I hope you have had a great start to 2021 and on behalf of all of us here at Excel Logistics, a warm Happy Chinese New Year!
As many of our clients have asked me the key question, “Will rates fall after Chinese New Year”, I thought it would be prudent to pass on my own estimations, based on relevant news articles and feedback from our agents, advocacy groups and the shipping lines.
2020 was certainly an abhorrent year for importers and exporters in relation to their freight movements and 2021 unfortunately has not brought any instant relief.
This article summarises the current situation of importing into Australia
The rise in rates year on year is depicted here – quadrupling since the lows of Feb/March a year ago- and take note of the dramatic rise over the last three months of 2020.
Unfortunately, this is not just occurring in Australia.
- Prices globally have increased dramatically (in Europe quadrupling over the past three months https://on.ft.com/38WgT9J). In the UK they have quadrupled https://www.theguardian.com/business/2021/jan/08/brexit-and-covid-blamed-as-asia-uk-shipping-rates-increase-fourfold. One of our agents in China has advised us their regular Shanghai-Singapore route has increased from USD$200 this time last year to USD$2,000- a ten-fold increase.
- Airfreight rates are also now under strain, as COVID continues to reduce capacity abroad. https://www.freightwaves.com/news/reversal-of-fortune-capacity-drains-from-air-cargo-market-again?utm_source=piano&utm_medium=email&utm_campaign=as_daily_nl&pnespid=keZqq_dUXwaNbQOMORGACQPGssJy7AaqVGSVSJxp
- The empty container situation at the de-hire yards continues to play havoc, with over 100,000 empty containers in Australia still awaiting a return to China. Vincent Clerc, chief commercial officer for Maersk, the world’s biggest shipping company, said there were “simply not enough empty containers in the world to cope with the current demand”
- The wharf situation and congestion at ports has not improved- in mid-January this year, we received a notice of strike action by the MUA against SVITZER- the company that organises the tows of the shipping line vessels into the port. Strikes and other industrial action continue to cause severe congestion along east coast Ports. Congestion is unfortunately a global issue, for example, 41 vessels are currently awaiting berthing off Long Beach in the US https://splash247.com/californian-port-congestion-spreads-north-to-oakland/. And COVID effected staff reductions at various international ports such as Port Kelang and London, are drastically effecting productivity, thus again exasperating congestion.
- Exporters continue to struggle as the China-Australia deteriorating relationship lingers. Lower exports further reduces the volume of containers moving back to Asia, creating equipment shortages as well as reducing the shipping line demand to send vessels to Australia full, without being able to return full.
The big question therefore remains, will freight rates drop in the short term? It’s a fair question, given in usual times (ie every year over the past 20 years) rates have dropped correlating to demand falling after Chinese New Year.
Whilst challenging to predict, given the multiple factors at play, my feeling is that despite the previous consistency of rates falling after Chinese New Year; that 2021 may not see this happening over the short term. My principal reasons for this belief:
- Little has changed for the better with what we have experienced over the past 6+ months that have resulted in the increase in rates; Australia’s deteriorating relationship with China, exports suffering, industrial action at the wharfs, empty container parks full leading to equipment shortages, high global demand for imported goods and significant ex Asia port congestion. Without improvements in these key areas, I can’t see rates immediately going down.
- Whilst rates have decreased in the past after CNY due to lack of demand, we now have experienced during the middle of last year the opposite occurring- demand falling and freight rates rising. Import container prices increased into Australian ports, despite significant lock downs (Victoria) reducing the demand for imported retail goods. This was due to the Shipping lines both creating artificial demand by reducing services (blank sailings) as well as profiteering (one of our agents in China suggested a shipping line based there has made ten years of profit in one year!) Based on this experience, the advantageous lines could once again simply create artificial demand post CNY, thus maintaining their rates and profits. 2020 has seen record profits for the shipping lines, despite a decline in serviceability. https://www.joc.com/maritime-news/container-line-profits-soar-service-plunges_20201123.html
- We have significant freight experience in other markets such as ex Malaysia and ex Thailand as well as at destinations such as Auckland, all of which are engaged in an even worse situation than we are currently encountering ex China to Australia. Greater volume of equipment shortages, excessive space constraints and delayed departures from south east asia and even higher freight rates into New Zealand.
- Our partner agents and the shipping lines in particular are also not predicting a fall in rates in the short term: https://shippingwatch.com/carriers/Container/article12705867.ece
From the article above, the President of Hapag Lloyd: “For the longest time, I said that I would expect that the market would come down after Chinese New Year. But that does not look to be the case right now. Both because the demand continues to be high in many of the major trades and also because a lot of the bottlenecks still continue to linger, whether that’s in the terminals, where ships are waiting for days or weeks to get a berth, whether it’s equipment availability or truck availability.”
So whilst it’s challenging to suggest that what has consistently happened over the last 20 years, will most likely not happen again this year, unfortunately it is my belief that this will be the case. On the flip side, I don’t believe rates will remain at this level long-term. Current rates simply can’t be sustained by businesses for an extended period of time, as companies would inevitably exit the market, which would result in huge drops in demand (effecting shipping line profits). Inevitably there will be improvements in some if not all of the negative variables listed above. I do believe that eventually (possibly mid-year) there will be some rate relief.
We are continuing to monitor this situation daily and working with the best partners globally, including directly with the shipping lines, to ensure we are able to maintain the lowest rates on the market and the best surety of space.
Finally, on behalf of all of the Staff and Management here at Excel Logistics, we thank you for your ongoing business and support during these challenging times, it is truly appreciated.
Please always feel free to contact me or the team at any time for any further information or ways in which we can be of greater assistance to your business.