Asia | US news digest. 16 July
Another historical record and escalated madness. When shooting for high rates does not guarantee landing among the stars.
Breaking: The Shanghai Containerized Freight Index has crossed the 4,000 point for the first time, which accounts for a quadruple of its historical average while liners firmly set on course to record their most profitable year in history. Additional forecasts also predict new records in upcoming profits amounting to $80 bn instead of the initial $35 bn. In the light of the approaching peak season, the demand for ocean freight continues to outstrip supply, pushing Asia-North Europe rates further up. Hapag Lloyd and CMA CGM have already announced new charges from several Asia regions to various destinations all over the world. Hapag Lloyd will first implement an of US$300 per standard TEU and US$600 per standard and high cube FEU, while CMA CGM will apply a Peak Season Surcharge of US$1,000/TEU of dry cargo traveling from India to North Europe and some other destinations. In addition to insane FAK rates, ocean carriers are loading up huge surchargesjustifying it by the good ol’ increased demand. However, the chosen strategy is quick to backfire – some clients had been obliged to start a redundancy process, as they could no longer get the product to their business at a viable price. This madness will have to stop at some point for the sake of avoiding a collapse. Especially with the following dynamic – Asia-North Europe spot freight rates have already passed the US$13,000/FEU mark.
At the same time, South Korea-China container rates are bucking the global trend of upward freight movements in the light of falling exports from South Korea to China. In turn, this increases downward pressure on charges. The figures do not look promising with South Korean export going down 5% year-on-year in May for the first time in five months.
Another misfortune that has hit shippers recently is a temporary halt of international container shipment from all west coast ports to Chicago by the railroad operator Union Pacific. It is due to working off the backlog of its Global IV terminal while freeing up railcar assets to support import-loading needs on the West Coast. Chicago remains the biggest onward destination, thus for shippers, it is extremely important to come up with alternatives as soon as possible.
Regarding US imports, no slowdown in imports is in sight. Ports across the country are reporting record-breaking TEU traffic. The Port of Los Angeles alone stands at 5,427,359 TEU, an increase of 44% compared to the one of last year. However, the port is also bracing up for July and August, claiming the two months to be the strongest for volumes especially since the aftereffects of Yantian are still present. South Carolina Ports also demonstrate the strongest fiscal year on record for containers – it handled 2.55 million TEU at Wando Welch Terminal. Despite the growth, supply chain obstacles persist, so the government has to consider more active measures and careful planning for the future using sustained leadership and collaboration as the leading principles.
When the situation seems to become uncontrollable, it is time to take a driver’s seat. At least, this is what Maersk believes. The industry giant is going to redesign its ocean network in West and Central Asia. The network will be reworked with the stream of new services amid to improve speed to market, provide higher predictability, and offer flexibility to the supply chain. Meanwhile, COSCO still advocates for the expansion approach as the best strategy and orders 10 container ships for nearly $1.5 bn as part of a drive to increase efficiency and cut transportation costs. In general, how can liners find more capacity in such a challenging context without adding ships? Data shows that the answer is in the increased speed. Container ships are moving faster despite the fuel consumption. The helping hand is also the schedules that are already so far behind that faster speeds can help carriers chip away at congestion-induced capacity losses over time. The schedule reliability is expected to remain disrupted for much longer with the new Covid restrictions in manufacturing and logistics in South-East Asia. As a result, it will put significant strain on semiconductor production, serious given the global supply shortage.
As for the green development, although the EC Fit For 55 Green Deal policy revision proposals have been welcomed, road and maritime transport sectors voice their concerns. They are against combining energy taxation with emissions trading because it would mean that commercial road transport operators would pay twice for emissions. The industry players see this approach as unfair and call for reconsideration.
