Container shipping crunch could extend further into year

Chinese New Year break may offer catch-up period but won’t fix supply imbalance

By Bruce Abbe, SSGA Strategic Adviser for Trade and Transportation

Many transportation industry observers are hoping the upcoming Chinese Lunar New Year holiday break in Asia will offer a respite that will enable the congested ports, ocean carriers, truckers and railroads to catch up and work their way out of the current gridlock in global container shipping.

Right now, that is looking like anything but assured.

The latest shipping forecasts point to a continuation of the recent six-month surge in demand for consumer goods imports to North America and Europe, fierce competition for short supply ocean containers and high rates for shipping to the U.S. that are leading to a severe shortage of containers for ag export shippers.

CNBC reported Monday that the critical shortage of containers in Asia is causing major delays and driving up shipping costs. Import companies are waiting weeks to see their goods made in China or other Asian country finally make a vessel headed to the U.S. Then they must pay premium rates and, more likely than not, await delays for unloading at the destination port – particularly if the port is Los Angeles or Long Beach.

While long-term contract rates for shipping a container from Asia to the West Coast might run $1,200-1,500, spot freight rates to Europe and the U.S. have surged some 300%. Import rates from Shanghai to LA/LB are running more than $4,000, with premium, guaranteed rates running $6,000 or more. The contract rates set last spring won’t last for long. Those high rates are driving ocean carriers to get containers back to Asia as soon as possible, leaving U.S. exporters with few, if any, pickings for containers and vessel space. The lower-priced, backhaul rates from the U.S. to Asia also have started to rise, though not as steeply.

“The reason for this is the Chinese are being so aggressive about trying to get empty containers back,” a supply chain analyst told CNBC, “that it’s hard to get a container for U.S. exporters.” Three out of four containers leaving the U.S. for Asia are going back empty, he said.

The Journal of Commerce reported that 37% of containers at Shanghai, the world’s busiest port, were “rolled” (held over) from their scheduled vessel in December, up 7% from November. The “rollover rate” at Port Klang in Malaysia was 55% and Singapore’s was 42%, up 9% and 2% respectively.

Lunar New Year different ’21

The Lunar New Year holiday is a time each year when factories and businesses shut down and workers go back to their home areas. It also corresponds with a time when global container shipping from Asia scales back and the ocean carriers “blank” or cancel many of their scheduled sailings. This often results in U.S. ag exporters having more limited access to containers to serve their customers.

This year, Chinese New Year starts on Feb. 12, and the festival lasts 15 days until Feb. 26. Industry observers have been forecasting that the current severe congestion crisis in container shipping would last through the Chinese New Year and perhaps the end of the first quarter of the year before returning to more balance in imports and exports, and more reliable supply chain flows. That is looking more and more like overly optimistic thinking.

The heavy demand for home goods and e-commerce just keeps on coming, as consumers shift their buying habits and work locations away from offices and stores. Exports from China rose 18.1% in December over a year earlier, with shipments to the U.S. up a whopping 34.5%, according to the Journal of Commerce.

JOC also reported that more Chinese factories are planning to work through the Lunar New Year. That’s unusual, but the world is in unusual times. Many of the factories need to catch up, but COVID is having an impact too. There have been new outbreaks of the virus in northern China, and the government wants to slow travel during a period when so many people drive, fly or ride buses or trains to their home areas. Mass travel poses a greater risk factor for spreading the virus.

“The space situation will continue to remain tight after Chinese New Year as there is a heavy backlog of orders and most factories already received orders up to the second quarter of 2021,” one executive told JOC.

China’s government reportedly will impose quarantines on workers at their destination cities and when they return as a way to discourage travel.

Battling port congestion

On Monday, there were faint signs of some easing of the choking congestion at the busy Ports of Los Angeles and Long Beach, which together handle 45% of all imports coming into the U.S. There were 20 ships still anchored out in San Pedro Bay waiting for a terminal berth to unload their cargo, but that’s down from the average of 30-35 waiting off-shore over the past couple of months.

Freightwaves reported last week how the Port of LA is funding a new incentive program – to the tune of $7.5 million – that is being offered to terminals for improving their efficiency over the next year. Improving truck turn times and completing “dual transactions” – when a container is dropped off and a new one picked up on the same trip into the terminal – is the goal.

One supply chain intelligence analyst shared with SSGA that some ocean carriers appear to be starting to shift some cargo deliveries further north. He cited a CMA container vessel that skipped LA/LB and went to Oakland and Seattle before returning to China. Unfortunately, the same analyst reported how carriers are now limiting the movement of containers inland – where SSGA ag shippers should have access for exports.

Shortages of chassis that have been crippling movement of containers at the ports now appears to have moved inland too. The supply chain analyst reported that there have been chassis shortages by national operator TRAC in Chicago and even Minneapolis. Most, if not all, SSGA shippers from the Minneapolis rail terminals use independent trucking companies that have their own chassis, but apparently TRAC serves some large import shippers and rail yards.

Positive note

On a more positive note, Container-news.com reported recently that the Federal Maritime Commission (FMC) is ramping up its verification of allegations that come ocean carriers are refusing to carry export cargo during this period, which could be construed as a violation of the U.S. Shipping Act.

FMC Commissioner Carl Bentzel said that the commission is independently examining information that the steamship lines “in their haste to get boxes back to Asia for (U.S.) imports have not been paying attention to their obligations to provide services to our exporters.” He noted the commission has the authority to levy penalties if appropriate.