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.

Railroad cites SSGA in announcement of facility serving Upper Midwest

Canadian National railroad on Dec. 10 officially announced the launch of its new inland distribution rail terminal in New Richmond, Wis. The new multipurpose facility will include an automotive compound for finished vehicles and an intermodal container terminal to serve intermodal shippers and receivers in the Minneapolis-St. Paul metropolitan area.

The terminal is scheduled to open March 1, 2021 and will provide direct CN intermodal service to the Twin Cities market. The new service will enable customers to better serve that large consumer market and provide an alternative shipping option to a growing marketplace. The New Richmond terminal will link shippers to CN’s far-reaching three-coast network and serve a range of import and export industries, including soybeans and grain, as well as automotive and finished consumer goods and forest products.

The Specialty Soya and Grains Alliance, including its members based in western Wisconsin, played a role in supporting the development of the new CN intermodal terminal, encouraging support from the railroad, the state of Wisconsin, local government officials and area export shippers.

In a press release announcing the New Richmond facility, CN quoted Bruce Abbe, SSGA’s strategic adviser for trade and transportation:

“CN’s development of the New Richmond facility will provide vital access to containers for agricultural exporters to meet customer demand in Europe and Asia,” Abbe said. “Competitive container shipping is vital for American agriculture to serve the growing global consumer market for high value, specialized grain, soy and food ingredients. Intermodal rail service also offers the additional environmental and transportation cost reduction benefit of helping reduce long distance highway truck traffic that now is extensively hauling inbound international container freight from Chicago to the Twin Cities. We are hopeful this new facility will further solidify the Twin Cities and western Wisconsin as a major regional transportation logistics hub.”

According to the release CN’s presence in Wisconsin includes:

• Capital investments of approximately $970 million in the last five years, including $100 million in 2020
• Approximately 1,413 employees
• 1,428 railroad route miles operated
• Community partnerships totaling $165,000 in 2019
• Local spending of $240 million in 2019
• $21 million in cash taxes paid in 2019

“CN’s new intermodal terminal in New Richmond will be a very important asset for our state’s exporters, particularly farmers, hardwoods producers and manufacturers based in northern and western Wisconsin,” said Craig Thompson, Wisconsin Department of Transportation secretary-designee. “Our Freight Advisory Committee identified intermodal transportation as their top priority, and I want to thank everyone who worked together toward this goal.”

See CN’s full announcement here.

Compiled by Bruce Abbe, SSGA Adviser for Trade and Transportation

Terminal will connect Upper Midwest customers to LA/LB

Union Pacific railroad announced the opening of the Union Pacific Twin Cities Intermodal Terminal on Nov. 20, launching intermodal service to Minneapolis to start in January 2021.

The Specialty Soya and Grains Alliance (SSGA) and its predecessor organizations have long pursued expanding intermodal rail options from the Twin Cities and other Midwest locations to better serve more exporters. Expanded service from UP has been sought because of the potential to add direct service to the Los Angeles and Long Beach container port complexes, which provide more direct ocean service to Southeast Asia.

Union Pacific said the new service will feature domestic intermodal service between the Twin Cities and Los Angeles, expanding its customers’ reach to key Upper Midwest markets. Domestic intermodal refers to rail moves of larger, 53-foot containers, standard semi-truck size for U.S. roads, which carry cargo transloaded at the ports from smaller ocean-going containers. SSGA is inquiring to learn if UP plans to also handle inbound ocean containers at the new Twin Cities operation.

“We are excited to introduce an intermodal terminal strategically located in the heart of the Minneapolis-St. Paul metropolitan area that offers efficient access to Union Pacific’s intermodal network,” said Kenny Rocker, UP executive vice president, marketing and sales. “This new marketplace alternative will give regional shippers and receivers fast, direct and reliable intermodal service to key markets.”

Union Pacific has the largest intermodal network in North America, with the most direct services from coast to coast. It will evaluate additional service expansion opportunities into the Twin Cities Intermodal Terminal throughout 2021. More information is available in the intermodal section of Union Pacific’s website.

Container crunch could last until March – or longer

Don’t look now, but the unprecedented imbalance in the container shipping – which has led to a major shortage of containers to serve U.S. exporters – could last into March of 2021 “or longer,” some experts are saying.

American Shipper quoted consulting services who said the heavy consumer demand for container consumer goods will last through the Chinese Lunar New Year into March, although, they added, predicting the timing of the let up is very difficult.

The pressure on the ocean carriers to get containers back to Asian manufacturers as fast as possible is so acute, some carriers have resorted to temporarily suspending export bookings from North America, including food and agriculture shipments, that would add time to the equipment turn-around.

Meanwhile, the Journal of Commerce reports that French-owned ocean carrier CMS CGM announced this week it is temporarily suspending taking bookings between Asia and North Europe until the end of December because sustained heavy demand has overwhelmed the container supply chain, creating equipment shortages.

The container supply crunch has also led to congestion at the leading West Coast import destination ports of Los Angeles and Long Beach. Reports show more than 20 ships moored in San Pedro Bay waiting to unload, while more than 20 are now tied up on dock.

SSGA learned this week that Class 1 intermodal railroad has embargoed sending additional container *

Competitive Shipping Action Team meets

SSGA held most of its 2020 Annual Meeting last week, but the last session took place on Tuesday morning with a meeting of its Competitive Shipping Action Team. The virtual meeting was held prior to the Agriculture Transportation Coalition’s (AgTC) Major Midyear Meeting.

The Competitive Shipping Action Team meeting included a robust agenda that included presentations on expanded opportunities for shippers, including:

• Russ Perdue and Gordon Graham of Canadian National Railroad on the new intermodal terminal development in New Richmond, Wis.
• Ashley Ritteman of Valor Victoria Logistics on a new intermodal model in Shell Rock, Iowa
• Bob Sinner, SSGA chair, on the intermodal rail service development in Minot, N.D.
• Peter Hirthe of the St. Lawrence Seaway Authority on Great Lakes agricultural shipping
• Nicholas Raspanti and Cory Wyatt of the Port of New York and New Jersey on strengthening ag exports service for the Midwest.

There was also a discussion by the group, which included around 35 attendees, on container access issues inland exporters are currently facing., and Peter Friedmann of AgTC joined the group for an update just prior to his organization’s meeting.

Compiled by Bruce Abbe, SSGA Adviser for Trade and Transportation

Here are additional industry news reports and links from the past week to provide deeper background on the current crisis in the global container shipping system and the Federal Maritime Commission’s decision to investigate carrier practices at U.S. ports, particularly at the ports of Los Angeles, Long Beach, New York and New Jersey, port complexes where the import surge and congestion has been the worst.

American Shipper/Freightwaves columnist Lori Ann LaCrocco offered insights and commentary Nov. 16 on how U.S. agriculture exporters and trucking industry were urging the FMC to regulate ocean carriers. On Nov. 20, LaRocco reported on the FMC’s decision to investigate for CNBC,  noting that the FMC could assess civil penalties on foreign shippers.

Ag imports stymied

The Journal of Commerce reported on Nov. 19, the day before the FMC action was announced, how container shortages and vessel delays were stymieing U.S. agricultural exporters.

The JOC report highlighted how the clog at Los Angeles and Long Beach impacts the rest of the system: “The biggest problem is that the ships are late leaving Southern California” due to labor shortages and congestion, one terminal operator president noted, leaving the vessels often a week late getting up to Oakland for their next stop to off load and load containers.

Ron Brown, Port of Oakland Marketing and Commodities representative, explained to JOC: “With the recent surge of import cargo along the West Coast to make up for earlier blank sailings, our agriculture exporters are seeing changes in sailing schedules, and in some cases canceled books as carriers are repositioning containers to Asia.” Brown urged carriers to consider the impacts of their decisions to forego export loads to return empties to Asia on “an important sector of the U.S. economy.”

Call for D&D penalty suspension

The Agriculture Transportation Coalition, the southern California-based Harbor Trucking Association and the Pacific Coast Council of Freight Forwarders and Customs Brokers organization jointly called on the FMC to suspend detention and demurrage penalties at the ports of Long Beach, Los Angeles and New York-New Jersey until the current congestion crisis at the ports dissipates.

Containers are ‘new gold’

Shipping containers, now in short supply like never before, have become the “new gold amid a black swan box squeeze” according to Freightwaves.

Ocean carriers doing just fine, thank you

Meanwhile, earnings reports from the global ocean carriers have been coming out, and with rate increases for east-bound Trans Pacific and Asia-Europe shipments of imported boxes from Asian manufacturers hitting record levels, the ocean carriers have been doing just fine.

Carrier earnings have been forecast by one leading shipping consultancy to be the best in a decade.

French carrier CMA CMG reported this week its profits were up more than 500% in the third quarter – and the fourth quarter reportedly “looks even better”.

Israel ocean carrier ZIM reportedly crushed its all-time earnings record, with record net profit of $144 million in the third quarter, up 2,818% from the $5 million in profits earned in third quarter 2019.