The logistics industry is currently facing enormous challenges as a result of several factors. The global ocean freight market is particularly affected, where events come quick and fast in recent weeks. How did this situation come about?
The Asian economic market was the first to recover from the effects of the Covid19 pandemic. The People's Republic of China in particular has been experiencing an economic upswing since the second half of last year and was the only major global economy to achieve growth in 2020. In the fourth quarter in particular, the People's Republic benefited from demand for its products – such as medical equipment (e.g. masks) and IT-hardware (e.g. laptops for home offices) – and achieved a growth of 6.5 percent compared to the previous year.
As a result of this extreme excess demand for exports from Asian countries, freight rates there have risen extremely and have prompted shipping companies to ship any available equipment there in order to participate in the high revenues on the routes to Europe and North America. Therefore, the availability of container equipment in Europe has been drastically reduced, with various carriers canceling confirmed bookings shortly before scheduled container positionings or only accepting them for much later sailings, leaving both forwarders and shippers out in the cold. Added to this are the bottlenecks that have been known for years at the terminals during the transfer from truck, rail or barge to vessel – along with waiting times, missed closing dates and planned departures.
Surcharge meets GRI
Cargo capacity for sea transport can only be described as problematic. Vessels are almost fully booked until the end of March, and short-term bookings are rarely possible. Shipping companies help themselves by introducing new surcharges such as Peak Season Surcharges, Equipment Imbalance Surcharges or a Heavyweight Surcharge in order to cover the costs incurred as best as possible. However, this does not improve the situation. In addition to these new surcharges, shipping companies have significantly increased their general freight rates (General Rate Increase – GRI). In this context, the validity of the rates is defined to a rather short period of about four to eight weeks. The range of rates has thus increased extremely, which makes it much more difficult for forwarders to submit a reliable quote to their clients.
In addition, there are considerable problems at the container logistics gateways. Seaports are congested by the incoming container masses. At the beginning of February, for example, a historic congestion of container ships occurred at the US Westcoast: In San Pedro Bay, more than 30 ships were anchored for several days, waiting to be able to unload their cargo in the twin ports of Los Angeles and Long Beach. A comparable number of ships were already in the ports. Due to the current situation, many terminal operators have switched to accepting containers a maximum of 48 hours before loading in order to cope with the lack of space, which further complicates the transport planning.
However, a peak has not yet been reached due to the pending import containers from Asia, which were shipped before the Chinese New Year. Delays already occur when picking up containers, at the port, and are then further increased by limited truck and rail capacities for the final inland deliveries. This results in additional costs for storage, which are charged to the account of the goods by the shipping companies in accordance with the BL clauses.
Congestion and delays
Port congestion and reduced capacity due to Covid19 restrictions, combined with high cargo volumes, have led to significant shipping delays. According to a Sea Intelligence study, schedule reliability of shipping companies reached a record low of 34.9 percent in January 2021. This means that only one-third of all ships reached their destination on time that month. On the busy east-west routes, one must currently expect an average delay of six to nine days. This not only puts weekly services in a tight spot. Once a ship has reached its destination port and the cargo has been discharged, there is a risk that the containers will not be removed quickly enough and will remain in the port terminal for too long. Storage costs are the result. Due to the global integration of transportation services, both time delays and transportation costs add up. The impact on supply chains is immense, felt by both businesses and consumers worldwide.
Seamless customer service
With personal commitment and many years of expertise in the sea freight business, we at EgeTrans move heaven and earth every day to mitigate the effects of this unprecedented situation for our customers. With a high level of commitment, we have already been able to find some short-term solutions in recent weeks, although most of them involved higher costs, which we often did not want to or could not pass on to our customers. But the scale of new surcharges and rate increases is increasingly limiting our ability to act. We will communicate the impact to our customers in a proactive and timely manner.
While EgeTrans has more than quadrupled its final-mile trucking capacities in recent years, unfortunately waiting times at the ports and rail terminals are currently the rule, not the exception. We ask our customers for their understanding if these additional charges are beyond our control and therefore unavoidable. Your EgeTrans contact persons are available at all times and will find a suitable solution for each individual requirement together with all involved employees.
Forwarders must be prepared for this situation to continue in the second quarter of this year as relief is not to be expected before Q3/2021 at the earliest. Jeremy Nixon, Managing Director of the Japanese carrier Ocean Network Express (ONE), also expects this. He anticipates the tense situation to continue for another three to four months, with trade not stabilizing until the second half of the year. Rolf Habben Jansen, CEO of Hapag-Llyod, also predicts that the current high volumes will continue until at least the third quarter. The combination of tight container and vessel availabilities and terminal delays has created a "perfect storm" that all parties will have to work their way through, he said.