Container Shipping Imbalances - An outlook on the recent freight chaos

The Shipping industry around the world has been observing unpleasant fallouts recently, undergoing a massive turndown due to an increase in supply chain deadlocks.

The Shipping industry around the world has been observing unpleasant fallouts recently, undergoing a massive turndown due to an increase in supply chain deadlocks. The global pandemic has pressed the pulse of every trader, big or small, ultimately shaking the supply chain experience worldwide. Among other congestions, the surge in demand for consumer goods, coupled with the recent rise in container shortages, has brought a domino effect to the ongoing global transit crisis. 

The sudden breach of Ever Given through the Suez Canal in May deepened the backlog, creating a halt for all those who set sail. A German shipping giant ordered 60,000 TEU of standard containers from China, affirming that the demand continues to rise while the supply of container equipment is currently one of the industry's biggest challenges. Another container-leasing company Triton invested $2.6B, instigating that regardless of continuing cargo chaos, consumer demands are in full swing.

The outrageous destruction caused by the pandemic has led shippers to play hardball in the midst of excessive container shortage, distressing delays and soaring freight rates. The Shanghai Containerised Freight Index (SCFI) breached the 3,000 point mark for the first time ever in May, following several consecutive weeks of rate spikes. According to Drewry Shipping Consultants data, although fluctuating, container rates never exceeded $3000 in the last 5 years; however, in 2021, rates went through the roof. Drewry's composite exceeded $5,000 for the first time this year, and on one of the hardest high routes, China to Rotterdam, the rate has just exceeded $10,000 for the first time.

Even as demand for Chinese commodities remains at record highs, disruptions related to COVID-19 have further limited container supply. As a result, freight expenses between China and the US West Coast have increased by 156% in the last year, while freight costs between China and the US East Coast have increased by 162%. The most significant increase was in freight charges between China and North Europe, which increased by 535%. These higher prices reflect the expenses of increasing demand, lower capacity, and longer transit times along China's coast. Due to the obstacle, additional blank sailings from Yantian to Hong Kong and the US West Coast will be available in June. The port's container capacity may be reduced by around half, and the carriers allowed to release premium cargo containers may be limited.

According to The Loadstar, carriers on the transpacific are 'sold out for the rest of May and into June, with one shipper describing this week's spot rate rises from Asia to the US west and east coasts as "academic." The North Europe component of the Freightos Baltic Index (FBX) has also grown by 5% to $8,127 per 40ft, a phenomenal 475 % rise over the same period last year.

A number of factors have contributed to the rise in transportation prices, including surging demand during stimulus cheques, overcrowded ports, and a shortage of ships, dockworkers, and truckers. The issues are just too many to be solved in a short period of time, the biggest root cause being the pandemic, and they are causing rippling impacts throughout the United States' supply networks.

Due to rising demands and insufficient supply, it is advised to customers on the Transatlantic Westbound market to make advance bookings with notice of five or more weeks ahead to the cargo ready date (CRD), citing a "rate increase announced for June by GRI and new/amended surcharges." This market is projected to stay hot throughout the summer, putting additional strain on equipment available in the short term, according to the report. It is critical to make reservations as soon as possible.

To add to the list of tragic state of affairs, the number of lost containers in the transportation business is at its highest level in seven years. Last year, more than 3,000 boxes were lost at sea, and more than 1,000 have been lost so far in 2021. Hundreds of US retailers and manufacturers, including Amazon and Tesla, are experiencing supply chain disruptions as a result of these incidents.

Freight Industry is experiencing unheard fluctuations, giving shippers around the world a tough break. With all the modern challenges, it's hard to get around in the shipping world if you're just starting out. Blue-chip companies have jumped on the bandwagon for digitising their entire business ecosystems to achieve transit excellence. If you haven't caught up yet, contact ConnectLine and find out massive insights, opportunities and easier ways to freight.