In the case of Asia, when one door closes, another one does not open to a great dismay of the common proverb. Further sanitary restrictions are putting supply chains under immense pressure worldwide.
The wind is strong and the waves are big when it comes to Asia as COVID restrictions at ports are tightening in an attempt to contain more contagious variants of the virus. In addition to the introduction of partial lockdowns in Ningbo (although no significant impact has been detected, experts fear that prolonged measures will lead to disruptions), China has put Shenzhen on high alert making it more difficult to leave the city, which directly affects transportation. All the ships arriving in China are now facing strict control measures. However, it is important to keep in mind that ports are not solely about arriving and departing vessels – all the infrastructure related to longshoremen, warehouses, trucks, and rails that enable the flow of trade to move becomes affected by the lockdown disrupting operation of the entire ecosystem. Chinese authorities claim that the state of affairs is stable, but in reality, Ningbo, a digitally automated powerhouse, still needs people and trucks to operate efficiently. In fact, the labor shortage is spreading way beyond Chinaon a global scale. Omicron proves to be more contagious, thus many people call in sick and cannot perform their daily operations. It is severely affecting manufactures and shippers. The former do not have crews to produce products, and the latter cannot transport them since no one is available. The consequences of it did not wait long to show up. The updates of the indexes have clearly demonstrated the pressure that supply chains are under. Analysts have tracked the most important ones to 1997 and concluded that there has been no period of such supply chain pressure in the ensuing 25 years as what has been experienced over the past year. The beginning of the year has not given any clues on the evolution of the sport rates either leaving my players torn between agreeing to fixed long-term contracts and keeping a foot in the door of the spot market in case dynamic changes. If they start having to pay extra charges to get boxes, and more to get them on the ship, then the total charges will skyrocket again. This uncertainty is also pushing shippers and carriers into trade freight forward agreements. Before they were rather reluctant to the introduction of FFA due to the low rates but now their appetite has increased. The perplexing situation in Asian ports due to the sanitary restrictions did not leave the airfreight sector unnoticed either. More international flights were banned in Hong Kong leaving the companies no time and room to adjust. The situation in the EU with airfreight is a bitter better as some companies manage to adjust their freight services in the light of elevated rates and high prices.
Last year already saw the increasing role of government in many countries in attempts to tackle supply chain crises. In the US, it has been especially active in the shipping sector. For instance, currently, Congress is looking to give the government more power over commercial decisions on capacity allocation in the container shipping trade. What will it lead to? Many understand that if the new initiatives are accepted it will be the FMC that is going to dictate the rules regarding capacity. It is a slippery path as no significant progress has been made in establishing fair competition and influencing big lines, so the expansion of the FMC’s authority risks leading to more chaos. If not an authoritative institution should be watching over competition game, then what? The question remains unanswered. Meanwhile, the UK faces a similar problem where BIFA is concerned with practices undertaken by the principal container shipping lines and the assessment of them. In a span of several years, the industry has gotten 15 shipping lines, organized into three major alliances carrying that trade, with some analysts observing that the market share of a single alliance on certain key routes could be over 40%. The recent accomplishment of the MSC surpassing Maersk in terms of their asset sizes serves a proof that the big players are growing vigorously. Although the company claims that it was not competing in size, it is clear that the win has also strengthened its position as a powerhouse. The latest data showed that the shipping industry’s Q3 of 2021 made an enormous $37.24 billion in operating profit. In addition, the country is bracing up against the intensifying pressure on the local importers following the implementation of the post-Brexit border-control procedures. Some of the services crushed on the first day, which lead to delays. Companies note it is not the new regulations that are the problem because the process remains the same; it’s mainly the time frame that was changed. Experts warn that volumes will rise and the pressure risks becoming more tangible.
There have already been signs of the rail freight moving east and even speculations about the possible increasing role of Poland that eventually could become a frontrunner of the intermodal transport. While this premise remains under a question mark, Poland has welcomed Metrans that has extended its network of rail terminals eastwards by acquiring CL Europort. The new terminal will be located in Polish Malaszewicze, which represents a bridge between the EU member states, Russia and China giving the co
The animal farm of the shipping sector: who is going to benefit – bear or bulls? The stakes are high especially with the presence of wild cards.
The end of 2021 was quiet intense with freight indexes hitting new record-highs of $5,046.66 per TEU, so no wonder that after the fireworks commemorating the beginning of the New Year died down, the shipping sector was left with a complicated riddle to solve. Never has the indusrty started chapter 1 out of 365 on such an increase as shippers and carriers remain alarmed about prices, prospects of demand decreasing any time in the coming months, the effect of geopolitics, and COVID consequences. Traditionally, the players can be divided into 3 categories: the bulls, the bears, and the wild cards. For each of them, the perspectives differ. Bulls expect rates to be elevated due to the Chinese New Year, and that they will not drop in spring because during that time the US importers will be restocking their depleted inventories, which will drive the rates up. The bearish view is more positive as they believe that the main driver of the indexes was the US stimulus that will no longer be applied, thus the situation will improve. The main challenge is to solve supply chains inefficiencies that require changes in structure and the way businesses operate, Long story short, the industry needs to stop making congestion a scapegoat. This is where the wild cards come to disrupt, and for 2022, they are COVID, port labor negotiations, and the Taiwan “gray swan.” America, in general, is highly dependent on Chinese ports, and political tension around Taiwan only adds oil into the flames. In addition, the tightening restriction at Ningbo’s port is going to result in production disruptions, including short-term delivery and order fulfillment delay, while the volumes have not dropped. Chinese ports are fighting for their lives as updates show an increase of 7.6% in volumes, compared to the same period of the previous year. The negative aftermaths concern not only American direction. Due to congestion, rates on South Korea – Russia tradelane also ballooned nearly 50% from a year earlier to 81,200 TEU. However, the difficult context in Asia does not prevent the strengthening of some of the companies. This time it is SM Line that has paid $14m to take a 0.49% stake in HMM. A continuous reign of the shipping lines, is it what it is for 2022?
The situation in the US is consequently similar – fundamentals of supply and demand are tight, and the troubled port of LA is demanding shippers to remove empty containers faster under the threat of charging them a hefty surcharge next month. The strategy seemed to work; however, it is some organizational challenges that prevent carries from moving more rapidly. Terminals still do not allow empty returns and loaded import containers to be exchanged at the same facility if they belong to different ocean carriers, have policies that restrict the ability of truckers to secure chassis or make appointments. Some industry experts advocate for a moratorium on this rule. In general, charges relating to container returns are a grey area, and the FMC vs Taiwan’s Wan Hai Lines for possible violations of them is a recent example. The company invoiced their customer more than 20 times for detention charges, when initially, the carrier either offered no return locations, the designated terminal was not accepting the containers’ chassis, or appointments were unavailable for the subject containers. It is yet to be decided whether civil penalties will be applied or not. Overall, the constraints in the major ports are forcing shippers to find safe heavens in niche ports from Port of Hueneme to Montreal or chatter smaller vessels.
Last year has seen many ambitious statements from the companies to go green, and the agenda remains the same for 2022. For many players, it is another ground to establish their influence, so no wonder that it is the big ones introducing major developments. COSCO has brought out online at the Port of Tianjin the world’s first smart green energy system for zero-carbon operations. Taking into account the volumes that Asian ports are currently dealing with, the positive consequences of the implementation of this initiative will be enormous. Meanwhile, Rolls-Royce is working on the development of methanol-based solutions for climate-friendly transportation, as it believes the idea will make them the pioneers in the shipping industry. Clearly, the competition in the green race will be one of the predominant trends of 2022.
Rail has been playing one of the key roles in the shaping of the post-pandemic environment, and as another year has passed, the New Silk Road has proved to be a powerful asset. In the coming months, everyone’s eyes will be on the geopolitical positions of the players with a special role of Lithuania, Belarus, and Russia. The latter has been rigorously investing in the development of the route. Focusing on the quality must be the key factor instead of the ability to handle volumes considering the long transit times and congestion on the corridor. Meanwhile, rail has seen the introduction of new services between China and Azerbaijan and the one linking Argentina and Asia. European direction is doing brighter than The New Silk Road as well. In the UK updates point to a recovery in the rail freight sector. The latest quarterly statistics show traffic has recovered to levels seen before the onset of the pandemic, altho
Shortages are making every meal actually happy: how companies are bracing up in the anticipation of the Chinese New Year and find ways to deliver their cargo.
Although Chinese New year is not the end of the world, sometimes with all the delays, it does seem like one because China remains a crucial destination for many sources and suppliers and it is impossible to eliminate it from the logistics chain. As major ports continue experiencing logjams, shortages start spreading way beyond and now reach fast-food chains that cannot ship their cargo on time. Recently McDonald’s had to rent a cargo jet after it had temporarily limited the sale of medium- and large-size French fries in Japan because of delays loading vessels at the Port of Vancouver. Big companies are very cautious with positive predictions for 2022 and so far expect 2022 to start with shortages as demand is not showing any signs of slowing down and Omicron is creating additional constraints, despite the fact that the global container trade has grown 1%. The will be a pre-holiday cargo spike in the first week of February because some South China barge services will remain suspended. In other parts of the world, some companies halt their shipments in order to try to clear backlogs. In the rush for storage that is clearly going to be equal to gold, others extend their feeder boxship charters as well as place new orders for container vessels. The increase of ports’ capacities is also on the list of priorities for the majority of the players. Anticipating the coming year, Hutchison Port’s terminal in Spain will receive $68 million for development. The initiative aims to provide relief to the busy Port of Barcelona that has moved 3.2 million TEU in November, a 21.6% increase on 2020 levels. APM Terminals Apapa, Nigeria’s largest container terminal, has followed suit with the investment of $438 million in upgrading its facility with modern cargo equipment. The struggling Port of LA that has been an ultimate start of handling record volumes of TEU will also get its share of findings from Evergreen. It will spend nearly $70 million on more containers and cranes. In fact, California’s ports (the Port of Oakland in particular) come up with the idea of widening the ship turning basins to accommodate larger container ships calling North America. The widening of the Oakland Harbor turning basins is expected to be a major infrastructure improvement.
As competition increases, authorities are determined to speed up on the initiatives that could help decrease the lines’ already enormous influence by updating FMC policies that would allow easier procedures of filing complaints about unreasonable business practices that result in financial or operational harm. However, the problem with shipping lines is much more complicated and involves different aspects that include cybercrime, accusations that lines do not fulfill their contract commitments, lack of transparency. This year has seen numerous court cases, which prove that FMC has a long way of adjusting its policies in order to meet the monopoly-free agenda.
Is only the shipping sector under cyber-attacks? Rail is also under threat because all modes are now easy targets since everyone’s attention is at the congestion and supply chain disruptions. Hence, UNIFE is calling for full cooperation in the European cybersecurity arena and a collaborative approach between rail stakeholders. Many rail companies are advocating for digitalization, which is a great vision for the future, however, it means that a deeper analysis of all operational cybersecurity-related processes is required to protect companies’ data and operation flow. The UK has recently defined its strategy based on more diversity in the workforce, leveling up the cyber sector across all UK regions, expanding offensive and defensive cyber capabilities. Another pain point for the EU railways was floods, particularly in Germany. Experts estimate that the damage was so severe that the consequences of it will last in 2022 as reconstruction is still in progress and concrete prognoses for recommissioning are not yet possible.
Shipping lines are shedding off the old business models and welcoming the New Year with more flexible and agile approach. What will it take to win the game in the coming months?
Through hardships to stars or a year of transformation – this is how 2021 can be described if we look at the major shift in the lines’ business models towards becoming full-blown providers of the inland logistics services. What has caused such catharsis? Ever Given stuck in Suez disrupting the game, stratospheric rates that left shippers almost bankrupt and logjams all over the world with epic piling up have led to major reconsiderations of the ways companies operate. What tops the picture in December is the disruption due to machinery failure that left a containership prang in Taiwan. The saga of an asset-light business model that included leasing warehouses, trucks and aircraft, and using contract labor for a long time, and maintained flexibility with minimum capital expenditures has ended. The crisis has proven that relying on third parties to make on-time deliveries is a losing game, thus In 2021, the major carriers invested heavily in becoming integrated logistics supermarkets from which customers can order individual services, such as customs brokerage or port-to-port transportation. It is clear that for big lines it means more agility with an extension of end-to-end operations but what about shippers? They can also benefit from it, as this extension will give more room for competition and a variety of services. However, when the lines acquire other companies, and we have seen it happening over the course of this year, they have to put tremendous effort to make this integration smooth, which requires organizational changes, IT changes, customer integration. Simply sticking together end-to-end will not do anything, and not many understand it because usually, the main reason for acquisitions is the desire to get in the game when the post-acquisition strategy is not defined.
In addition, it is a people-heavy business and if forwarders want to stand the competition, they will have to invest in localized knowledge and better forecasting, otherwise, shippers will. They are already spending time to improve their forecasting, and that will help them ask for contractual changes, based on relationships, rather than transactional. Their appetite will only keep growing, so 2022 should be the year when the industry needs to evolve the way it manages and executes supply chains. After all, 2021 has given all the necessary tools for it and luckily, ports will receive additional investment too. In the case of the US, they may come from abroad with Qatar planning to invest $10 billion. The east coast is past due for improvements while the west coast, although it is still problematic, holds the best potential, according to analytics.
Like a spider web, railways continue to expand and connect the most vital facilities. For a while, a part of the North-South transport corridor passing through Azerbaijan was under reconstruction, and recently it has renewed its work. Apart from connecting the country with Russia, the railway line is essential for the connectivity of the Abheron peninsula with the rest of the region. The upgrades also concern the UK where under a wide-ranging program of works Network Rail is improving capacity and relieving bottlenecks in and around Manchester. Despite the recent announcement that many capital projects including the one dedicated to the provision of a high-speed line, this initiative has not been crossed out. Over the Christmas holidays, these improvements are a crucial part of the Transpennine Route Upgrade, which will better connect the North and allow more trains to run in the future. In the meantime, the trend of many companies going east has already been highlighted, and DB cargo Eurasia jumps on it too with a new connection between China-Europe through Poland. The country has been in focus for many countries, so who knows, maybe Poland will have all the trump cards to become a new rail frontrunner in the region?
Many have already predicted that the coming year will be transformative for all modes, and the current state of affairs gives clear hints that rail will be the first on the list experiencing it, while shipping and airfreight sectors are battling never-ending congestion and cosmic rates. Metamorphosis will occur not only thanks to the already occurring changes such as introduction of the new services and grants for the development of new facilities but also if the EU will take the reign in its hands and shift China on the pedestal of the New Silk Road champion. However, this mission will not be easy to crack especially since China-Europe route remains the busiest in handling TEU.
Another forecast that we can see unfolding these days is the reconsideration of supplier relationships by many players. Near-shoring is becoming a new trend with European companies switching their focus to the east, and the US ones concentrating on Latin America. As costs keep increasing, it seems to be the only strategy that could secure a competitive position of the companies. Since MSC has outrun Maersk with the size of its fleet, will the size of the assets no longer be a battling ground for competition? What other predictions will come true and how are the new rules going to affect the market? Follow the updates on MAXMODAL.
With China becoming less favorable, does it mean it is time to wave it with a handkerchief? It seems like it is Eastern Europe’s moment to shine.
Reconsideration of suppliers has been in the talks for months since the costs started to rise. Initially, China was everyone’s favorite since sourcing from there used to be indeed the most efficient way. However, the rules have changed and the new reality requires new approaches. Many European players are planning to expand to Eastern Europe in 2022. What are the benefits? Sourcing from there or Mediterranean countries significantly cuts lead times when those from Asia to Europe have almost doubled due to supply chain disruption. At the same time, in the US, everyone is switching focus to Latin America, so near-shoring is set to become a global phenomenon that we are most luckily to start the new year with. However, it does not mean that Asia is forgotten – Maersk has sealed the deal of a $3.6bn acquisition of Hong Kong-based LF Logistics. The move is taking the giant further down its avowed corporate path to becoming a logistics integrator. Although Maersk’s “buying spree” has boosted the company’s assets greatly, it has still lost to MSC in the race of becoming the biggest line. The latter has “checkmated” Maersk thanks to the acquisition of 67% of Log-In – Logistica Intermodal S.A, a Brazilian company. With the new balance of power, what will be the next battleground for competition?
No matter the potential redirection of universal focus to Eastern Europe, the China-Europe rail direction remains exceptionally busy. Having transported 436,632 TEU so far, the market has set a new record. This is why new services are of great importance. The most recent one is the launch from Guangzhou on the southeast coast of China, to the main port of Germany: Hamburg. As congestion remains a pressing issue, rail becomes a sufficient alternative for cargo transportation. China senses the new direction of the wind and hurries to strengthen its presence in Eastern Europe too by introducing the train to the Polish harbor of Gdynia. After all, nobody has expected the country to ease its clawed grip off the region. However, not everything is so smooth. One of the biggest concerns regarding the New Silk Road includes the launch of regular chemical trains because there is no standardized approach to this segment of the industry. In addition, it is the notorious congestion that puts this initiative out of scope. At the same time, the Middle East is not slowing down and the Islamabad-Tehran-Istanbul railway train has finally seen the light. The corridor has great potential and more players such as India and Bangladesh are considering joining it in order to realize a faster transport link to Europe. Besides, the new train is eco-friendly, which aligns with the standards of the new sustainable agenda. Can the rail really take the congestion blast solely on itself? Is there a capacity for it? The US hopes so. As experts report no significant improvement at the Ports of LA and Long Beach reporting historical highs, the authorities switch to rail and give the Port of Long Beach a grant of $52.3 million for development. The rail capital improvement program aims to utilize moving more cargo by on-dock rail as it is cleaner, more efficient, and reduces truck traffic. The construction of the new facility will begin in 2023 and is planned to finish by 2032. Otherwise, the Port will not be able to handle all the incoming TEU. The elevated throughput concern Europe too where the volumes in the Port of Rotterdam surpass 15 million TEU. The problem lies in the fact that the ports all over the world are not growing fast enough and this cannot address the skyrocketing demand. As the result, lines continue deteriorating their calls to avoid further delays. For now, the authorities will continue to emphasize and encourage the importance of digitization, cooperation and data sharing to provide a better response to the global pressure on the logistics chain – now and in the future. What also adds up to piling issues is the post-Brexit policies that many have appeared unprepared for, thus local governments will be forced into unfavorable policies.
Not only ocean freight is extraordinarily expensive. Airfreight spot rates have been surprising shippers for weeks, and although the market has seen a small decline recently (the figures from China to the US have dropped to $13.82/kg), no one is really hopeful that it will last especially when there is a threat of lockdown in Europe lingering in the air. If they are imposed, consumer spending is expected to increase which will put more pressure on supply chains. Logically, companies are already bracing up and start expanding their assets. In the case of UPS, the company has made a major freight order from Boeing, which has broken its record in freight sales this year. Singapore Airlines follows suit and makes a similar strategic move by teaming up with Airbus to purchase freighter aircraft. It will burn up to 40% less fuel on similar missions to provide better operating economics, and boasts a longer range that offers greater flexibility in aircraft deployment.
