Last week saw double-digit increases in the ocean freight WCI on most routes from China to Europe and North America. This is the aftermath of the blockade of the Suez Canal over a month ago.
Last week, the World Container Index – an indicator of rates per 40-foot container – jumped 10% compared to the previous week. After surging wildly in autumn 2020 and January this year, the index slowed down after the Chinese New Year celebrations ended in mid-February. Since then, it has even shown a slight downward trend. All this was offset by last week’s rise.
On the route from Shanghai to Rotterdam, which is of most interest to Polish importers and carriers, the index also rose by 10%. While it was at $7,583 at the end of April, it rose to $8,371 as of last week. Thus, it more than compensated for the 3% drop a fortnight ago. After several months of slight declines, the Northern Europe route index (as well as the main index) has now almost returned to the record levels of January/February this year.
The index on the route to Mediterranean ports (Shanghai-Genoa) is also scoring record levels. Although the index rose by a mere 3% last week, it has been on a steady rise in recent weeks, in contrast to the downward trend in prices on the route to Rotterdam from the Middle Kingdom. This trend has pushed it to the $8,532 level. For several weeks now, rates to Mediterranean ports have exceeded those to ports in the northern part of the Old Continent.
Rate Armageddon in the USA
But the increases on destinations to Europe are nothing compared to the absolute madness happening on routes from China to US ports. On the Los Angeles route, the index rose by 18% (!!!) last week compared to the previous week, reaching $5,211. This is a thousand dollars more than on 22 April (!!!).
On the direction to New York, the index jump was less impressive than that to the City of Angels. However, the 11% rally from $6,329 to $7,007 in a week is also likely to make importers nervous.
Recent months have brought regular congestion at the ports of Los Angeles and neighbouring Long Beach. At times there were up to 40 container ships waiting to enter the port. At the end of April, the average queue was only over 20 ships, but similar congestion also began to form at another West Coast port, Oakland. This congestion is the result of continued high demand from US consumers spurred on by the stimulus package introduced by the new presidential administration.
Although other container rate indices did not record such staggering increases, the jump in indices on the China route was observed everywhere last week. The Freightos Baltic Index jumped 10% week-on-week on the direction to Southern Europe, over 5% to Northern European ports and the US East Coast, and nearly 4% to the West Coast.
Consequences of the Suez blockade
This surge in rates on major export destinations from China’s world factory appears to echo the blockade of the Suez Canal by Ever Given in March/April this year. Just after the Egyptian channel got blocked, we warned that the consequences of the incident would only become apparent in a few weeks’ time. Sea-Intelligence analysts have suggested that Asian ports will only begin to feel the full impact of the Suez blockade around mid-May. Right about now a delayed wave of ships from Europe is arriving at the quays in the Far East. They are carrying empty containers which, in fact, should have arrived in China a few weeks ago and which should already be on their way back to Europe or the United States.
To make matters worse, analysts from Sea-Intelligence predicted at the time that a 24% drop in capacity availability at Asian ports was expected in the week surrounding 24 May (!). They claimed at the time that the problem of capacity availability would affect supply chains for up to another three months.
Extra containers won’t help
Logistics operators are trying to remedy this problem by ordering additional containers. Dutch operator Samskip has ordered 1,000 of them in recent months. Unfortunately, such steps will not save the situation.
According to Freightwaves.com, three Chinese companies accounting for 80% of global container production are expected to manufacture 6-8% more units this year. However, this is still a drop in the ocean of needs. In the years leading up to the pandemic, container production was at a low level and not even enough to replace worn-out units with new ones. The increase in production following the outbreak of the pandemic largely made up for the shortfall of recent years, reports Freightwaves.com.
Rate drops not until 2022
Simon Heaney, head analyst at Drewry’s container division, said last week that rates on global routes (both spot, contract, mainline and return) will increase by 23% on average in 2021. The expert pointed out, however, that for some of the main directions the increases will be much higher.
Heaney has no good news for importers. Rates will fall, but only next year. Unfortunately, they will not go down to pre-pandemic levels, the expert predicts.
“We expect average rates will come down from this year’s lofty highs by approximately 9%,” said Heaney for Theloadstar.com.
He also points to another issue that could cause problems in a few years. Namely, many operators are ordering container ships at short notice. Drewry has already recorded 170 such orders this year. Heaney says he finds this rush hard to understand, especially as the ships will only go into service in about two years.
“They are not going to arrive in time to cash in on this boom and all they are really doing is to potentially increase the risk of overcapacity,” said the expert.
Photo credit @ Port of Los Angeles