THE DISRUPTIONS IN THE 1H/21 OF CONTAINER SHIPPING

Suppose you are an ardent follower or reader of the current trends in maritime shipping, precisely liner container shipping. In that case, you are aware of the disruption in the sector as a resultant effect of the global pandemic covid-19. These disruptions in the industry are predominantly on the trans-pacific trade route.

As indicated early, ardent fellows know that there is a logjam of port congestion which is adversely impacting other sectors that depend on the container shipping industry to thrive. One may ask, how did we get here in the first? How did we get port congestion packed with the needed infrastructure in developed countries? Traffic congestion was a feature of underdeveloping and developing ports present in the underdeveloped and developing world where infrastructure is deficient. In fact, according to sea intelligence, only 30% percent of container vessels arrived on time in November 2020 on the trans-pacific trade route with specific reference to Asia to North America, triggering equipment shortage in Asia. It is essential to mention that container ships in North America continue to wait for weeks to berth at the Port of Los Angeles, Long Beach, Oakland, and Vancouver. Container ships that ordinarily took 3 to 5 days to unload or discharge cargo take approximately twice that period to unload.

Equipment shortage is another side of the coin when the effects of the ‘black swan event of the pandemic are debated. Due to the internationalization and interdependency in shipping, a logjam at one side of the chain have a ripple or cascading effect on the whole chain. As already mentioned, the port congestion in North America is causing shipping lines an unprecedented equipment shortage in Asia.

Causes of the Gridlocks

This is due primarily to the shortage in the onshore workforce and changes in working practice between the two trade blocs due to the pandemic protocols that need to be observed to curb covid-19. When the covid-19 became a pandemic in the 1Q/20, there was a capacity fall in container volumes by 16% in the 2Q/20 compared to the same period in 2019. Between the 3Q and 4Q, carriers added a whopping 27% compared with the same period in 2019. This was achieved by re-activating all tonnages and deploying over 150 ad-hoc extra loaders throughout the west coast of North America.

However, the re-activation and deployment of additional ad-hoc loaders created congestion when the dwell time of imported containers began to surge due to the unmatched productivity on the land side of North America. The Asian supply chain operates on a 24 hours per week roster of which the North American onshore operations cannot keep pace. The low cargo handling inefficiency has created a gap in operational productivity, as demonstrated in the cargo backlogs yet to be cleared from North American ports. To further clarify the gap in operational productivity, its wealth mentions that the regular working hours in North America are approximately 112 and 88 hours per week at berth and terminal gates, respectively. In comparison, the Asian side of the supply chain operates 168 hours per week, a definitive mismatch. Putting this in perspective is like North America’s energy in pulling demand is inversely related to the power they exert in handling the fulfilled demand when it arrives at their ports. Additionally, the significant investment made in Asian ports compared to North American ports is another factor contributing to the unparalleled operational productivity of the two trading blocs.

Contrary to the efficiency or optimal productivity observed in china in Asian ports, specifically china, there have been reports of port congestion in some Chinese ports. The country’s cold chain logistics have caused this. Port authorities believe that due to the coronavirus’s adaptability to a cold environment, the spread of the virus is high if an infected person comes into contact with the cargo. This has brought about a series of new procedures in port clearance, creating congestion in some Chinese ports.

It is also imperative to note that the shortage in equipment is due to the increased container terminal congestion as container dwell time prolongs due to the slow pickup rate by importers or consignees caused by disruptions in onshore logistics operations. On average, a shipping container takes 3 months for a container to return from North America to China. Due to the upsurge in dwell, the container cycle time between North America and China widens, creating a shortage of equipment to supply other demands.

Cascading Effects

When the coronavirus pandemic struck in 2019, the seaborne trade was expected to encounter a recessional market cycle in which container shipping was of no exemption. Incredibly, the pandemic set a new pattern of shopping and consumption, especially in manufactured consumer goods. Most of these goods have been transported in shipping containers. When lockdown measures were lessened in the third quarter of 2020, stimulus packages and anticipation of new waves of the pandemic resulted in a further upsurge in containerized cargo flows.

The unusual upsurge in containerized cargo flow coupled with insufficient supply capacity resulted in a shortage of shipping containers to move export cargo from china to other parts of the world. As already indicated, the change in consumption and trade patterns directed a shift in the geography of container trade. Place utility among empty containers was very low. Empties boxes were left in places where they were not needed. Unreactive, repositioning these empty containers from a low-demand area to china was not planned. Skipping port calls, thus, blank sailing amid the pandemic continued to widen the gap of place utility.

In these cold market conditions, the EverGreen ‘Ever Given’ vessel grounded in the Suez Canal created further disruptions. As ships and containers took longer to reach their destinations, the shortage of available empty boxes increased, including in Shanghai, China. As a result, freight rates increased not only on the routes passing through the Suez Canal but also on nearly all other routes. In fact, by the end of 2020and or early 2021, freight rates attained historical highs, causing many problems for shippers worldwide. The surge in freight rate did not spear the developing regions of the world such as Africa and Latin America, even though the increase in freight rate was main observed on the East-West trade routes.

Trade routes such as china-West Africa or South America are long enough to require many ships to fulfill a weekly schedule. As such, 1000s of containers get stuck on these ships amid the shortage in shipping capacity. For this reason, an importer from Brazil or Ghana, or perhaps Nigeria, is not only paying for the transport of the full import container but additional inventory holding costs for the empty containers stuck on the ship. Regarding developing economies, most of these countries are net importers, of which Ghana and Nigeria are no exceptions. As such, the lack of return cargo also fuels the high freight rate along with the china- west Africa trade routes.

Logjam

In an attempt to unlock these logjams and creates resilience, North America and other parts of the world side of the chain need to improve their terminal productivity. Conceivably, through capacity expansion projects in port infrastructure and superstructure investment. The issues of the difference in working hours must also be looked at globally to mitigate or eliminate the unparalleled operational productivity. An effective Shift system could be an easy way out, especially during the pandemic.

Additionally, the onshore logistics operation in the North American supply chain and other parts of the globe must reinvigorate, especially its ability to adapt to changes often in global supply chains. Transport connectivity to and from port must be fastened, efficient, and effective trade facilitation. With the current market conditions and high fuel prices, nobody knows when this historic freight rate will normalize, even though some experts have predicted it to last an additional two years.

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