15th November, 2020

With the current discord across the shipping environment affecting all of our main trade routes,  the following is an insight to the events which have led to this and how this is going to play out over the coming several weeks.

The pressure on shipping emerged during August, and has continued to cause major problems on most shipping trade-lanes. From New Zealand & Australia’s perspective this is occurring during our peak season, with disruptions heavily accentuated given demand for import cargo is at it’s heaviest.

During the early months of 2020 as the world locked down, shipping lines parked up vessels, avoiding renewal of leases on chartered vessels, and seeking storage for the millions of empty containers forecast not to be needed anytime soon.  This largest ever sudden drop in global shipping demand was however unexpectedly followed only six months later by the world’s largest and strongest-ever global shipping demand. Of the number of words associated with Covid, two of the most common have to be ‘unpredictable’ and ‘unprecedented’.

Global carriers were in quite the reverse position they needed to be in to respond to an acute shortage of empty containers, and heavily reduced vessel capacity, at a time of an unprecedented surge in demand, 25% up on the previous year. The scramble to respond has caused some loss of control, with severe imbalances of container equipment, vessel supply, and growing congestion at critical transhipment hubs.

TRANSHIPMENT PORTS CONGESTED

Severe port congestion has built up at a number of transhipment hubs, choking Singapore and other ports. Heavy inbound volumes have been unable to be cleared by the limited connections on second-leg transhipment vessels from Singapore to final destinations.  This is causing shipping lines to limit or suspend services in the area until congestion is freed up.

Delays on all services to New Zealand and Australia – especially those via Asian ports - is now virtually inevitable. A lot of vessel changes and route omissions are occurring at quite a late stage.

SHORTAGE OF EMPTY CONTAINERS

Hundreds of thousands of empty containers have been displaced where they are not needed, due to long-term storage and situational needs when covid hit early this year. Illustrating the pace at which the situation has changed, as recently as July Hapag-Lloyd had 600,000 empty containers they were seeking cheap storage for.  A complete turnaround had occurred by last month when their empty vessel fleet  (capacity 350,000 TEU) would barely cover two weeks of export volumes from Asia.  Making matters worse, the vessel-leasing market is sold out, with no ad-hoc charter vessels available.

Further insight is apparent from the more than 50,000 containers sitting at Australian ports, where recent industrial action has made slow work of repositioning them to markets where they are required.  

40’ HC containers especially are in very short supply, with at least one line having imposed a US$400/40’  ‘imbalance surcharge’ on their southbound route to NZ.

PORT DISRUPTION IN AUSTRALIA

Over recent months, industrial action has slowed terminal operations at both Sydney and Melbourne, to such a degree that vessels arriving at each port have been waiting for up to two weeks to be allocated a berth. This industrial action has very recently been suspended but the backlog of cargo & containers remains. Vessel schedules change daily as trans-Tasman schedules are adjusted in efforts to maintain some schedule integrity. Despite the ‘ceasefire’ the core issues remain unresolved so may continue to flare up.

Import space from Sydney & Melbourne to NZ is under similar heavy pressure, with little FCL space available until late November.  Similarly, most sailings from NZ to Sydney & Melbourne are fully booked until mid-December. Fremantle is served via these two ports so services to WA are also affected.

Brisbane has seen a number of lines withdrawing port calls, due to congestion and uncertainty over berth availability, although two of the major lines, PIL and Maersk, are both back with open bookings.

The severity of Sydney’s congestion has led to all shipping lines imposing US$300/TEU congestion surcharge.

CONGESTION IN AUCKLAND

Although Auckland’s container terminal has been long-lauded as one of the leading ports for record vessel turnaround and container processing times, this is not the case presently. A port fatality involving a container handler several weeks ago, led to a preliminary conclusion that the port is crowded and the labour force has been heavily reduced for safety reasons while an investigation is performed. This labour shortage has impacted port efficiency. Vessels are taking a week or longer to be given a berth, and are taking several days to be worked.

Over this same period, the Australian port problems has led to frequent late arrivals into Auckland rendering ETA’s unpredictable. With vessels routinely missing berth windows, Ports of Auckland suspended vessel berth bookings per se, so ships working at Auckland must remain at anchor, join the  queue, and be allocated an available berth in order of arrival.  This destroys vessel schedules.

Shipping lines can only respond to this on a ship-by-ship situational basis. Into the mix are options to preserve some semblance of schedule integrity, to sit it out for 5-12 days,  to abandon the port call or to  discharge/load at another port, transhipping the cargo on a subsequent vessel at considerable cost. All of this causes unavoidable pain for many.

Truck turnaround times at Port of Auckland are frequently stretching out by 2-3 hours over recent weeks, putting obvious pressure on the vehicle slot booking system. Uncertainty of container availability complicates it as vessels are taking several days to complete their discharge. ‘Same day’ availability for VBS slots has largely gone for the time being.

Auckland Congestion Surcharge

The costs of diverting vessels, of cancelling port calls, of having ships sit idle for a week in the Hauraki Gulf, or other contingency actions are considerable. Consequently all lines have introduced congestion surcharges on all containers on all trade-lanes in and out of Auckland. 
Varying by carrier, they look mostly to be between US$250 - US$300 per TEU.
The impact on LCL cargo looks to be between US$10 - US$15 per w/m

OTHER NZ IMPLICATIONS

Congestion at Tauranga Port

The congestion and capacity issues at Auckland has seen huge volumes of import & export containers diverted through Tauranga, but this has transferred the problem and has placed significant pressure on not only the port but the rail connection with Auckland’s Metroport.  To help relieve the pressure, a 5-day embargo was recently applied to all export containers moving from Metroport to Tauranga. Dry cargo destined for Auckland is at times facing a rail wait of up to 14 days.  Kiwirail has plans to roll out a further six trains per week on this line from early December.

Domestic coastal services

International vessels normally carry a lot of domestic FCL’s around the New Zealand coast during their voyage, however most have withdrawn this service at this time due to their core priorities. Coastal shipping (especially between Auckland and Lyttelton) is hard hit by this. Only the domestic ‘Pacifica’ service is operating, which has insufficient capacity to meet anything near market demand. Pressure is inevitably falling onto rail services to take up a lot of this pressure.

Rail Services

Kiwirail has very limited rail wagon capacity itself, so has now imposed restrictions on forward bookings.

Trucking & Linehaul

Road freight is the inevitable fall-back, although capacity will become increasingly difficult for many operators as the fast-approaching run to Christmas and the summer holiday period arrives. Heavy seasonal demands are already at play as retail stock volumes build up and from mid December, grocery and supermarket supplies heavily dominate road linehaul operations at the behest of the grocery giants.

CHINA / ASIA / INDIA SUB-CONTINENT

China’s acute short supply of both container equipment (especially 40’) and vessel capacity to New Zealand, means space allocations get nowhere close to meeting demand. A large proportion of the empty containers stockpiled in Australia are usually deployed on this trade, and China has many trade routes, much of the equipment committed to the North American trade.  

With demand for space completely outstripping the limited supply,  freight rates have escalated to record levels, close to double what they were a year ago.

India is a cot case, having had two total lockdowns, and most carriers ceased offering a service there. Only one carrier is serving the India-NZ trade at present, and they are allocating what severely limited space they have when able, exports from there are queued.

EUROPE / MED SOUTHBOUND SERVICE

Cargo volumes from Europe & the Mediterranean also far exceed available space, with a lot of the main carriers suspending services or operating with increasingly reduced allocations.  Much volume is getting caught up in the transhipment bottleneck at Asian ports.   

Maersk and Hamburg Sud have stopped accepting cargo on this route, CMA-CGM are under similar pressure, presently facing more than 800 TEU roll-over.  Most Asian-based carriers (Cosco, OOCL etc) have also severely restricted or removed southbound allocations due to transhipment congestion choking some terminals, including Singapore.

Singapore, is under tremendous pressure with shrinking capacity as inbound cargo volumes from Europe & the Med arrive but are unable to be cleared out by the limited connecting vessels. 

IMPACT ON FREIGHT RATES

Aside from the freight rate increases being imposed, other factors are helping define the record escalation in freight costs. The GRI’s introduced in August and September were about survival as much as recovery for many of the services. Congestion surcharges on traffic in and out of Auckland and Sydney are offsetting significant contingency expenses faced by the lines. 

Carriers on some routes are offering ‘priority bookings’ for ‘critical cargoes’ at additional premium (these surcharges tend to sit around US$500 / US$600, they are not assurances of space, just prioritising on what are often still frustratingly poorly-supplied routes).

LCL cargo freight rates are affected in the same way.

Over time as vessel space and equipment inventory and imbalances are restored, it probably will not be long until the situation self-corrects and freight rate disparity will correct and a level of equilibrium will return. Volumes should begin to reduces during January and much of the Asian backlog should clear by the end of Chinese New Year (starting 10th Feb.).

It’s a reality that more time than usual is presently involved in moving anything internationally for the short term. Delays through vessel substitutions, schedule changes or port capacity are increasingly likely and delays or disruptions in many cases inevitable.  Reduced capacity on all modes of transport means delays but hopefully not too many crises.  Allowing more time for domestic distribution is a fast-approaching reality too, and obviously should the luxury of choice exist then the sooner orders are dispatched the better.

Given where everything is at presently, opinion seems to be that the intensity of the situation will begin to diminish into the holiday season, then ease further through January as congestion clears and let’s cross our fingers that the majority of the imbalances have settled by Chinese New Year. 

We fully understand the impact of these unprecedented delays at both ends of the supply chain and along the chain itself, and the increased costs on business through the sheer nature of the situation. We realise that a lot of these costs are unable to be passed on to the end customers and beyond, but where we can offer help and suggest efficiencies or suggest strategies for mitigating the heavy impact, which we will continue to do until the situation is improved.