News digest. 4 Jan

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