{"id":5295,"date":"2021-08-25T00:00:00","date_gmt":"2021-08-25T00:00:00","guid":{"rendered":"http:\/\/bpddev2.uk\/clients2023\/metro\/global-demand-isnt-booming-but-shipping-rates-are-and-why-is-that\/"},"modified":"2024-02-02T08:57:52","modified_gmt":"2024-02-02T08:57:52","slug":"global-demand-isnt-booming-but-shipping-rates-are-and-why-is-that","status":"publish","type":"post","link":"http:\/\/bpddev2.uk\/clients2023\/metro\/news\/global-demand-isnt-booming-but-shipping-rates-are-and-why-is-that\/","title":{"rendered":"Global demand isn\u2019t booming, but shipping rates are – and why is that?"},"content":{"rendered":"\n

Despite all the hype, Maersk has calculated that global container shipping demand is only up 2.7%, leading some analysts to assert that there is no COVID-era surge in global cargo demand, but there is a massive spike in supply chain disruption, which is the primary catalyst for driving rates up.<\/strong><\/p>\n\n\n\n

Maersk, who\u2019s rates are up an average of 63% versus pre-COVID levels, estimates that global container shipping demand was up only 2.7% in the second quarter versus the same period two years ago in 2019, while the Drewry World Container Index of spot rates is 6.7 times what it was two years ago.<\/p>\n\n\n\n

Global demand for the first part of the year is up a few percent on 2019, but data analysts point out that we did not have a capacity problem then and we should not have a problem now, because there is no reported huge global demand boom when you look at the facts.<\/p>\n\n\n\n

The FT reported in July that that the Chinese economy seems to have already slowed and the words \u201cEurope\u201d and \u201cboom\u201d have not been connected for a long time, while the UK\u2019s GDP grew 4.8% in the 2nd quarter.<\/p>\n\n\n\n

But congestion curbs effective capacity and ocean freight capacity is being heavily curtailed by this phenomena, with equipment tied up on land and at sea and vessel schedules being disrupted resulting in the \u2018conveyer belt\u2019 being broken. Basically slower vessels in the wrong place ultimately means lower supply despite increasing new builds being introduced. Paradoxically.<\/p>\n\n\n\n

In normal times a container would ship from the factory in Shanghai to Europe in 32 days, now it takes up to 70 days, and then the same container has to be returned (usually empty).<\/p>\n\n\n\n

Not surprisingly, the spot rental for containers from China to Europe has risen from an already high base at the beginning of the year, by almost 150% in the past couple of weeks.<\/p>\n\n\n\n

Container lessor Triton International controls about 40% of the container leasing market and has seen second-quarter income increase 148% from the same quarter last year, encouraging them to order more than 1.1m TEU of new boxes to add to the 7m they already hold.<\/p>\n\n\n\n

Some of the decisions made by shipping lines over the last few years have definitely exacerbated the current situation. Carriers are now ordering new boxes to mitigate a decade-long tendency to reduce their equipment inventory. Carriers ordering a new vessel used to order three boxes for every unit of capacity on the ship, they then cut that down to two and we are suffering the effects of that now.<\/p>\n\n\n\n

Just recently, Maersk sent out a customer advisory pleading with customers to return equipment more quickly, stating: \u201cWe do not anticipate the congestion decreasing any time soon. On the contrary, the industry overall is forecasting higher volumes into early 2022 and beyond.\u201d<\/p>\n\n\n\n

Carriers need more tonnage as ships get stuck in congested ports, particularly in the US and Asia, with some carriers reporting that they need 25% more fleet capacity to continue carrying the same amount of cargo.<\/p>\n\n\n\n

Lars Jensen, the respected consultant, estimated last month that as much as 10% of the world\u2019s liner shipping capacity has effectively been made redundant due to port congestion issues.<\/p>\n\n\n\n

The limiting factors mean that while you can transfer vessels and containers from one trade to another, you cannot relocate ports from one trade to another and it doesn\u2019t help if the supporting infrastructure and trucks are on a trade, if they are needed on another.<\/p>\n\n\n\n

And the congestion drivers just keep coming: from the anchorage situation off California, to the Suez Canal blockage, to the closure of the port in Yantian; and now the Ningbo closure.<\/p>\n\n\n\n

In the background minor, and often unseen, operational mishaps have a disproportionate impact on the global situation.<\/p>\n\n\n\n

Vessels are always breaking down somewhere and normally the line would charter a replacement vessel or shift the cargo to another service, but now, there are no vessels left to charter and alternative services are all booked with every container slot utilised.<\/p>\n\n\n\n

So these operational mishaps simply add more cargo to the pile of cargo that can\u2019t move. Then the carriers try to \u2018repair\u2019 the damage and delays and that in itself has a knock on effect with the intended solution and remedy!<\/p>\n\n\n\n

As bad as it may seem, everything we are currently experiencing is temporary, because when congestion does finally clear, spot rates willprobably fall and while the correction could be quite rapid. It\u2019s unlikely that freight rates will go back to anywhere near where they were pre-pandemic. But they will settle and be consistent and predictable from a planning and budgetary perspective, which is necessary for any business to operate and cost their products and services in an annual period.<\/p>\n\n\n\n

It is important to note that for the shipping lines, overall global demand and short-term consumer demand on individual trade lanes (transpacific and Asia-North Europe), are two entirely different issues. The first may guide strategic decision making on fleet size, while the second generates tactical moves, like transferring vessels to more lucrative routes, to meet short-term demand, creating shortages elsewhere.<\/strong><\/p>\n\n\n\n

The critical takeaway from this report, is that overall global volumes have not increased significantly, so when demand diminishes, equipment and vessel availability will naturally improve and rates will soften.<\/strong><\/p>\n\n\n\n

We negotiate rate and volume agreements with carriers across all three alliances, which means we can react quickly to market changes and offer shippers alternative services, in line with their deadlines. <\/strong><\/p>\n\n\n\n

Our fixed validity contracts provide supply chain security and peace of mind, but with space and equipment in such short supply, we recommend a minimum of four weeks visibility and booking window, to secure space on the vessel and get the right equipment positioned.<\/strong><\/p>\n\n\n\n

Please contact Elliot Carlile or Grant Liddell to discuss your supply chain expectations and deadlines to ensure your business is<\/strong>\u2018future proofed<\/strong>\u2019 for the rest of 2021 and 2022.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Despite all the hype, Maersk has calculated that global container shipping demand is only up 2.7%, leading some analysts to assert that there is no COVID-era surge in global cargo demand, but there is a massive spike in supply chain disruption, which is the primary catalyst for driving rates up. Maersk, who\u2019s rates are up an […]<\/p>\n","protected":false},"author":3,"featured_media":4627,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[65,60],"tags":[],"class_list":["post-5295","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-sea","category-supply-chain"],"acf":[],"yoast_head":"\nGlobal demand isn\u2019t booming, but shipping rates are - and why is that? - Metro<\/title>\n<meta name=\"description\" content=\"Our fixed validity contracts provide supply chain security and peace of mind, with time to get space on the vessel and the right equipment\" \/>\n<meta name=\"robots\" content=\"noindex, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Global demand isn\u2019t booming, but shipping rates are - and why is that? 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