at the Los Angeles and Long Beach port complex don’t expect the congestion that has been building since last summer to clear until this summer, while other major ports grapple with the surge that has slowed but not stopped operations. Container lines and marine terminals continue to battle vessel delays and congestion, and this looks set to continue for the foreseeable future as orders remain strong through Q3 2021 to both the East and West coasts of the USA.
  • There is still massive port congestion on the US West Coast, with Oakland joining the list of ports that have numerous vessels at anchor. There is now congestion on the East Coast, with Savannah being severely affected with vessels at anchor for up to 9 days before getting a berth. Expect delays on Intermodal points in the US as rail carriers are struggling to reposition their rail cars back to where the cargo is. Chassis’ are also in short supply. Allow at least an additional 12+ days for cargo availability once vessels arrive. Carriers advise that they are fully booked through June, so the booking window is 6 weeks in advance.

• NORAM to Asia  
  • Equipment shortages continue as carriers are prioritizing the empty repositioning of containers over full export loads.  The Port of LA and Port of Long Beach data confirm this trend. Empty exports grew 65% year-to-date April over the same period last year, while full containers contracted by 2% over the same period.
  • Capacity shortages continue to be acute as carriers introduce blank sailings to bring services back on schedule.  However, this means reduced capacity in the short term – an unwelcome development in light of an already tight space availability environment.
  • Schedule integrity remains poor due to port congestion and omitted sailings. The hinterland network continues to feel the strain with the rail having a major impact to services across North America.
  • Rates in May remained stable after huge increases in April. Do expect some GRIs in June due to the tight capacity and equipment restrictions.

• Asia to Latin America, including Mexico
  • Most carriers report to be “full with roll-overs” in June as volumes to both the ECSA and WCSA remain very strong. Expect the situation to continue for the foreseeable future, even as carriers have implemented additional capacity to the WCSA.
  • Rates continue to be very high and increasing and equipment release critical. A 4-6 week booking window is a must. Carriers are encouraging the use of Non-Operating Reefers (NORs) as a substitute to regular equipment. The use of NORs can provide a solution for equipment challenges and may also provide a lower freight cost.
  • Due to the Colombia national strike which has been ongoing for several weeks, most carriers have suspended the acceptance of bookings ex Asia to Buenaventura and some carriers have announced a Force Majeure situation where the carrier is terminating shipments in a different port and/or country.
  • So far, other ports in Colombia are still accepting cargo but this may change if the situation deteriorates.

• Intra-Asia
  • Equipment continues to be a major issue; carriers are prioritizing containers for revenue earning long haul legs. Expect rates to increase on Intra-Asia lanes due to the surge in demand, as well as congestion at Chinese ports leading carriers to omit ports of call to improve the schedule reliability
  • The services themselves are not changing dramatically. There have been a couple of vessels shifted to create more capacity on mid-haul trade-lanes but no significant impact. Congestion at major ports or trans-shipment points such as Singapore and Hong Kong are worsening. Connections to mother vessels from Intra-Asia feeders is becoming harder to commit to.

• Europe to Asia
  • Equipment is still in short supply and not improving. Many carriers are choosing to decline laden shipments in favor of moving containers empty back to Asia. Space is tight, but not critical. However, pre-booking is essential for securing the needed capacity. Several delays on all routes as all vessels are arriving with significant delays and facing further challenges at already congested ports. Rates are starting to increase marginally, and the trend is expected to continue in the coming weeks due to equipment and schedule challenges. Instability in this trade-lane is expected to continue and possibly worsen before we see improvements.

• Europe / Med to NORAM
  • The situation from the Med and North Europe to North America remains critical. Volumes continue to surge in this trade-lane leading to 100% vessel utilization and heavy rollings. Substantial rate increases have been implemented in recent weeks and more to follow in the coming weeks.
  • Trans-Atlantic container carriers, encouraged by sustained US demand through the second quarter, are warning of hefty peak season surcharges and rate increases from June after spot rates have already soared 80% since the end of March. The spot rate at the end of May reached $3,325 per TEU, almost double the $1,838 per TEU recorded on March 31.
  • Carriers have also announced that from June 1, peak season surcharges of between $500 and $2,000 per TEU will be levied on North Europe-North America, and between $500 and $2,100 per TEU on Mediterranean-North American routes. Some carriers are also planning to implement rate increases of $300 per TEU from early June.
  • All carriers are full through the entire month of June and some carriers have announced booking stop into July. As with all trade-lanes, ensure that bookings are made at least 4-6 weeks prior to departure.
  • There are still a number of blank sailing program continuing into the summer as carriers try to adjust for vessel delays caused by port congestion. The alliances are omitting ports in North America creating delays and multiple schedule changes.

Air Market Update:

Global

• Air cargo capacity decreased 9% in the period between April 19 and May 2 compared to the same period in 2019.
• Transatlantic corridor continues to be the most problematic.
• Belly capacity is stable at minus 54% compared with the same period in 2019. Demand is outpacing capacity in most markets.
• Airports are still congested. It may take extra time to deliver or retrieve shipments from the airport handling agent.
• New quarantine regulations for airlines crews are impacting certain areas of the world.
• China is still imposing restrictions (circuit breaker) to airlines carrying Covid-19 positive passengers with sudden restriction or cancellation of passenger flights to China.
• Because of problems with the ocean freight market, shippers are converting large lots of ocean freight cargo into air freight, increasing demand for capacity in the spot market.
• India, Brazil and now Taiwan are imposing new very strict measures to contain the virus which will surely impact passenger flights.
• US based carriers are repositioning some wide-body aircraft from supporting ghost flights on international routes to domestic routes to support the increase of passenger traffic within the USA.
• Vaccines are now moving via air freight – change in the approval process of some vaccines have altered the supply chain scenario.

Regional

APAC

• Capacity to NORAM is better than the same period in 2019, but not sufficient to support strong demand.
• Capacity to and from Europe is still at about – 10% compared to 2019, while demand is up in both directions.
• “Ghost” flights will continue to be essential to maintain capacity to current levels as there will not be additional passenger flights until possibly the summer season.
• Lack of space for ocean freight has forced some shippers to switch ocean shipments to air.

EMEA

• The situation in and out of Europe is still critical, especially in the Transatlantic lanes which are still at less than 30% of 2019 capacity. European countries may be in the position to ease their lockdown soon.

AMERICAS

• North/South capacity is similar to 2019 for south bound and better for north bound drive mostly by fresh cargo.  
• Capacity in and out of LATAM, both on the Transpacific and Transatlantic routes, is still critical – especially between Europe and LATAM.
• Space into Brazil is particularly scarce following multiple flights cuts operated by some European airlines.

Source: JAS Worldwide: Freight Forwarding

Related Content:

• Freight Insights for Week of June 7
• June 2021 International Market Update
• May 2021 US/MX Cross-Border Update