Port congestion, capacity and equipment shortages, and omitted port calls are causing massive upward pressure on freight rates and shipping delays across the board. Forecasting, advance planning, and communication are essential to help ease the effects of this unique shipping environment.
Week 5 Updates:
- Equipment supply shortages, capacity constraints, and rising rates continue to challenge the Transpacific Eastbound trade. Chinese New Year begins next week, with official office and factory closings running from February 11 through February 17. However, with COVID cases surging in many metro regions, large numbers of workers are making their trips home earlier than planned. Trucking shortages are already being reported in major port cities like Shanghai. Closures and shortages will extend beyond the traditional holiday timeline.
- Rates are still sky high out of Asia. Most cargo is moving at super high premium rate levels.
- Ports are still heavily congested across the globe and causing significant delays. Out of Shanghai, for example, vessel delays of one week are best case scenario; in most cases, 2-4 week delays are more likely. We’re seeing the impacts of congestion and schedule delays on all trade lanes.
- Port of LAX/LGB still has a huge backlog of cargo to clear, with 35-40 vessels anchored offshore at any given time. In recent weeks, over 700 longshore workers tested positive for COVID, and many, many more had to quarantine due to exposure. Between record volumes and staffing shortages due to COVID, the port complex is seriously struggling to keep up. FMC commissioners recently requested priority vaccine access for dockworkers to help protect the industry and keep cargo moving.
- Carriers have canceled many sailings worldwide in the coming weeks in an effort to help ports clear backlogs and improve cargo flow. Hopefully this will have a positive impact overall, despite high space demand and potential for new bottlenecks at origin ports while sailings come back online. Feeder service cancellations in South China in recent weeks have already created more delays in that region.
- The Transatlantic westbound trade is fully booked for at least one month; no new FCL bookings are possible until March. Equipment and space shortages continue, and rates have increased accordingly. LCL and air freight services are still available. Please keep CVI’s Southbound Select LCL product, as well as our Germany to Southeast air consol, in mind.
- US export rates are climbing due to overall space constraints and pressure to get empties repositioned overseas as quickly as possible. Most export lanes are seeing rate increases this quarter. Equipment is especially difficult at inland points.
- Please continue to pre-book US trucking, as early as possible, minimum 2-3 weeks before shipment needs to move. Truckers are booked weeks out at US gateways.
- Please keep Pricing posted on customer forecasts and general volume needs, as well as contracting plans. RFQs and contract negotiations typically get underway after CNY; we are watching market developments closely.
Full Market Report: January 2021
The supply chain challenges of this past year are following the industry into 2021. Global port congestion due to surging volumes is contributing to disruption on nearly every trade lane. Most ports are overwhelmed with cargo and struggling to keep up. There are currently 30+ vessels anchored off the shore of Los Angeles/Long Beach, for example, waiting for an opening to berth. Ports across the US (west coast, east coast, and gulf coast) as well as throughout Asia and Europe, including the UK, are also experiencing severe congestion-related delays. Bottlenecks at these major gateways are delaying the movement of cargo and, in some cases, forcing carriers to omit port calls and implement blank sailings to make up for lost time and avoid further schedule changes. Schedule delays are so common that we see them on nearly every ocean shipment moving as of late.
Equipment shortages are further complicating the issue of timely cargo movement. There are severe shortages worldwide, including across Asia and Europe. Carriers are having difficulties managing their own equipment supply; in Europe, we have seen at least one carrier implement a complete booking stop for 40’GP boxes out of central Europe. Shippers are frequently switching to less desirable container sizes, such as 20’ and 45’ equipment when 40’ is their standard, simply to keep at least some cargo moving while awaiting 40’ availability.
Vessel space continues to challenge international shippers as well. Carriers have deployed all available capacity on most major trade lanes, yet cannot accommodate the huge volume demand that exists in the market. There is simply far more cargo moving internationally than capacity and equipment in the market.
Beyond port congestion and capacity and equipment shortages, the result of this surging demand is massive upward pressure on freight rates across the board. On the Transpacific Eastbound trade, rates have been rising since June 2020 and have hit record highs in recent months. Shippers of all sizes, including the world’s largest shippers, are regularly agreeing to freight rates over four times their 2020-2021 negotiated contract levels. On the Transatlantic Westbound trade, freight rates have been gradually increasing in recent months as congestion and equipment shortages have become more pronounced. Freight rate increases come in many forms, under many different names: equipment imbalance surcharges, peak season surcharges, premium surcharges, and equipment guarantee surcharges, for example. Carriers have also implemented hefty cancellation fees on the Transpacific Eastbound trade, especially on premium level services. These fees can range from several thousand dollars per container to the entire cost of the agreed freight rate, varying by carrier and service.
The international air freight market is experiencing similar challenges. Air services and capacity have been limited since early 2020, when passenger travel decreased worldwide due to the COVID-19 pandemic. Air rates have surged over the same period in light of a huge supply/demand imbalance. Shippers are frequently turning to air freight as an alternative to unreliable ocean freight services when cargo is urgent, despite the extreme cost differential between the two.
In the US, we are seeing the impacts of surging volume on the rails, roads, and in warehouses. There are serious delays in movement of cargo from port to the rail and onto trucks. In the most extreme cases, such as at LAX/LGB, containers may sit for more than two weeks prior to loading onto the rail. Truck capacity and chassis availability are so severely limited that power is booked up at least three weeks in advance at most major port and inland gateways.
On the US export front, shippers are frustrated by the focus on repositioning equipment overseas to service more profitable trade lanes. Repositioning efforts have created equipment shortages in the US, especially at inland points in the Midwest. Vessel space constraints and schedule changes due to global congestion are only complicating matters. Rate increases are impacting exporters more in recent months as well, just as they are importers.
Record volume growth over the last year is the result of unprecedented shifts in household spending since the start of the pandemic. Consumers are spending far less on services, travel, and dining, and far more on goods. With consumers staying close to home, furniture, home improvement items, and sporting equipment are just a few of the verticals that have seen huge demand growth. This trend is likely to last at least through mid-2021, possibly longer, though timing very much depends on US economic policy and vaccine distribution, among other factors. A third stimulus package could very well push demand to new heights, for example. Conversely, an increase in efficiency of vaccine rollout could have the opposite effect if consumers begin to feel more comfortable spending on services again. Currently, however, there are no signs of slowing demand, despite the ongoing recession. We should all be prepared for a continuation of the existing pattern in the near term.
CVI is working diligently with our partners worldwide to ease the effects of this unique international shipping environment on our customers. Communication is critical now more than ever, and CVI strives to keep customer informed each step of the way. Forecasting and advance planning is also essential; the more information we have about your upcoming needs, the more action we can take to accommodate shipments and keep them moving as smoothly as possible.
Thank you for your support and understanding during this time.
Director, Pricing & Procurement
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Rachel serves as Director, Pricing and Procurement for CVI. Her responsibilities include vendor selection, contract management and negotiation, transportation pricing, FMC compliance, and international agent network management.
Rachel began her career in international shipping with CMA-CGM America. She joined CVI in 2011, gaining experience in various departments with a focus on inside sales and marketing for the company. In 2014, Rachel assumed the role of Manager, Transportation, working on service procurement and development of client proposals. She has served in her current position since 2018.
A native of Norfolk, Virginia, Rachel earned her bachelor’s degree from the University of Michigan in 2005. She holds a Master of Business Administration with a concentration in Maritime and Supply Chain Management from Old Dominion University.
– Rachel Shames, Director, Pricing & Procurement, CVI
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