Weekly Newsletters 2021
 

Week 33 Highlights

Of note is the return of global ocean shipping congestion with ocean freight rates escalating to extreme levels. 
 
U.S. Shippers and importers paying US$2,200 per 40’HC can from Ningbo to LA less than a year ago, are now paying US$21,500.
 
On top of this steamship lines are asking for higher insurance premiums, up from US$1,050 to US$2,550, and for SPGO fees of US$2,000 per can. Moving goods to the EU are seeing even higher rate increases.
 
The questions are:

  • When will this abate? – with good fortune, early to mid-2022, but never to previous lows and excess ocean shipping deck capacity 
     

  • How high will rates go? – all our steamship liner contacts will not indicate, other than to say – “Its going to get uglier!”, another 20% to 40% compound may be on the cards
     

  • Will ocean freight rates return to US$2,200? No – because, among other reason;

    • steamship lines have been losing huge amounts of money for many years and they see this as a balancing act. It will reduce in 2022 but not to previous lows. All steamship lines are posting record profits at the moment

    • until capacity returns to supply matching demand, rates will not drop

    • once COVID-19 currently locking down ports and manufacturing zones starts seeing lower levels and control

    • steamship lines have now joined in alliances, which lowers competitive pressure

    • lower level exporting countries such as Vietnam are locking down, detaining thousands of cans, shorting global can supply

    • China’s can manufacturers have not shown any urgent or massive uptick in producing new cans. China is by far the largest producer of new cans 

    • There are still huge numbers of empty cans stuck in smaller exporting countries after receiving emergency supplies of PPE and anti-COVID vaccines 

    • Orders for new container ships will take a few years to see delivery

    • Pending and very expensive emission control regulations will cost steamship lines high costs in implementing mandated changes. In the upcoming months, the IMO will play a crucial role in setting the ground rules that will decide the future of shipping emissions

    • International ocean steamship lines are seeing continual stowage plan and routing changes, causing untold inefficiencies in where they dock, when they turn  around and how they load decks in a meaningful way. This then cascades to shippers as steamship lines often will divert away from scheduled ports to ports of better convenience to them. This increase cost and lag time for importers, who now have to pay to relocate an inbound can from the rescheduled port of arrival to the diverted port. 

    • U.S. ports have invested billions in re-structuring their channels, extending quays and upgrading unloading equipment, but not enough to offset port delays, that are having huge and negative effect on ocean liner turnaround times and thus availability

    • U.S. intermodal and road transportation infrastructure has been shown to be lacking in response to slugs of incoming cans. Until there is massive federal assistance, which will take years, this will not catch up in the foreseeable future

    • Inland terminals are congested with some diverting traffic away 

    • U.S. consumer demand shows no sign of reducing, instead speeding up with the latest stimulation packages still filtering through into disposable cash

    • Cyclical “Special days” are approaching with August/September being the entry point for the annual seasonal demand pattern – Xmas, Black days etc. driving up short-term ocean demand

    • U.S. inventories are still at extremely low levels, requiring replenishment, driving up demand
       

  • Will federal governments step in?

    • Not per se because they view the current imbalance as a supply and demand issue, and governments, particularly the U.S. government are loath to step into such issues

    • More authoritarian governments may, but unless the U.S. does, it will have marginal effect

    • Unless the U.S. mid-west demand for empty cans reaches painful heights on the U.S. Congress, with pressure from American exporters on Congress ahead of the 2022 mid-term elections seeing a reaction
       

  • Can air freight help? – No, because it is very expensive and limited in scale
     

  • Will there be demonstrable U.S. onshoring? – No, because

    • Unless there is massive U.S. automation of manufacturing plants, cost of labor will continue to drive offshoring

    • Unless the U.S. government mandates an onshoring return, companies will continue to follow the dollar – lower priced goods offshore

    • U.S. companies in many instances followed the JIT practice as copied from Japanese systems, so their inventory management techniques are too far advanced to see immediate or more costly onshoring

    • U.S. publicly-traded companies will not onshore for the sake of onshoring. How will they explain the rise in cost and subsequent drop in return on capital to Wall Street and their shareholders? Any CEO advocating such steps will not continue for any extended tenure as CEO once returns start dropping. It is all about the dollar to investors and investment companies, not patriotism or any sense of political support

    • There may well be close-shoring, with Mexico aggressively looking to entice U.S. importers to order from Mexican manufacturers, BUT, this can never equal the Chinese manufacturing base, so any Mexican gains will not see demonstrable close-shoring. Canadian manufacturers are still too expensive so will not fill any import vacuum, other than continuing with USMCA commitments

    • Nearly 80% of all goods are transported by sea, this is a huge ask from an onshoring perspective. 

    • Normally approximately 60% of all cans heading east from N.A. are empty, being relocated to manufacturing zones. This will continue, but with shorter container turn times as steamship lines short providing empty cans to U.S. exporters as a means to closing demand and supply gaps in Asia
       

  • Will things ever return to normal? I do not believe so, in that there will be a “new normal”. Unfortunately, smaller businesses who import lower cost goods will see an increasing tend to exit their markets, as they cannot find equal matching prices to survive. This will exacerbate as the multiplier kicks in.

2021 Weekly newsletters as published for reading and downloading.​

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