Will ocean freight rates exceed $10k a container?
Global Pandemic
Imbalance of empty equipment (containers)
UK Ports reduced operational capacity
Reduction in volume of vessels and sailings by carriers
Withdrawal of bookings for UK bound cargo
Profiteering
Below is a loosely chronological overview of how 2020 unravelled and the impact this has had on global shipping.
Coronavirus (Covid-19) originated in China in late 2019 and took a grip in early 2020. Combined with an earlier occurrence of the Chinese New Year Holiday, output from China dropped significantly whilst demand from UK/Europe remained strong.
February and March saw the disease spread across the globe and manifest itself as a Global Pandemic. Country after country implemented management and control measures to stop the spread and this in turn saw significant reduction in demand from UK/European importers.
Concurrently, the 9 operating shipping lines that carry Asia to Europe Cargo reduced capacity on this trade lane by 30% / 40% to balance the drop in demand and reduce the impact on ocean freight (O/F) rates.
Throughout Q1 & Q2, Covid-19 adversely affected the demand for regular exports from China but saw a huge rise in the demand for Personal Protective Equipment. Ocean freight rates remained steady, based on vastly reduced capacity, whereas air freight rates rocketed on the back of prioritised medical / PPE cargo and huge reductions in passenger flights carrying freight.
From the summer, the People’s Republic of China stopped accepting imports of waste materials for recycling which had previously maintained the flow of laden containers, back from UK/Europe and kept the placement of equipment in balance.
Empty container levels began to rise in UK/Europe and the imbalance of equipment began to feature as a real challenge in September 2020 and throughout Q4.
Compounding this equipment imbalance was the ability of the 3 x major UK ports (FXT, SOU and London Gateway) to operate at full capacity. FXT experienced a severe labour shortage due to a Union matter and, to comply with COVID -19 health and safety measures, the ports closed twice a day for a total of four hours, thus reducing the operational capacity and the availability for hauliers to return/collect containers.
At the same time as the impact of COVID, the impending ambiguity of BREXIT saw a huge reduction in the number of available container haulage drivers. Either returning to Eastern Europe after lockdown lifted or moving market sectors into better paid, more reliable trades (bricks, blocks and supermarkets), the reduction in the number of UK Drivers crippled the agility of the haulage sector and this impacted on fulfilment of commitments on the UK side.
The underperformance of UK Port operations and rapidly reducing stock of empty containers at origin began to impact the ocean freight rates as carriers introduced peak season surcharges, port congestion fees and started to freeze committed cargo contracts as the yield per container could be increased by accepting spot market rates.
With ocean freight rates quickly rocketing to USD 5000 per 40HQ, the Trans-Pac trade began to attract empty equipment previously allocated to the Asia Westbound trade.
As the carriers showed hesitancy to re-introduce capacity from Asia to UK/Europe, demand soared and empty equipment became even more scarce spot market (FAK) rates began to be aggressively increased by the shipping lines, disproportionately to the costs they were incurring.
This gave rise to the accusation of profiteering, that the carriers were cashing in on the situation and, without regulatory control, the ocean freight rates continue to rise.
What began in January at circa USD 1850 for a container from China Port to UK Port, may end up in rates breaking through the USD 10,000 barrier and, without showing signs of definitive corrective action, this could continue well into 2021.
If you would like any further information, please get in touch with the AFS team.
