A year on from the initial coronavirus outbreak, international trade is still in troubled waters. After lockdowns and widespread economic distress in early 2020, importers and exporters are now dealing with a new shipping crisis in the form of massive supply chain disruptions. This is largely due to record import volumes and restocking ahead of the Christmas-New Year holiday season and also because most countries in Europe are going through a second round of lockdowns. The disruptions are expected to adversely impact import-export volumes and make imported products costlier.

The UN Conference on Trade and Development expects a 4.1% drop in maritime trade in 2020 but warns the drop might be more severe if the second wave of Covid-19 causes major supply chain disruptions.        

This piece explains the current disruptions and how the shipping industry has been impacted.         

Record Import Volumes 

What’s happening right now could be viewed as a perfect storm. Ports are overloaded, there aren’t enough containers and equipment to handle cargo, and freight rates have skyrocketed as a result. There are two main reasons for this state of affairs:             

• A record spike in import volumes, mainly to the US and Europe from Asia. In October, the Port of Long Beach handled more than 800,000 twenty-foot equivalent units (TEUs) in a single month for the first time in its 109-year history. The port takes care of a large volume of Chinese imports into the US. In November, Chinese imports to the US increased 46% year-on-year. The shipping peak season, which comes before the holiday season, typically lasts from August to November. But this season is expected to stretch till the Chinese New Year in February.       
• Booming e-commerce sales. In the US – the world’s second largest e-commerce market after China – online holiday purchases are expected to soar 36% over 2019 levels. E-commerce accounts for a large volume of international freight.  

Now, let’s take a look at each of the disruptions affecting import-export operations. 

1. Equipment Shortage and Imbalance

• Asia out of containers: With most trade geared towards US and European shores, Asia is facing a crippling shortage of containers, especially 40-foot containers. Importers are struggling to secure containers at Asian ports even on carriers offering premium services for premium rates. This shortage is mostly due to a pile-up of empty containers at US and European ports. According to this report, containers are stacked five and six high – the maximum permissible limit – at the Long Beach and Los Angeles (LA) ports. To ensure empty containers are returned quickly to Asia, carriers have reduced free storage time, cut back on extra free days and are rejecting export bookings but to no avail.
• Chassis shortage in US: Due to the unavailability of 40-foot containers, most exports are leaving Asia in 20-foot containers. But US ports are terribly short on 20-foot chassis (trailers). This is because thousands of trailers bearing full container loads are waiting to be unloaded at ports, container yards and warehouses. One trucking association at Long Beach said truckers would work more efficiently if they made “double moves” – deliver an export load or empty container to the terminal and take delivery of an import load on the same trip. But they haven’t been able to do this because carriers have failed to provide them with reliable shipment details. 

2. Port Congestion

Shipping lines might argue that they are unable to provide accurate information because their schedules are in a mess. One reason for this is congestion at ports. 

• Ever since trade picked up in July-August after the initial lockdowns were lifted, ports have been handling large cargo volumes without let-up. They now have their hands full with holiday shipments. This is one reason for the pile up of containers.        
• At the same time, labour shortages due to Covid-19 persist. One shipping line pointed to a 10 to 13-day wait for vessels to berth at Auckland port and blamed it on a lack of port workers. 
• The equipment imbalance has also contributed to port congestion.
• In a vicious cycle, port congestion has led to delays and extended wait times for ships, which in turn are adding to ports being overloaded. In November, Taiwanese shipping line Evergreen said “serious congestion” and “unacceptable delays” had forced it to bypass UK’s Felixstowe port, unload cargo at Rotterdam in the Netherlands and bring the cargo back to the UK through the smaller Thamesport.            
• Then, there’s bad weather. From fog in the UK to rain in India, struggling port operations have been further hampered. 

3. Carrier Schedules up in the Air

All this means carriers are struggling to keep to their schedules and are dealing with:   

• Blank sailings: THE Alliance (THEA) – an alliance between Hapag-Lloyd, Yang-Ming, Ocean Express Network (ONE) and HMM – has announced plans to blank sailing on Asia-North Europe, Asia-Mediterranean and some US East Coast routes in December citing “unprecedented times of the pandemic”. A blank sailing is one where the entire voyage or a part of it is cancelled.          
• Rolled cargo: There is a rise in carriers rolling over containers, which is when cargo fails to get loaded on a scheduled ship and is accommodated on a vessel that sails on a later date. Ocean Insights, which tracks container movement, reported a 28.5% rollover rate at major transshipment ports in November, up from 26.9% in September. (A transshipment port is one where cargo is moved from one ship to another on route to its final destination.) According to Ocean Insights, this could be a result of carriers adjusting services “to favour the more lucrative import trade” over exports.      
• Vessel bunching: Thanks to blank sailings and delays, the global schedule reliability of ships in July-September dropped to 65%. This is leading to vessel bunching – ships arriving back to back at port with little time separating each arrival. On some afternoons in November, LA and Long Beach had seven to 11 ships waiting to berth.
• Vessel capacity: While ships on major routes are booked solid, some are still sailing with empty slots due to the container crunch. 

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4. Shipping Charges Skyrocket

Carriers have responded to the strong consumer demand by increasing rates considerably and implementing a range of charges and surcharges. Given that shipping lines recorded healthy profits in July-September, shippers have accused them of taking undue advantage of the situation.  

• Freight rates: These are high even by peak season standards and constantly going up. Sample this: On December 1, North Asia to North America rates went up 92% day-on-day. In the Indian sub-continent – where falling imports and reduced inbound vessel frequency have worsened the container crunch – rates have gone up on average by 282% for Australia, 190% for West Asia, 159% for Europe and 54% for the US since August. Also, most carriers announced general rate increases – a base price hike in response to high demand – in December. This means it will now cost five times more to import from China. Atmospheric freight rates aren’t limited to ocean liners. Air cargo service providers are charging “outrageous” amounts (20 times the norm) to ship critical medical equipment, the World Health Organisation has complained. Truck/trailer rates have also gone up due to a lack of vehicles and drivers.                      
• Peak season surcharge: Carriers are charging hefty peak season surcharges of up to $500 per TEU on key Asian routes.     
• Congestion surcharge: Additionally, carriers are charging congestion surcharges of several hundred dollars per container.   
• Terminal handling charges: Air terminals have introduced new handling charges, including a $30.35 Covid charge at Heathrow and a per-kilogram import fee for loose cargo.

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How SMEs can Weather the Storm

Trading amid such chaos can be a deal breaker for small and medium businesses. Some tips on how to make the best of a bad situation:

• Plan your shipment well in advance. Add extra buffer time to account for delays, which are almost a certainty. 
• Ship from larger ports where the container shortage might be less severe. This isn’t a guarantee though, so study your options.
• Compare at least a few freight quotes to make sure you get the best price. Try Cogoport for instant freight rates and quotes.
• If you can afford it, book a premium service that guarantees equipment and ship space.
• Budget for additional costs – demurrage, detention and port storage – that can arise with delays.  

Communicate regularly with your trade partners. Try Cogoport if you require the services of verified and trustworthy freight forwarders and customs agents.