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In most years, container shipping has flowed at a slower pace - which is normal for the industry. The time from booking to vessel departure is usually a few weeks, with plenty of time for all parties involved in the shipment to plan ahead and adjust plans as needed. However, 2020 has been anything but normal and the industry is struggling to cope with the heightened response timeline.
Carriers were initially quick to respond to the COVID-19 outbreak, by blanking sailings after China announced the lunar holiday has been extended one week. These additional blanked sailings (on top of pre-planned ones) for the Asia-Pacific and Asia-Europe lanes, started a domino effect with carriers totalling 1 million in the TEU capacity that had been removed from the trade. Within three weeks, an additional 2 million TEU had been removed from capacity, most in part from reduction or cancellation of purchase orders from the factories, not waiting to see an actual downturn in bookings. Now that the demand has skyrocketed, carriers have reinstated sailings, even adding extra loaders to cope with the capacity issues.
While carriers acted quickly to protect their bottom lines, their actions created a ripple effect for equipment levels around the world:
Repositioning containers takes time, and some carriers are refusing some export shipments for backhaul moves in an effort to return the containers quicker. Further, while carriers have added an estimated 20 percent in capacity versus fourth quarter 2019, many shippers and beneficial cargo owners (BCOs) argue that the lack of space and service will be remembered during contract season.
What Will Contract Season Look Like? - 2021
From the carriers’ perspective, the surge in imports from Asia blindsided them, as it did many economists. Even as the additional capacity flows into trade, many shippers argue the damage has already been done with equipment issues, high spot rates and poor service. “There was not a lot of honouring of contract commitments this year. Certainly we are expected to honour our commitments to the carriers, so we would like them to honour their commitments to us,” one BCO stated.
On-time performance for carriers has fell to just 46.7 percent in September to the U.S. West Coast, almost half the rate it was in June, and to 49 percent for the East Coast. Clearly the blame does not lie entirely with the carriers – in Southern California for example; terminal and warehouse providers continue to struggle with the surge in imports. However, the sky-high spot and premium service rates are a little hard to swallow when service reliability is so low. Several shippers believe this will be remembered with contract season quickly approaching.
Some analysts believe the trade still has a few more months ahead to work out the global positioning/equipment disparity, as long as nothing else comes up. Yet, with Germany and France announcing new lockdowns and the virus on the rise stateside, it is impossible to predict the outcome.
Strong Air Freight Demand Fighting Tight Capacity, Pushing Rates Higher
Rates on routes to the EU and US continue to track at a higher level as a result of stronger load factors. Learn more.
European forwarders are reporting air freight rates are still climbing, as the peak season – boosted by distressed sea freight – continues.
As the UK becomes the latest European country to enter a four-week lockdown, mirroring Germany, France and Belgium among others, forwarders indicate that consumer demand will likely continue despite closed shops. This is in part because of the scheduled end dates of the lockdowns at the start of December, and the lockdowns (some of which come with travel bans) are also expected to impact passenger demand, and therefore air cargo capacity.
One forwarder said the latest lockdowns were “more predictable” and that “we know what is happening, what the restrictions are and what the protocol is.”
“As long as goods can be sold through stores that remain open, or through other channels, there will be demand (maybe even increased), and therefore continued requirements for air freight and also ocean freight.
“Also, with the issues with ocean freight, this is creating more demand for distressed sea freight and substitute orders being shipped by air to ensure that sales are achieved by retailers. So it is self-perpetuating.”
It is anticipated that the market will remain at these high levels through at least the end of November, but likely even well into December, given the late expected surge of e-commerce volumes. The air peak season has been exacerbated not just by the limited capacity, but also with a return to PPE shipments, as well as hi-tech launches such as the PlayStation 5, which launches globally this month.
Strong air freight demand versus tight capacity drives up rates. Due to all the new product launches and congestion at all major hub points, strong demand for air freight continues to come up against a shortage of capacity, and more or less the entire market is spot rate driven.
Worland showed yields rising again in week 43: Capacity and chargeable weight rose 1% in the week, while yields have increased 7.6% in the past two weeks.
Will the Import Boom Lead Trucking to an Active ‘Off’ Season?
With elevated import volumes forecast to continue into 2021, trucking could have a stronger opening quarter even after the traditional holiday peak season ends.
Imports and truckload tenders have been moving in near lockstep since mid-May as the U.S. crawls out of the pandemic-induced recession. With elevated import volumes forecast to continue into 2021, this could mean trucking may have a stronger opening quarter even after the traditional holiday peak season ends.
With supply chains struggling to recover after the U.S. and China shut down to flatten the curve in early 2020, consumers did not stop consuming. Looking at the Outbound Tender Volume Index (OTVI), which measures total truckload electronic tenders in the U.S., there was a large spike in March, with the index rising nearly 30% in three-weeks’ time before receding faster than in rose as people hoarded for what they thought would be a few weeks of sheltering in place.
During the same period, total maritime import shipments clearing customs declined beyond the typical seasonal threshold that follows Chinese New Year (CNY) — the drop in imports was compounded by China’s response to COVID-19, with factories closing longer than normal around the nation’s most celebrated national holiday.
This trend continued into the fourth quarter as shippers are still struggling to replenish inventory and keep up with demand. This means goods do not have much time to sit in warehouses before heading to distribution centres with peak retail season looming around the holidays.
Rail loaded container volumes have recovered to 2018 levels, nearly 6% above 2019 in late October out of Southern California. Contributing to the capacity crunch, railroads implemented peak season surcharges in August, basically denying capacity to noncontracted shippers for volumes above expectation off the West Coast, which forced much of the long-haul freight moving more than 500 miles onto trucks instead of on the rails. Freight moving more than 500 miles has a bigger impact to trucking capacity than sub-500-mile moves.
Thanks to low inventory, unexpected demand and tight railroad capacity — a preferred method of transport for many shippers importing into the U.S. for moving across the country — there is little ambiguity between the time a shipment enters the U.S. and when it gets loaded on a truck.
According to FreightWaves’ Ocean TEU Volume Index, total twenty-foot equivalent units scheduled to leave their points of origin over the next week are 59% over last year — a trend that has been in place since August. This freight will not hit the U.S. for two weeks after departure at earliest, and it is showing no sign of slowing.
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