Freight News, Sea

Shippers grapple with Christmas congestion – but will it last?

[ November 15, 2021   //   ]

Shippers across the globe might have to battle the effects of supply chain congestion and record high ocean freight rates for some time to come, warns the Global Shippers Forum.

It says that the wave of congestion that is sweeping through global supply chains and record shipping rates are not set to subside anytime soon.

Speaking at a FIATA High-Level Maritime Dialogue in mid-November, director of the cargo owners’ group, James Hookham, said that shipper, struggling with historically poor levels of service yet paying the highest rates in decades, “are riding a tidal wave of congestion this peak season that started in exporting countries and is now arriving on the shores of importers and sweeping inland. First, we had lockdowns in Chinese ports, then an inexplicable shortage of empty containers, then the ships suddenly all maxed out and slots were like gold dust (and costing as much). Now our goods are queuing to get into ports, waiting for a crane to unload the box and then for a driver to move it inland to where we need it. It’s been a tough ride and it’s not yet over, but most of us are still standing, although, sadly, there will be ‘wipe-outs’”.

The most vulnerable businesses are the importers and distributors fighting to meet delivery deadlines set by retailers, said Hookham. “They simply cannot predict when the goods they have paid so much to have transported actually will be available. Not only have they blown their logistics budgets this year, but they are facing stiff penalty charges for late delivery, and possible loss of future contracts.”

But with most deliveries expected to land in the next few weeks, and Thanksgiving and Christmas probably safe for this year, the questions remain whether congestion continue significantly into next year and whether tight market conditions will persist throughout 2022, he added.

Or will consumer demand slacken and will capacity and resilience improve service levels as prices become more predictable? Was 2021 a freak wave or a permanent rise in sea level?”

“Just about every shipping line is predicting the latter,” said Hookham. “And why wouldn’t they when they are collectively expecting to turn profits exceeding $150 billion this year? But there is good reason to query the hype of continued congestion.”

Expectations for consumer inflation levels in most developed countries are hardening and most central banks are expected to increase interest rates next year, he pointed out. While that will not affect retail prices immediately, “it could trigger a rapid change in consumer sentiment that means the ‘click-fest’ of on-line shopping that has reportedly fuelled the surge in shipping demand for the past 18 months could be extinguished as quickly as it ignited.”

While  maritime congestion will take some time to unwind, the speed at which shipping rates shadow the drop in demand will be a critical indicator of the responsiveness and competitiveness of the market, he said.

James Hookham concluded by pointing out that some GSF members have turned container ship operators, hiring their own vessels to move their own goods, because shipping line predictability had got so bad, and rates so out of kilter with actual operating costs:

“I expect they will soon need to decide whether to ‘give up the hobby’ or make it a part of their routine operations. These endeavours have been dismissed as an aberration by most shipping industry observers, but it tells you something when a few guys in the audience think they can whistle a better tune than the full orchestra.”