Whether shipping by land, sea, or air, capacity constraints have driven up rates for international shipments, further complicating matters for businesses already dealing with the effects of COVID-19.
Air Pockets
A significant reduction in belly capacity due to limited passenger flights, which handle almost half of the world’s air freight, has driven rates up 60% from the same period a year ago. Rates are expected to continue to increase slowly for the rest of August and then accelerate higher in September, as several major project launches (PlayStation 5, iPhone 12, and Galaxy Note S20) are expected to consume a vast amount of capacity.
Rates from China have continued to rise for the fifth consecutive week, with the sharpest increase in pricing out of Shanghai due to increased demand for electronics, e-commerce, and hospital gear. Rates from China to U.S. and Europe have increased 5.8% and 6.7%, while rates from Shanghai rose 10.9% to the U.S. and 14.8% to Europe, according to The Air Freight Index Co. Adding to the woes is the refusal of some pilots to fly to Hong Kong, after the region imposed aggressive testing and quarantine measures in response to an uptick in COVID infections.
The rates are likely to continue rising due to increased demand while capacity remains largely unchanged. The big question for cargo rates is the extent in which passenger flights are added back to service. Although there has been increased passenger activity this summer, airline executives are cautious about adding more flights due to spiking numbers of Coronavirus cases across the globe. Last week the U.S. State Department lifted its global travel advisory, which was replaced with country-by-country warnings, but many European countries are still denying access to American citizens due to the surge in cases. A recent spike in COVID cases in Australia has resulted in a new state of emergency order and the shutdown of all non-essential businesses. As the country rushes to import medical supplies and person protective equipment, Sydney Airport has reported severe congestion due to the spike in volume, and Qantas Airways announced it has temporarily suspended all operations at its freight terminal in Melbourne.
Rough Seas
Cargo bottlenecks and surging spot rates continue as retailers rushed to fill their shelves, with some retailers, like Walmart, Lowes, and Amazon, booking more than double their normal volumes. The surge in retail imports to the U.S. from Asia, along with PPE import projects from various Asian origins, is the main driver in what has become sustained peak-like conditions experienced since late May, and many shippers are struggling to book space.
The cost of moving goods via containership has climbed 12% in 2020, the highest its been in 5 ½ years, according to the Drewry World Container Index. Carriers are also set to add to the misery with mid-month FAK rises and peak season surcharges. Many NVOCCs have reported in recent days they are experiencing three-to-four week delays for FAVs (first available vessels) from Asia to North Europe, and even longer for the UK. The LOADSTAR reported one forwarder in the UK tried to book seven boxes from China, but was told the earliest availability was on an August 28 sailing.
Despite the potential of spot-capacity deployment, carriers seem reluctant to deploy any more capacity than necessary in order to keep load factors at or even above 100%, keeping spot-and premium-rates at their current levels for as long as possible. Idle capacity as of July 1 was at 7.9% of the global fleet, representing 1.85m TEU of capacity, but carriers have remained reserved in their plans to open up any more capacity in Q3 than absolutely necessary and are still planning to blank 17% of Asia-Europe capacity in September. (source Alphaliner)
Shippers are urged to apply for the space guarantee service when booking, as guaranteed space is limited. Shippers should be aware that carriers may refuse the space guarantee if capacity is too tight, with many shippers, including Amazon, willing to pay above premium in order to guarantee space.
Equipment Shortage
Carriers have reported severe equipment shortages as terminal congestion has slowed the backhaul return of containers to China. Some carriers have even stopped booking 40’HC equipment due to the severity of the situation.
Vessels Diverted After Deadly Explosion Rocks Port of Beirut
Shipping lines are diverting cargo from Beirut to Tripoli and other ports in the Mediterranean following last week’s massive explosion at the Port of Beirut. The main terminal is roughly 1 km from the main blast site, and much of its infrastructure was destroyed in the blast. The shockwave flattened nearby building and caused extensive material damage in Beirut, leaving hundreds of thousands of people homeless. At least 200 people were killed, 6,000 wounded, and dozens still are missing. A week after the catastrophe, partial operations have resumed at the country’s main maritime entry port for importing only essential goods.
Lebanese authorities believe the devastating explosion was caused by 2,750 tons of ammonium nitrate that was stored in a warehouse at the port. According to various reports, the ammonium nitrate, used in agricultural fertilizer, arrived at the port in 2013 aboard the Russian-owned MV Rhosus, but the ship never left the port after citing financial difficulties. CNN reported late last week that documents “suggested that multiple government agencies in Lebanon knew the dangerous chemical was being stored in the Beirut warehouse and may have failed to safeguard it.” In response to the disaster, the Lebanese government declared a two-week state of emergency, and in its aftermath, protests have erupted across the country for the government’s failure to prevent the explosion. On August 10, the Prime Minister, Hassan Diab, and the Lebanese cabinet resigned over mounting political pressure.
Labor Strike Forces Diversion of Vessels Bound for Montreal
Montreal shippers are facing significant supply chain disruption. The stand-off between longshoremen and port employers at the port of Montreal took a dramatic turn for the worse as the union launched an indefinite strike that has virtually shut down Canada’s second largest port. The disruption has caused several vessels to divert to other ports and port dwell times have been extended, adding extra costs and frustration for shippers, carriers, and stakeholders.
The dispute, which has been dragging on for nearly two years and has left the longshoremen without a contract since December 2018, has resulted in several work stoppages in recent weeks. The last strike, which ended on Friday, paralyzed two of the port’s four container facilities.
Quarantine Measures in Australia May Extend to the Port of Melbourne
While logistics interests in Australia are attempting to confirm that all import and export operations are deemed essential, 300,000 import containers could quickly stack up, leading to severe congestion which would impede the delivery of medical supplies, PPE, and food, and a container shortage would likely severely impact export operations as well.
Heavy Traffic
After plunging 63% in April, the demand for trucking capacity in the U.S. climbed to a record high last week. According to Truckstop.com, truckload rates, excluding fuel surcharges, have accelerated weekly since the beginning of July, with current per-mile dry-van charges soaring by 49%.
Domestic Derailment
Current premium pricing levels in all modes of transport and congestion at major hubs is leading more shippers to consider rail as a less expensive domestic alternative. Experts anticipate the increased demand for rail service will push railroad rates higher.
