Shipping lines have done unimaginable and destroyed even the tech atlantes. A wracking ball that is worthy billions of dollars.
Shipping lines triumph has taken off. Now they definitely have everyone’s attention, even of those who come from different industries such as tech. The reason for it is their resounding success in surpassing the profits of the biggest companies such as Facebook, Amazon, Netflix, and Google. It is difficult to recall any other industry that managed to achieve such accomplishment especially in the time of the crisis. The wealth of some of the marine giants reportedly reaches up to $5.6 billion, a massive growth from $567 million in the same period last year. The records do not end just there. Despite the persisting bottlenecks, the Port of LA is still being number one in handling TEUs. The updates report 902,644 TEU, which is an 8% decrease from last year, however, the overall cargo is up to 22%. More is yet to come with agencies forecasting a record holiday season coming up. However, the industry knows the examples when too rigid anticipation for growth has caused inventory backlogs. Besides, the situation is perplexed with China’s recent decision to ban many reefer shipments through the port of Dalian due to the COVID outbreak. Hapag-Lloyd is advising customers to divert reefer containers to other ports such as Tianjin and Qingdao. Such drastic contrast – either cosmic profits or earnings going down 50% in other sectors is causing extraordinary volatility in the shipping sector. It is an extremely tricky time for the investors as, accosting to experts, the “level of whiplash” over the past couple of years, has been bruising even for the most nimble ones.
The geographic area of booming TEUs is not limited just to the US – Australia previously announced its skyrocket demand, and, according to the October assessment, the Port of Sydney has handled 1 million containers. Since the dynamic is not going to slow down, the port authorities realize the importance of clearing out the space. Apparently, the best way to make shippers move is to threaten them with dwell fees. It worked in the beginning and is working now. The number of container vessels waiting in San Pedro Bay to unload at the ports has dropped from a high of 83 on November 12 to 61 on November 22. Way to go for the ports of LA and Long Beach. In the meantime, the latter has been connected with South China thanks to the linkage introduced by Orient Overseas Container Line.
Rail has also enjoyed its fair share of the blooming volumes, although not without operational problems that arise due to political tension with China and even the ghost of suspension in operation with Lithuania. Congestion in Kaliningrad brought its disruptions as well because the city was a promising transition hub to Belarus. It is reported to remain severe, so China Railway Express trains are gradually shifting back to the Mala-Brest rail line. Meanwhile, Ukraine takes the complicated context as a chance to promote itself as an alternative gateway to Western Europe and is building a 100,000 teu-capacity terminal at Mostyska, on the border with Poland. The expansion of any kind requires significant investments, and in the case of Turkey, the government is planning to increase financial contributions by 60%. The Kars Logistics Centre is in the spotlight as it is the primary tool of the government’s policy to attract more traffic from the New Silk Road via Turkey. In addition, it is aiming to influence the main traffic flows passing through Russia. Is it realistic or ambitious? However, not all initiatives coming from “above” are destined to be accepted. The UK’s Integrated Rail Plan has received negative feedback from the Railway Industry Association. The document was a long-awaited one, but after it was out, it confirmed the speculations that rail projects in the north of England would be scaled back or abandoned. The representatives of the national trade body have voiced their readiness to cooperate and discuss the further steps at the round table. The situation is much clearer in Vancouver now as the storm has died down and Canadian Pacific will restore rail service in British Columbia. A new line connecting Italy and France will also be launched shortly. Calais-Domodossola line will be available for all types of units and it is the first time when Cargobeamer has its own terminal, which makes the work more efficient now. Another advancement in intermodal has seen the light in Poland where Contargo has established a national company. The world can potentially see a new promising player in Eastern Europe, especially since with an annual transport volume of 2.1 million TEU, Contargo is one of the largest container logistics networks in Europe.
Airfreight has definitely been hit among the hardest with the jumped demand and won the pedestal of the most under-invested in the recent news headlines. To address the pain points, DHL is going to expand its international fleet with a far-reaching forecast that the global freighter fleet will be 70% larger than the pre-pandemic fleet by 2040. Beyond added capacity, the additional freighters will allow DHL to fly eco-friendlier and more cost-efficiently. Rival Airbus is also benefiting from growing freighter demand, thanks to the orders made by CMA CGM Group.
Worldwide bottlenecks have been around for weeks now and, although local governments are spending millions of dollars and port authorities are trying numerous strategies from 24/7 work schedules to lifting restrictions, the situation goes on. The benefits that shipping lines and, apparently, forwarders are preventing congestion from resolving. The snail pace that the latter are picking up their containers causes more delays, and even FMC does now have enough regulatory tools to interfere. However, not everything is stuck – California’s ports report improvement. Meanwhile, the East is planning major changes as well with China intending to make the local ports more attractive to foreign investments.
Investments are the key indeed, and airfreight knows it like no other. Years of the lack of financial funding have resulted in the inabilities of the sector across the current crisis. Even with the introduction of new services, the increased capacity adds nothing to the battle against congestion and sky-high cargo rates. It is crucial to keep in mind that not only traditional horsemen of the crisis (shortages, congestion, elevated rates) can add logs to the fire, but the weather as well. Canada’s railways and ports are struggling with floods, and there are no alternatives to divert the traffic. Will new technologies and digitalization speed up the transition to more resilient systems? Follow MAXMODAL for more updates.
With a creak, at a snail pace, but finally the closed-off systems start to lift cabotage restrictions to make ports more attractive. Nothing calls for action better than the need for foreign investments.
The need for more space and services will eventually open up even the most closed-off systems and the Chinese one is no exception. If previously foreign liner operators could not offer transport services between Chinese ports, or circumvent cabotage restrictions by chartering or buying slots on China-flagged ships, now things are about to change. The authorities have decided to temporally lift the restrictions. The next steps will probably include relaxation of cross-border payment, overseas consumption and the flow of people because the recovery is simply impossible without foreign investment. The Chinese government is aware that it has to make ports more attractive to international partners especially during this unprecedented time when the spot rates dynamic remains uncertain. On the one hand, there are offers from Chinese-based forwarders, with prices down to $13,000 per 40ft for mid-December, and on the other – for Mediterranean ports from Asia some indexes were unchanged, at $12,420 and $13,168 per 40ft. The troublesome congestion at California’s ports continues to have a strong grip around shippers’ throats and many experts report that significant rate reductions across liner trades could take almost three years. Although the US ports reportedly are making progress toward easing supply chains – the goods movement is now faster. The main problem is now the fact that the rise in the cost of shipping between Asia and the West Coast has made it is more profitable for the ocean carriers to quickly load empty containers or return without a full ship instead of waiting for loaded containers to get into the port. The global alliances dominating the sector make it difficult to resolve this issue as their influence is hard to combat. The White House has again underlined the harmful effect of the monopoly on export and import for the marine sector. The country knows its “heroes” – 2M, Ocean Alliance, and THE Alliance – control about 80% of the global liner shipping market and 95% on the East-West trade lanes, according to the latest analysis. FMC has been promising to take action for weeks, but the destiny of competitions of American ports is still at mercy of the big players. Perhaps, the promising stimulus of expanding the FMC’s $30m annual budget will become the needed measure. The battle with major companies takes place outside of the US as well. In Abu Dhabi, the growing presence of DP World is pushing Abu Dhabi Ports to boost the fleet by ordering its third ship, ready to serve the Persian Gulf and Indian sub-continent.
However, adding capacity gives no guarantees that the situation will improve, and airfreight is a great example of this premise. Despite the new services, air cargo rates have climbed further. Europe-US ones go up 4% to the East Coast to $5.24/kg, and hit $6.08 to the West Coast, which is a 10% increase since the start of the month. Demand and congestion are to blame which once again highlights the importance of addressing all the key issues altogether, instead of concentrating solely on one because they limit how much cargo can be processed regardless of the space on a plane. Hence, the added capacity makes no difference.
Meanwhile, the idea of free ports, special areas with different regulation that includes tax incentives, has finally gotten its spin-off with the opening of the UK’s first new freeports for business. Now businesses situated along the Thames will potentially reduce the cost of ownership by 50%. In addition, a collaboration between port operators DP World and Forth Ports, Thames Freeporthas become an economic zone connecting Ford’s Dagenham engine plant and the global ports at London Gateway and Tilbury. The goal is to make it a customs sub-zone. Russia hops on the port development train and focuses on the construction of a major transshipment hub on the Baltic Coast. The facility is planned to be able to transport a cargo turnover of up to 65 million tons/year at the seaport of Primorsk. Possibly, the new terminals will soon be filled with zero-emission boxships. For the start, the first one has already completed its maiden voyage in the Oslo fjord. It is the result of the collaboration between The Yara Birkeland and Kongsberg. It will cut 1,000 tonnes of CO2 and replace thousands of trips by diesel-powered trucks a year. Way to go to the green future.
Eco-friendly transportation solutions have hit intermodal sector as well. CMA CGM is going to work on two new dedicated block-train service offering in Germany. It will be able to handle a weekly capacity of 96 TEU, connecting with the services from and to Asia. However, Asian railways are not operating smoothly. After the renewal of the railway trade between China and North Korea, it was shut again due to the new COVID outbreak. This time the closure probably will not last long as both sides can no longer bear financial losses. Canada, on the other side of the world, knows all about losses caused by the weather. Floods have cut all rail freight traffic to and from the port of Vancouver. The companies are trying to divert the traffic to the US, but floodwaters from the Nooksack River have poured across the Canada-U.S. border.
While some are working to the bone to resolve notorious bottlenecks, others are enjoying the occurred opportunity to use ports as a free space for storage. The classic game of winners and losers.
The most vulnerable business affected by global congestion turn out to be the importers and distributors fighting to meet delivery deadlines. Shippers are complaining about queuing vessels, an inexplicable shortage of containers, and poor service from the shipping lines. However, the latter believe that consumer demand will slacken and capacity and resilience will get back on track. Of course, the shipping lines are peacefully advocating for the positive predictions as they are going to break the record in profits thanks to the current context. Cosco alone reports nine month profits skyrocketed up 1 650% in the light of soaring demand and volumes. Zim follows suit generating its highest ever quarterly net income of $1.46 billion. Others make their presence by strengthening regional presence in the main areas. Shipping lines are the true royal now especially when their customers are hunting after long-term contracts. They are taking on millions of dollars in forward charter commitments on vessels well beyond the delivery dates of large swathes of newbuild tonnage that will hit the seas in the coming years. The new survey has revealed that expiring charters will now peak in 2024. Thus, the shipper’s point of view is more realistic – the marine congestion will take time to resolve and the pace, with which spot rates are dropping, is going to determine future competitiveness of the market Meanwhile, forwarders are not hurrying to pick up their containers, especially since the dwell fees have been postponed until the middle of November as container flow significantly improves. Seems like a great strategy to use ports for the free storage. That is why FMC is going to take matters regarding the return of containers to the marine terminals in its hands by creating several responsible teams. The teams will focus their efforts on improving conditions at the Ports of Los Angeles and Long Beach, New York and New Jersey.
Infrastructure that is failing to satisfy the current consumer demand needs to be developed as well, otherwise, huge losses are inevitable. Experts warn that the prices that people are paying for ocean freight right now add between 5% and 10% to the cost of all the purchases. Taking into account that 90% of the consumed goods are moved on container ships, the influence of the marine sector is predominant when it comes to recovery. With Christmas just around the corner, everyone’s wish for the festive season is quite easy to predict: to have spot rates at a decreasing pace, although the marker is no miracle. The new dynamic is definitely the sign of the coming changes, but it might take another 18 to 30 months for the rates to reset.
Economic relations among the players on the grand chessboard will not be the only determining factor of the awaited stability. Although it may seem that in today’s globalized world market influence is the strongest, there is still room for geopolitics. The rail ties strengthened by the New Silk Road are already playing a crucial role in transportation, and their future depends on the evolution of the contradictions between the US and China especially since China is now more west-oriented. The volumes of goods that are transported by rail across the continents continue to increase. From 2016 until 2020, these volumes grew 7.9 times. Meanwhile, the EU infrastructure is going through a metamorphosis. The upcoming revisions of the TEN-T and Rail Freight Corridor Regulations of the European Commission are now in the talks and digitalization will be the forwarder. Experts collectively agree that the future is behind European Traffic Management System, Automated Train Operation, and digital traffic management systems, etc. Green agenda also does not leave the round tables in the context of rail influence.
In the meantime, the growing demand for clean energy has encouraged the launch of the world's largest LNG tank container ship.Yangzijiang Shipbuilding will use Tiger Maanshan and its sister ships to carry LNG from Malaysia to China, having signed a shipping contract with its partners. With all this potential, the green sector has to have the same regulations as any other one, and they are already here. The US Environmental Protection Agency has assessed penalties of $81,474 against two MSC’s ships reporting violations in California and Louisiana regarding improper management of ballast water. Carbon-free initiatives and clean energy technologies are a great thing, but the rest of the environmental measures must not be neglected.
However, financial constraints can easily disrupt hopeful plans. The latest example is the Port of Rotterdam where the lack of money for train maintenance causes major consequences for its accessibility. With the implementation of the sustainable requirements and cyber security that the government was aiming for, the costs are going to increase and it will significantly postpone the development. Issues with accessibility have been the headache for Canada as well due to severe weather conditions disrupting cargo flows between the port of Vancouver and the interior.
What goes around comes around: years of underinvestment in airfreight are now resulting in decrease in volumes and the sector’s inability to battle congestion.
Although strong demand for air has taken off, it is not quite clear where exactly it is heading. Judging by the fact that global load factors fell by 1.5%, it is on the way to the abyss of an uncertain future. There is a lot of congestion in the EU (volumes out of Europe fell 10%), across the Atlantic, and in Asia, and many charters are being refused. It is the price that the whole industry has to pay for years of neglect of the investment in air and handling cargo. In fact, this devastating crisis has occurred for the first time in the last 25 years. The logistics industry is in desperate need of more staff – not only airport operators. The off-airport movement of cargo is worsened by a shortage of thousands of truck drivers in European countries. The air rate is currently double from what it was the same time a year ago – $14/kg from China to the U.S. West Coast. Yet, even this significant increase does not make airfreight more expensive than the transportation of goods by sea. On the contrary, many companies are trying to make up for a lost time by shifting goods that normally move by the ocean to air. If before the COVID, the average price to move air cargo was about 13 to 15 times higher than the one by the ocean, now it is only 3-5 times more expensive. However, both sectors are equally affected by the disastrous schedule reliability. The congestion in Frankfurt is causing major delays in other airports. The last nail in the coffin was the introduction of the Union Customs Code, which, according to experts, is a big omission during the peak season. With the growing prices, it is inevitable that service levels will go down, and the challenge will push for months ahead. To address the situation, local partners are teaming up to provide additional space for shortages and refuse short-time working to increase the availability of the employees. However, since the drivers’ shortages are not solved, the measures will not be a game-changer. There is now a new veil of uncertainty regarding the relations between independent hauliers and self-employed drivers. The UK government is advising to abstain from the services of the latter claiming that it could result in the traffic commissioner revoking their license. The customers are asked to go to agencies but instead, limited companies, are choosing to go to Germany rather than work through an agency because by doing so they instantly get a license uplift or extra drivers.
In the meantime, the implementation of the shocking container dwell fee in the Ports of LA and Long Beach has been postponed thanks to the progress that has been made in shedding long-dwelling containers. However, the initiative still will be implemented later in November because all the collected fees will be spent on programs designed to enhance efficiency, accelerate cargo velocity and address congestion impacts. Europe sees some changes too as some of the companies previously stated that they would omit congested Port of Hamburg reinstate their loop call, although the relief is not expected any time soon. As for the previously announced shift to tech and research, the first results did not make us wait. The Blue Essence has become the first offshore certified USV that can launch an electrically remote-controlled underwater robot at the Port of Rotterdam. Personnel can be moved from high-risk offshore environments to a control room onshore, reducing the CO2 footprint by 95% compared to traditional research methods. The trend for technological development does not overrun the trend of acquisitions and partnerships as this week sees new ambitious plans. Maersk sets its eyes on South Africa by tapping into a partnership with freight transportation company Grindord and taking 51% of shares. The step follows Maersk’s recent a long-term strategic partnership with wind turbine manufacturer Vestas for all containerized transport. Meanwhile, Wan Hai Lines knows the drill of the growing influence of the shipping lines and hurries to strengthen its positions by purchasing one of its chattered ships. The move is justified – the current context of tight capacity requires vessels that are at an immediate availability and this is where second-hand ones come in handy.
Apart from baring all the pain points of the industry, the crisis has definitely accelerated the development of facilities that used to be unimaginable. A bright example of it is the existence of the trains between the major sea ports along the New Silk Road, a phenomenon that used to be a distant dream but a reality now. The data shows that container transport by rail between Europe and China has grown by 25% in 2021. Experts say that is mostly driven by food transport. The Georgia Port is betting on the rail to and announces the operation of the second set of new rail tracks at the Port of Savannah. It is a part of the plan to invest $34 million into the port to help it expedite an additional 1.6 million TEU in capacity the delivery of which will be split into two phases.
FMC has had a lot on its plate lately – apart from trying to hold back the growing influence of the big companies, it is now attempting to battle shippers that are being very peaky with the terminals. Instead of choosing a more or less relived port, they are aiming for big ones and it only creates more blockages. With the US consumption demand showing a 25% increase, shippers will have to push away their aspirations and face the reality – even the decreasing rates will not make their lives easier. Although the American government is going in favor of its biggest infrastructure programme, the changes will take a long time to come into effect. Meanwhile, the snowball of incontrollable congestion is about to start sliding back onto intra-Asia routes. The alternatives by rail and air remain in a complicated state as the development of the former requires improvement of intermodal service and the latter is going through a new stage of rate increases. We are in for another “heat waves” of perplexities for 2022, so it is definitely high time to buckle up.
The need for fundamental changes is obvious but it does not happen overnight and requires a much more comprehensive approach, thus big players team up with research institutions following the famous “knowledge is power” motto. The mutual commitments aim to bring the long-awaited tech boost and enhance the already existing capabilities. The industry has already seen successful advances, the sustainable initiatives – a new roadmap to decarbonizationhas seen the light this week. MAXMODAL is on the lookout for emerging trends to provide you with a quality overview. Join us now!
The new era will be all about technology revolutionizing logistics and transportation markets that are already welcoming fruitful collaborations among research institutions and major players.
Technocrats can definitely cheer “hurray!” as companies start switching their focus toward technical development that is absolutely essential if one wants to build resilient supply chains that would correspond to the challenges of the market in the present as well as in the future. Maersk is striving to be the leader in every initiative and teaming up with MIT Center to accelerate its abilities and renovate its strategies based on collaborative research and mutual commitments. This partnership follows Maersk’s recent Maersk long-term strategic work with wind turbine manufacturer Vestas for all containerized transport. Meanwhile, educational institutions tap into the big game in the Netherlands under the leadership of the Port of Rotterdam. They are going to access the ports’ capabilities and current market trends from the scientific point of view and provide solutions that could help improve general management and leadership. The design of the future training program for employees is also included; it aims to tackle the problem of underqualified labor.
At the same time, the debates and reflections on the consolidating of the industry continue. There are emerging players who actually start seeing it as an opportunity for diversification of their strategy rather than a monopoly threat. They also believe that their “neutral” status on the market will be more appealing to the customers in contrast with rigorous giants that are driven, according to these commentators, only by their greed. Besides, the cultural divide between the groups is just too great and allows everyone to find their niche and continue to grow. This is a controversial premise because it is impossible to doubt that some big players’ expansion strategy has limited the ability of some freight forwarders to access capacity on its ship on the main trade lines. In addition, such giants start taking over e-commerce in the light of a targeted acquisition strategy. This is a major shift in contractual relations that is highly difficult to break through if you are a small company. Will it be a good cop vs bad cop kind of competition? The customers will have to decide. It is challenging to fully concentrate on the long-run strategies when right here, right now, cargo is still not being delivered on time – schedule reliability remains one the sorest pain points. Even the attempts to omit the troublesome ports cause no improvement as everyone misses the deadlines. If congestion at the Ports of LA and Long Beach seemed insane, it is now breaking all records as, according to the reports, ships are literally queuing up 150 miles from shore. In the desperate need of space, the Port of Savannah has to use a small airport in Georgia as a temporary overflow yard. Never have the new marine transportation system ever been needed as it is now. Moreover, this chaos is sliding down towards intra-Asia trade lanes. There are large amounts of cargo stuck at transhipment hubs in the south-east, and many carriers keep blanking their sailings that, in turn, keeps pushing spot rates further down.
In addition to the challenging situation at sea, the congestion of some European airports is contributed to the rising competition between forwarders. As a response, Flexport has launched a weekly air charter service from Hong Kong to Paris-CDG Airport. However, any new steps are difficult to implement in the EU due to the recent new customs regulations in Germany. Any cargo sent to Frankfurt, for example, will take more time to clear, thus the delays are inevitable.
To deal with the growing demand, railway companies are trying to provide new services as well. The recent one takes place from Helsinki to Zhengzhou provided by Nurminen Logistics. The choice of Helsinki is a fair one as it is a hub for both – rail and port connections. Besides, there is hardly any congestion, so in the rush of the holiday season, the line will be a savior. Will the anticipated Rail Baltica be as efficient? Unfortunately, the long-awaited project will not meet its deadline by 2026 because of the classic issue – rising construction costs. COVID-19 is not the only one to blame. The miscommunication among the involved parties postponed the signing of the agreements that could boost the development. Spain could do better with its railway innovation as well, experts say. Despite sufficient infrastructure, the country simply is not using its potential. The problem originates from such issues as the fact that there is no level playing field between road and rail transport regarding the pricing offers and the external costs paid, and the government has been falsely prioritizing passenger freight over transportation. Perhaps, more strategic partnerships could boost the improvement. For instance, the restoration of trade via rail between China and North Korea is enormously changing the situation in a positive direction.
It is clear as daylight that the industry needs a technological push, and it is arriving. As companies start teaming up with the research institutions, this quintessence of efforts will eventually bring the needed technology. Sustainable development serves as proof. After continuous studies, Logistics UK has introduced a route map to decarbonize the sector.
