Current Affairs
August 19, 2021
Shipping Outlook
Shipping container rates to remain elevated into 2022 as US demand outpaces capacity
Author: Adam Yanelli
2021/07/20
HOUSTON (ICIS)–Shipping container rates have spiked by as much as three or four times since the onset of the pandemic and are likely to remain elevated beyond the Lunar New Year in 2022 as the global demand for goods continues to outpace available capacity.
And even when the demand starts to ease, participants on a webinar hosted by online freight shipping marketplace and platform provider Freightos said that container rates are unlikely to return to their previous levels.
“I have been in this business for 20 years, and $4,500 was the previous high I had seen for a container from Asia to the US West Coast before the pandemic,” said panellist Robert Khachatryan, founder and COO of shipping forwarder Freight Right Global Logistics.
“I think that will be the new floor,” he added. “Maybe even above $5,000. I think that could become the new market rate.”
HOW WE GOT HERE
While most chemicals are liquids and are shipped in tankers, polymers such as polyethylene (PE) and polypropylene (PP), which are shipped in pellets, are moved by container ships.
Container ships also carry a wider scope of cargoes, including consumer products like electrical appliances and automobiles, so demand for that space has risen as economies reopened after lockdown measures because of the pandemic.
The spread of the coronavirus pandemic – and the lockdown measures initiated to help mitigate it – led to a surge in demand for goods.
Consumers who were able to work from home found themselves with extra money since they were limited in how they could spend it.
Judah Levine, research lead at Freightos, said volumes began to increase, peaked in October and have remained elevated.
Container shipping has a peak season for goods from Asia to the US – from about July to October – but the added demand kept volumes above typical peak season levels.
“The impact was that all of these containers overwhelmed the capacity of the ports to process them,” Levine said.
He added that the port backlogs essentially sucked up all of the available capacity in ships and containers.
“All of the world’s container ships are active right now,” Levine said, explaining that shipowners typically have extra capacity that they can bring online for peak times. “In the current situation, there is no extra capacity, which is putting pressure all along the supply chain.”
Source: Freightos – fbx.freightos.com
Rates began to spike in Q4 2020, driven by the shortage of containers, and after some easing, shot up again when the Ever Given became lodged in the Suez Canal.
Rates continued rising recently when an outbreak of COVID-19 infections at the port of Yantian, one of China’s busiest container ports, led to lengthy delays at the port and added additional strain to the network.
IMPACT IN LATIN AMERICA
The increases in container rates have been particularly hard on Latin American markets, where resin producers have seen eroded margins because of the increased costs, which they have been unable to pass through to customers in many cases.
A market participant that imports polyvinyl chloride (PVC) from China to South America told ICIS it was quoted rates for end-July of $6,900/20-foot container from India to Argentina.
A 20-foot container from China to Argentina was quoted $9,000-12,000.
“The freight rates that you have mentioned align with what we are seeing in the market as well,” the market participant said.
“Spot rates are around $9,000-10,000/container, and even then, availability is not confirmed. Freight rates from Europe to US East Coast is also at similar levels,” the market participant said.
DEMAND TO REMAIN ELEVATED ON RESTOCKING
The panellists agreed that because of the various supply chain issues experienced this year, many businesses are running with limited inventory.
Efforts to restock barren warehouses are likely to keep demand elevated beyond this year’s peak season.
Source: US Federal Reserve
Khachatryan said that because of delays in receiving goods this year, some importers and exporters are ordering and scheduling shipments earlier than before.
He said he is seeing Christmas related items already being shipped when previously they would not be on a vessel until August or September.
“Next year we expect to see customers start ordering even earlier,” he said.
Ruthie Amaru, Freightos CEO, said it is more important than ever to look for different options for sourcing goods and to be flexible with the modes of transportation.
For example, while it would have never been cost effective prior to the pandemic to ship goods via air freight, now that container rates have spiked the gap has narrowed.
Add to that demurrage charges (a charge payable to the shipowner for failure to load or unload a ship within the agreed time frame) and the gap between rail and air could make more sense.
LIQUID TANKERS DIRECT OPPOSITE TO CONTAINERS
While container ships are facing severe shortages and price spikes, the liquid chemical tanker market is facing the opposite extreme with quite a slowdown in activity, particularly since the winter storm in February that shut much US Gulf Coast production.
“No one clearly knows what is going to happen for liquid tankers, and the more we think it is coming back, the more it is being pushed further and further away,” said one shipping broker.
After the winter storm, chemical production was at a low, and exports of product from the US slipped further.
For the remainder of Q3 and into Q4, the biggest factor that could cause a similar outcome is hurricanes. While chemical production slowly rebuilds and product becomes more available, even one significant hurricane can cause severe disruptions and declines in the tanker market.
“Other than a hurricane, I don’t think anything else can be bring this to a worse place than where we are currently,” the broker added.
Focus story by Adam Yanelli and Anna Matherne
August 17, 2021
Port Congestion
Vessel Congestion At LA Ports Soars As More Ships Join Queue
by Tyler DurdenTuesday, Aug 17, 2021 – 05:45 AM
Vessel congestion outside the busiest US gateway for trade with Asia is clogged with the most inbound container vessels in nearly six months.
Bloomberg data shows the number of containerships queuing off the coast of Los Angeles has reached 37 on Sunday evening, that’s three less than the all-time-high observed on Feb. 1.
On Sunday, the average waits for berth space, a designated location in a port used for mooring vessels when vessels are not at sea, was 6.2 days, compared with 5.7 in late June. That number topped eight days in April.
Readers may recall the collapse of the trans-pacific supply chains has been among the main reasons for soaring consumer goods prices. It’s also hardly a secret that the most vulnerable section of supply chains are West Coast ports where congestion remains off the charts.
The transpacific trade routes have experienced significant port delays in China in recent weeks because COVID outbreaks are shutting down terminals.
We’ve discussed the latest meltdown down of the trans-pacific supply chains in “Supply-Chains Brace For Collapse: Port Of LA Fears Repeat Of “Shipping Nightmare” As China Locks Down” and “Shippers Frantic After China’s Busiest Port Shuts Container Terminal Due To Covid.”
Goldman Sachs has explicitly warned that “port closures or stricter control measures at ports could also put further upward pressure on shipping costs, which are already very high.”
But as new data suggest, shipping congestion at the ports of Los Angeles and Long Beach is worsening and could even surpass levels seen earlier this year. The timing of this bottleneck is ahead of back-to-school and the holiday season when importers ramp up shipments of goods from Asia.
https://www.zerohedge.com/markets/vessel-congestion-la-ports-soars-more-ships-join-queue
August 17, 2021
Port Congestion
Vessel Congestion At LA Ports Soars As More Ships Join Queue
by Tyler DurdenTuesday, Aug 17, 2021 – 05:45 AM
Vessel congestion outside the busiest US gateway for trade with Asia is clogged with the most inbound container vessels in nearly six months.
Bloomberg data shows the number of containerships queuing off the coast of Los Angeles has reached 37 on Sunday evening, that’s three less than the all-time-high observed on Feb. 1.
On Sunday, the average waits for berth space, a designated location in a port used for mooring vessels when vessels are not at sea, was 6.2 days, compared with 5.7 in late June. That number topped eight days in April.
Readers may recall the collapse of the trans-pacific supply chains has been among the main reasons for soaring consumer goods prices. It’s also hardly a secret that the most vulnerable section of supply chains are West Coast ports where congestion remains off the charts.
The transpacific trade routes have experienced significant port delays in China in recent weeks because COVID outbreaks are shutting down terminals.
We’ve discussed the latest meltdown down of the trans-pacific supply chains in “Supply-Chains Brace For Collapse: Port Of LA Fears Repeat Of “Shipping Nightmare” As China Locks Down” and “Shippers Frantic After China’s Busiest Port Shuts Container Terminal Due To Covid.”
Goldman Sachs has explicitly warned that “port closures or stricter control measures at ports could also put further upward pressure on shipping costs, which are already very high.”
But as new data suggest, shipping congestion at the ports of Los Angeles and Long Beach is worsening and could even surpass levels seen earlier this year. The timing of this bottleneck is ahead of back-to-school and the holiday season when importers ramp up shipments of goods from Asia.
https://www.zerohedge.com/markets/vessel-congestion-la-ports-soars-more-ships-join-queue
August 4, 2021
Port of LA Update
In the eye of the congestion storm: Q&A with Port of LA’s Gene Seroka
Southern California gateway still clogged as wave of peak-season cargo looms
Greg Miller, Senior Editor Follow on Twitter Tuesday, August 3, 2021 6 minutes read
Peak season, for all practical purposes, is here. There are once again 25 or more container ships at anchor in San Pedro Bay off the ports of Los Angeles and Long Beach. Rail lines UP and BNSF were so backed up that they recently throttled container flows from Southern California to Chicago.
With no end in sight, how can West Coast ports handle the ongoing flood of imports?
To answer that question, American Shipper interviewed Gene Seroka, executive director of the Port of Los Angeles, on Wednesday. Following is an edited version of that conversion:
AMERICAN SHIPPER: There’s a parade of ships now headed from Asia to California. With peak season cargo coming in and new trans-Pacific services and extra loaders, is there any way for Los Angeles to squeeze out more productivity on the land side and dig out of this? Or does normalcy have to wait for imports to abate?
SEROKA: “The railroads are full. The warehouses are full. Port terminals are full. Ships are coming in and waiting to get worked. The factories are behind in orders. This incredible demand has got everybody in the entire value chain just clipping out at levels we never could have imagined — and it’s still not enough.
“We’ve still got so much cargo coming in. We were on the phone with a big retailer this morning and they said that they’re still going to need another year to get inventories up to a level they think is appropriate.
“Something’s got to ease. We’ve got 23 vessels scheduled to come into both ports over the next three days. That’s pretty high. We’ve now got 25 ships at anchor for both ports, 17 of which are directed to LA.
“But, for example, if we suddenly got a break in the warehouse system and a bunch of cargo was pushed out after being put in 53-foot boxes, we could have an immediate release valve on these terminals. One overnight run of 60,000 containers makes us look very, very different tomorrow than we do right now.”
AMERICAN SHIPPER: There have been several times when the number of ships at anchor dropped by 10 or more over a single weekend. Is that part of the strategy?
SEROKA: “Yes, it has been preprogrammed and planned. One of the things that’s difficult is getting the trucker community aligned with those additional gates and work times. Because these guys and ladies have the 11-hour federal mandate of work plus extra rest time. So, we’ve got to be in real synchronicity with these folks to say, ‘Hey, look, we’re going to be able to move a ton of cargo out on Saturday, Saturday night, Sunday, Sunday night. Can you have the power available?’ And they may forgo a little bit of work on Thursday and Friday, for example.”
AMERICAN SHIPPER: You just mentioned warehouses as a possible release valve. You’re implying more can be done at warehouses productivity-wise?
SEROKA: “Absolutely. It works on either end. If ships slow down for a week coming in, we could push out some of this cargo. There would be a little bit of a flow issue to direct the trucks and trains, but at least it would put a dent into the anchorages. Conversely, a similar outcome — maybe even with faster results — would be at the warehouses. You’ve got 2 billion square feet of space. If you were suddenly able to push out 53-foot domestic boxes at an abnormal pace — because these guys are only open from 8 to 5 — but if you added night shifts and weekend shifts, we could really release the air out of these terminals and get this port in better shape to welcome that next vessel.”
AMERICAN SHIPPER: There has been a shortage of job applicants across the country, in many different industries. How much is this a factor, not just in the warehouses, but across the entire land-based logistics system?
SEROKA: “I’ll break it down into three areas. The ILWU [longshore union] rank and file has been on the job between five and a half and six days a week since the pandemic began. We’ve added about 1,000 longshoremen and women during this process and it could be more. The employers and the union have to agree on those numbers within the collective-bargaining agreement, but if we can get more workers out there, even better in my view.
“On the trucking side, we’ve got about 18,000 truckers registered individually to do business at this port, only half of which call at the port at least once a week. With these terminals super-full with containers, that slows down truck times. Because we’re not getting four turns a day, we’re only getting two, we need more drivers and you still have half the population you can recruit into this business. How quickly individual companies and independent contractors want to [resume work at the port] remains the question.
“On the third segment, the warehousing guys, that’s been hit or miss all throughout COVID. You’ve got physical distancing and the teams that work in warehouses are now smaller and working farther apart. With stimulus, some may have forgone working in warehouses because those checks took care of the needs of them and their families. Now bringing them back are things like rent abatements and eviction moratoriums and unemployment benefits starting to wane and expire. So, you may see more people in the [warehouse labor] market.”
AMERICAN SHIPPER: There have also been huge challenges on the rail side. You reported in mid-June that Los Angeles’ on-dock rail time was still 12 days, not far from its peak earlier in the year. Then, in July, UP suspended Southern California-Chicago service for a week and BNSF rationed service for two weeks. How has that affected the port?
SEROKA: “That was a very difficult decision — pausing trains from Los Angeles/Long Beach to Chicago — and I think it had to be done. I talk to the senior guys and ladies at both companies, regularly, if not daily. What I learned from UP was that at the time that decision was made, they had 25 miles worth of trains sitting outside of Joliet. Lo and behold, very shortly thereafter, BNSF had 22 miles of trains sitting outside that facility.
“They are facing some of the same difficulties that we do here in LA. Their dwell time for containers, once a train gets discharged, was three times as long as it used to be, pre-pandemic, pre-surge. The expectation is that their customers come in within the day and pick up their boxes. It was going to three-plus days. And their on-the-street dwell time [at warehouses] was up to eight days, very similar to ours. So, they’re not getting equipment back nearly fast enough. Their normal model is about two days’ street dwell.
“These guys were saying, ‘How many more trains can I put in there because the guys in Southern California are screaming we need more rail cars, engine power and crews to get the next ship’s cargoes out. If [equipment] is just sitting in Chicago or other locations, I can’t get those assets and crews back.’ [Pausing service] was a painful decision they had to make.
“Combined, about 15% of our cargo was paused for that point in time. So, it didn’t decimate us, but every container that doesn’t move out of the port creates more of a clog right here. We’re once again sitting at about 95-98% of our land usage capacity and 80% is considered full-throttle for us.”
AMERICAN SHIPPER: How has this emergency pause in service affected rail dwell time at the port?
SEROKA: “For the small snapshot in time that they went into this pause, it increased dwell times, as you could imagine, because you’ve got containers that are not moving out. So, right now, we’re sitting at 13.1 days rail dwell and that’s just off the peak that we witnessed back in February. But then we will see it slide as these Midwest trains start to be built and move out.
“What it did was help clear out Joliet to an extent where it’s now manageable [in terms of] the cargo they can put through their terminal — and that will accelerate trains moving out of here going to Chicago.”
AMERICAN SHIPPER: Looking at all that’s happened already in 2021 — from the rail situation to the anchorages and all the other issues — it has really been an incredible year.
SEROKA: “And the story still has not been finished yet.”
August 4, 2021
Port of LA Update
In the eye of the congestion storm: Q&A with Port of LA’s Gene Seroka
Southern California gateway still clogged as wave of peak-season cargo looms
Greg Miller, Senior Editor Follow on Twitter Tuesday, August 3, 2021 6 minutes read
Peak season, for all practical purposes, is here. There are once again 25 or more container ships at anchor in San Pedro Bay off the ports of Los Angeles and Long Beach. Rail lines UP and BNSF were so backed up that they recently throttled container flows from Southern California to Chicago.
With no end in sight, how can West Coast ports handle the ongoing flood of imports?
To answer that question, American Shipper interviewed Gene Seroka, executive director of the Port of Los Angeles, on Wednesday. Following is an edited version of that conversion:
AMERICAN SHIPPER: There’s a parade of ships now headed from Asia to California. With peak season cargo coming in and new trans-Pacific services and extra loaders, is there any way for Los Angeles to squeeze out more productivity on the land side and dig out of this? Or does normalcy have to wait for imports to abate?
SEROKA: “The railroads are full. The warehouses are full. Port terminals are full. Ships are coming in and waiting to get worked. The factories are behind in orders. This incredible demand has got everybody in the entire value chain just clipping out at levels we never could have imagined — and it’s still not enough.
“We’ve still got so much cargo coming in. We were on the phone with a big retailer this morning and they said that they’re still going to need another year to get inventories up to a level they think is appropriate.
“Something’s got to ease. We’ve got 23 vessels scheduled to come into both ports over the next three days. That’s pretty high. We’ve now got 25 ships at anchor for both ports, 17 of which are directed to LA.
“But, for example, if we suddenly got a break in the warehouse system and a bunch of cargo was pushed out after being put in 53-foot boxes, we could have an immediate release valve on these terminals. One overnight run of 60,000 containers makes us look very, very different tomorrow than we do right now.”
AMERICAN SHIPPER: There have been several times when the number of ships at anchor dropped by 10 or more over a single weekend. Is that part of the strategy?
SEROKA: “Yes, it has been preprogrammed and planned. One of the things that’s difficult is getting the trucker community aligned with those additional gates and work times. Because these guys and ladies have the 11-hour federal mandate of work plus extra rest time. So, we’ve got to be in real synchronicity with these folks to say, ‘Hey, look, we’re going to be able to move a ton of cargo out on Saturday, Saturday night, Sunday, Sunday night. Can you have the power available?’ And they may forgo a little bit of work on Thursday and Friday, for example.”
AMERICAN SHIPPER: You just mentioned warehouses as a possible release valve. You’re implying more can be done at warehouses productivity-wise?
SEROKA: “Absolutely. It works on either end. If ships slow down for a week coming in, we could push out some of this cargo. There would be a little bit of a flow issue to direct the trucks and trains, but at least it would put a dent into the anchorages. Conversely, a similar outcome — maybe even with faster results — would be at the warehouses. You’ve got 2 billion square feet of space. If you were suddenly able to push out 53-foot domestic boxes at an abnormal pace — because these guys are only open from 8 to 5 — but if you added night shifts and weekend shifts, we could really release the air out of these terminals and get this port in better shape to welcome that next vessel.”
AMERICAN SHIPPER: There has been a shortage of job applicants across the country, in many different industries. How much is this a factor, not just in the warehouses, but across the entire land-based logistics system?
SEROKA: “I’ll break it down into three areas. The ILWU [longshore union] rank and file has been on the job between five and a half and six days a week since the pandemic began. We’ve added about 1,000 longshoremen and women during this process and it could be more. The employers and the union have to agree on those numbers within the collective-bargaining agreement, but if we can get more workers out there, even better in my view.
“On the trucking side, we’ve got about 18,000 truckers registered individually to do business at this port, only half of which call at the port at least once a week. With these terminals super-full with containers, that slows down truck times. Because we’re not getting four turns a day, we’re only getting two, we need more drivers and you still have half the population you can recruit into this business. How quickly individual companies and independent contractors want to [resume work at the port] remains the question.
“On the third segment, the warehousing guys, that’s been hit or miss all throughout COVID. You’ve got physical distancing and the teams that work in warehouses are now smaller and working farther apart. With stimulus, some may have forgone working in warehouses because those checks took care of the needs of them and their families. Now bringing them back are things like rent abatements and eviction moratoriums and unemployment benefits starting to wane and expire. So, you may see more people in the [warehouse labor] market.”
AMERICAN SHIPPER: There have also been huge challenges on the rail side. You reported in mid-June that Los Angeles’ on-dock rail time was still 12 days, not far from its peak earlier in the year. Then, in July, UP suspended Southern California-Chicago service for a week and BNSF rationed service for two weeks. How has that affected the port?
SEROKA: “That was a very difficult decision — pausing trains from Los Angeles/Long Beach to Chicago — and I think it had to be done. I talk to the senior guys and ladies at both companies, regularly, if not daily. What I learned from UP was that at the time that decision was made, they had 25 miles worth of trains sitting outside of Joliet. Lo and behold, very shortly thereafter, BNSF had 22 miles of trains sitting outside that facility.
“They are facing some of the same difficulties that we do here in LA. Their dwell time for containers, once a train gets discharged, was three times as long as it used to be, pre-pandemic, pre-surge. The expectation is that their customers come in within the day and pick up their boxes. It was going to three-plus days. And their on-the-street dwell time [at warehouses] was up to eight days, very similar to ours. So, they’re not getting equipment back nearly fast enough. Their normal model is about two days’ street dwell.
“These guys were saying, ‘How many more trains can I put in there because the guys in Southern California are screaming we need more rail cars, engine power and crews to get the next ship’s cargoes out. If [equipment] is just sitting in Chicago or other locations, I can’t get those assets and crews back.’ [Pausing service] was a painful decision they had to make.
“Combined, about 15% of our cargo was paused for that point in time. So, it didn’t decimate us, but every container that doesn’t move out of the port creates more of a clog right here. We’re once again sitting at about 95-98% of our land usage capacity and 80% is considered full-throttle for us.”
AMERICAN SHIPPER: How has this emergency pause in service affected rail dwell time at the port?
SEROKA: “For the small snapshot in time that they went into this pause, it increased dwell times, as you could imagine, because you’ve got containers that are not moving out. So, right now, we’re sitting at 13.1 days rail dwell and that’s just off the peak that we witnessed back in February. But then we will see it slide as these Midwest trains start to be built and move out.
“What it did was help clear out Joliet to an extent where it’s now manageable [in terms of] the cargo they can put through their terminal — and that will accelerate trains moving out of here going to Chicago.”
AMERICAN SHIPPER: Looking at all that’s happened already in 2021 — from the rail situation to the anchorages and all the other issues — it has really been an incredible year.
SEROKA: “And the story still has not been finished yet.”
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