News digest. 19 Oct
The differential between the surcharges increases, now reaching $20,000, and so does the number of smaller shippers falling into bankruptcy.
Just like in any other game, it is always the smaller players that usually take the most misfortunate position. In the foolish game of the surcharges, they are carrying immense losses, while some of them fall off the cliff into bankruptcy as the price differential between smaller shippers using spot cargo and larger shippers on contract continues to escalate. Now it is almost reaching $20,000. Although there was a subtle sign of spot rates topping out in recent weeks, many analysts are warning it will take many months for prices to truly cool down. What other Jack in the box is expected? The rise of the insurance costs has taken a strong grip around the throats of the shipping lines that used to be among those profiting from the current madness the most. The predictions regarding how much the price will increase vary from 15% to 25%, therefore life will not be honey-sweet even for the winning players. Sounds like an upsetting scenario, does not it? Especially when Christmas is approaching, and all the fears of empty shelves wash over the minds of not only customers but also of shippers. However, not everyone shares a pessimistic mood. Some sources admit that yes, there are shortages; yes, congestion is everywhere, etc., but if consumers do not engage in panic buying, there will not be any widespread empty shelf winter. They believe that the hysteria is being spread by the companies that lost their competitive advantage. Even if it is true, the current state of things does not provide much confidence in the future. China has not resolved the power crises yet, on the contrary, further disruptions are expected, and as a result, it will lead to longer lead times and a preference for high-value goods. Nobody knows when it ends. While it has become obvious that everyone is struggling with high rates and skyrocketing costs, even robbers have taken mercy on the ships. The recent data has shown that the number of armed robberies has declined by 27% in Asia during the January-September period this year compared to the same period of 2020.
In addition to problems undermining positive prognosis regarding upcoming holidays, the EU does not bring any relief as companies continue to omit UK port calls, which causes a massive challenge for feeder operators tasked with relaying thousands of “overcarried” containers. The good news is that reports are stating that the worst is over and the landside congestion had eased. Meanwhile, the US continues to tackle the problem of bottlenecks by implementing the 24/7 operating hour schedule. More ports such as the Ports of Seattle and Tacoma have taken this approach. This is not going to be the only strategy. Recently, the Supply Chain Act was introduced to the officials, an initiative that proposes to monitor the supply chains of critical goods and design a response to disruptions, using a $500 million annual budget from 2022-2027. It follows up the already accepted Biden’s plan and takes a more detailed look at the hidden costs of faraway manufacturing and supports the idea of companies having more control of their suppliers.
The US ports are not the only ones experiencing the increased throughput. The Russian Container Market has processed 1.3 million TEU in Q3 of 2021, increasing 9% compared to the same period in 2020. However, the decrease is also common in the Northern Ports – a decline of 4.8%.
While Amazon was not the star of the positive news in recent days, it does not mean that e-commerce giants are not on the roll. Perhaps, for China that is still in the darkness in a literal sense, Alibaba will be that much-needed torch. It has gotten a stake in new liner operator Transfar Shipping, which launched operations with China-US west coast sailings in August. This is not just a follow-up of the trend of big e-commerce chattering their vessels. A unit of Alibaba logistics offshoot Cainiao, purchased a 10.33% stake in September last year, so now it is expanding which demonstrates a vertical integration that is different from what the competitors are doing.
It is impossible to decide which sector has been hit the worst, but without a doubt, it is clear that airfreight would share the pedestal. The crisis has shown that it was a big omission not to consider air cargo that important. It used to be the afterthought, but the capacity shortage revealed the pain point of the lack of focus. Now we are in for a big restructuring. Many believe that cargo strategy will now go into aircraft and network decisions, and as it has stepped into the spotlight, more talent will be attracted.
So far, the UK is not the one to be with empty shelves, at least thanks to the rail. Tesco is determined to increase its use of trains to distribute produce by almost 40%. However, the biggest issue of the lack of electrification remains unsolved for the railways to become the ultimate success. In fact, the UK is electrifying its railway at less than half the rate needed to decarbonize by 2050 due to the lack of expertise and the government falling behind its economic recovery initiatives. Meanwhile, STM and Kazakhstan’s Silway Transit join efforts to deliver new electric locomotives that will be especially useful during heavy train operations.
