State of Logistics 2022: Ocean
Stormy conditions will prevail in the global sea freight market given the continued shortage of shipping and container services combined with unreliable services and congested ports.
A major catalyst is the Shanghai lockdown that began in mid-March, which resulted in departures being canceled by all alliances. Now that Shanghai is reopening, seaports on the west coast are gearing up for a massive increase in freight. In fact, London-based Transport Intelligence (Ti) analysts warn that these factors will continue to affect rates, producing potentially violent swings.
“Rising inflation and rising interest rates, particularly in North America, have already started to suppress demand on the head-end routes to Europe and North America,” Ti says. “With both consumer confidence and purchasing power, one would expect at least some upward pressure on rates to dissipate as consumer demand falls.”
Meanwhile, port congestion is reducing the capacity available on the market. The big problem at the Port of Shanghai is landside supply chain operations. Trucking is restricted and drivers are prohibited from accessing certain lockdown areas.
“The impact is complex, with signs that production capacity and shipping capacity will decline,” Ti reports. “For example, Toyota and Tesla have been added to a list of manufacturers that are cutting production volumes in the city and beyond.”
While ports on the U.S. East and West Coasts are reporting record volumes, some, like the Port of Oakland, are noting cargo volumes are down in 2022. Oakland cited China’s COVID crackdown and its ripple effect on shipping carrier scheduling as a reason.
“The Chinese shutdowns hit a global container distribution system that is already heavily stretched and facing reduced capacity due to widespread congestion,” said Philip Damas, head of Drewry Supply Chain Advisors.
Drewry analysts say a positive reading of this could be that reduced volumes will accelerate the normalization of liner network performance and port productivity. However, they estimate that with 260,000 TEUs of export cargo not shipped from Shanghai in April alone, further capacity issues will arise that will coincide with the peak summer season.
“We are preparing for a likely increase in the summer as China recovers from an extended shutdown due to COVID-19,” Port of Long Beach Executive Director Mario Cordero said.
On the capacity side, the shipping companies seem to be managing capacity. Project44 indicates that major alliances will increase empty starts, at least for the remainder of the second quarter. Between mid-May and mid-June, data shows that the Alliance is expected to cut 33% of its export trips to Asia, with the Ocean Alliance (37%) and 2M Alliance (39%) cutting at a higher rate.
Project44 assumes that this capacity management will help keep fares at higher levels, especially on the hardest hit Asia-Europe route. “The combination of factors driving global ocean freight rates in the second quarter of 2022 are expected to keep rates near the highs seen in recent quarters, particularly with higher oil prices contributing to higher costs for carriers,” the company said. .
Looking ahead, however, the buildup of headwinds and a weakening growth outlook in major Western economies suggests a period of weaker demand through the second half of 2022. “There are indications that conditions for that rates are finally starting to come down are being established,” added John Manners-Bell, chief executive of Ti.
World Container Index for the week of April 21, 2022