News digest. 8 Jan

In the case of Asia, when one door closes, another one does not open to a great dismay of the common proverb. Further sanitary restrictions are putting supply chains under immense pressure worldwide. 

The wind is strong and the waves are big when it comes to Asia as COVID restrictions at ports are tightening in an attempt to contain more contagious variants of the virus. In addition to the introduction of partial lockdowns in Ningbo (although no significant impact has been detected, experts fear that prolonged measures will lead to disruptions), China has put Shenzhen on high alert making it more difficult to leave the city, which directly affects transportation. All the ships arriving in China are now facing strict control measures. However, it is important to keep in mind that ports are not solely about arriving and departing vessels – all the infrastructure related to longshoremen, warehouses, trucks, and rails that enable the flow of trade to move becomes affected by the lockdown disrupting operation of the entire ecosystem.  Chinese authorities claim that the state of affairs is stable, but in reality, Ningbo, a digitally automated powerhouse, still needs people and trucks to operate efficiently. In fact, the labor shortage is spreading way beyond Chinaon a global scale. Omicron proves to be more contagious, thus many people call in sick and cannot perform their daily operations. It is severely affecting manufactures and shippers. The former do not have crews to produce products, and the latter cannot transport them since no one is available. The consequences of it did not wait long to show up. The updates of the indexes have clearly demonstrated the pressure that supply chains are under. Analysts have tracked the most important ones to 1997 and concluded that there has been no period of such supply chain pressure in the ensuing 25 years as what has been experienced over the past year. The beginning of the year has not given any clues on the evolution of the sport rates either leaving my players torn between agreeing to fixed long-term contracts and keeping a foot in the door of the spot market in case dynamic changes. If they start having to pay extra charges to get boxes, and more to get them on the ship, then the total charges will skyrocket again. This uncertainty is also pushing shippers and carriers into trade freight forward agreements. Before they were rather reluctant to the introduction of FFA due to the low rates but now their appetite has increased. The perplexing situation in Asian ports due to the sanitary restrictions did not leave the airfreight sector unnoticed either. More international flights were banned in Hong Kong leaving the companies no time and room to adjust. The situation in the EU with airfreight is a bitter better as some companies manage to adjust their freight services in the light of elevated rates and high prices. 

Last year already saw the increasing role of government in many countries in attempts to tackle supply chain crises. In the US, it has been especially active in the shipping sector. For instance, currently, Congress is looking to give the government more power over commercial decisions on capacity allocation in the container shipping trade. What will it lead to? Many understand that if the new initiatives are accepted it will be the FMC that is going to dictate the rules regarding capacity. It is a slippery path as no significant progress has been made in establishing fair competition and influencing big lines, so the expansion of the FMC’s authority risks leading to more chaos. If not an authoritative institution should be watching over competition game, then what? The question remains unanswered. Meanwhile, the UK faces a similar problem where BIFA is concerned with practices undertaken by the principal container shipping lines and the assessment of them. In a span of several years, the industry has gotten 15 shipping lines, organized into three major alliances carrying that trade, with some analysts observing that the market share of a single alliance on certain key routes could be over 40%. The recent accomplishment of the MSC surpassing Maersk in terms of their asset sizes serves a proof that the big players are growing vigorously. Although the company claims that it was not competing in size, it is clear that the win has also strengthened its position as a powerhouse. The latest data showed that the shipping industry’s Q3 of 2021 made an enormous $37.24 billion in operating profit. In addition, the country is bracing up against the intensifying pressure on the local importers following the implementation of the post-Brexit border-control procedures. Some of the services crushed on the first day, which lead to delays. Companies note it is not the new regulations that are the problem because the process remains the same; it’s mainly the time frame that was changed. Experts warn that volumes will rise and the pressure risks becoming more tangible. 

There have already been signs of the rail freight moving east and even speculations about the possible increasing role of Poland that eventually could become a frontrunner of the intermodal transport. While this premise remains under a question mark, Poland has welcomed Metrans that has extended its network of rail terminals eastwards by acquiring CL Europort. The new terminal will be located in Polish Malaszewicze, which represents a bridge between the EU member states, Russia and China giving the co