COVID-19 Ocean Freight Update [Updated: 21rst May, 2020]
High Demand & Blank Sailings Squeeze Westbound Capacity From the Americas
As volumes have continued to reduce due to the Coronavirus spread and collapsing demand across primary markets everywhere, ocean carriers have increased blank sailings and eliminated entire strings to cut capacity.
On some high-volume trades, capacity is down by more than 50%. Traditional container positioning patterns are consequently impacted, meaning that robust trade lanes, such as those from Europe to the Far East are struggling to meet demand due to space and equipment shortages.
As several countries’ extended lockdown policies prohibit inbound and outbound container movements, it will be hard to predict how positioning patterns will develop going forward. We can certainly expect to see carriers applying equipment repositioning fees and peak season surcharges, where such application is commercially feasible, throughout Q2 of 2020 and probably beyond.
Origin: The Americas
- As a result of underlying shipping strategies involving blank sailings, exports from South America and the United States to Asian destinations continue to be affected by vessel availability limitations. Capacity issues persist and have stimulated the increase of rates on several westbound tradelanes. Blank sailing advisories will affect these routes well into July.
- We expect to see continued high demand from outbound ports in the Americas, for freight capacity to the Middle East, Latin America, and Europe. Again, this is due to additional blank sailing announcements.
Port & Terminal Operations
- As a result of falling import volumes, we are seeing some diminishment in labor forces, but as yet, productivity in ports and terminals has not been greatly affected. Ports, terminals, and rail ramps are largely operating as normal.
- Some North American ports have undergone temporary one to two-day closures due to low container volumes and the impacts of COVID-19. However, these have had a minimal impact on shippers and ship operators at this point in time.
- Since logistics services have been categorized as essential businesses, “shelter in place” guidelines have not, as yet, resulted in any shutdowns of port, terminal, or ramp operations.
Export Equipment Shortages
- As the demand for export equipment is likely to remain high, even locations where containers are normally abundant will experience some degree of shortage.
- While most primary ports should be able to maintain a balance of equipment, we expect gateways in Southeast Florida, along with the ports of Oakland and Seattle/Tacoma, to run into deficits.
- Carriers are already having to reposition special equipment in particular, from less-impacted sites to inland locations that are experiencing shortages.
Warehousing and Distribution
- The likelihood that an increasing number of export loads may be unable to ship, as receiving and retail operations hibernate in destination markets, should prompt American production areas to review export storage capacity. At the moment, the United States and other American countries are taking a customer-by-customer approach to such reviews, as the need arises.
- Similarly, we are assessing and monitoring (case-by-case and as-needed) the need for import-load storage for customers who may not be able to receive inbound shipments.
- Carriers have implemented general rate increases (GRIs) for nearly all trade lanes as a result of container and capacity shortfalls.
- Several carriers have implemented equipment imbalance surcharges (EISs) due to the need for repositioning empty containers to locations with deficits.
- GRIs have been filed in the SQST tariff by trade to keep up with increases by carriers.
- An equipment repositioning charge (ERC) has also been filed in the SQST tariff, to enable pass-through of carriers’ repositioning charges for empty containers.
Origin: Asia Pacific
Export Volumes Declining in line with Demand
- Demand in the region has fallen off as most countries have shut down. This has driven a peak in the number of blank sailings and, as a consequence, a significant reduction in capacity on major trade lanes.
- Volumes began to decline in April and look set to continue a downward trend throughout the month of May.
- China’s production levels and capacities have returned to pre-COVID-19 normality. However, export volumes remain suppressed due to an absence of orders from overseas and the cancelation of existing orders.
- Asia – the Mediterranean and Northern Europe: Capacity utilization is currently greater than 90%. Demand and supply are balanced, but additional service suspensions and blank sailings have been announced for Q2, and capacity constraints are evident on occasion.
- Transpacific: Suppressed demand has led carriers to substantially reduce capacity to the east and west coasts of the United States. This has elevated vessel utilization and even generated some capacity constraints.
- Intra-Asia, the Middle East, and India: Volumes and rates are high on trade lanes to Southeast Asia, Pakistan, and the Middle East, with utilization running at over 95%.
Port and Carrier Operations
- The majority of ports are operational, although congestion is evident in some countries, such as Bangladesh, India, and the Philippines, as a result of idling import cargo.
- Most carriers are now operating normally, and flexible home-working arrangements have been largely discontinued.
Constraints Expected for March to Include ME, India, and Oceania Trade Lanes
- Blank sailings and service suspensions continue to be announced by carriers in response to the COVID-19 impact on European countries.
- The substantial number of blank sailings on carrier schedules is limiting operational service options.
- Some carriers are routing specific services from Asia—which would normally transit the Suez Canal—around the Cape of Good Hope instead. The overall transit time on these routes is up to seven days longer than normal, which helps to relieve inbound-cargo congestion at customers’ warehouses in Europe. They also allow carriers to avoid fees payable for navigating the Suez Canal.
- As a result of overall space constraints, ocean-freight capacity will continue to be tight throughout the months of May and June.
- Carriers are continuing to impose peak season surcharges of $200 to $350 per container.
Shortages of Equipment
- Dry container availability has improved significantly, but various European locations are still short of reefer equipment.
- Many carriers are applying equipment imbalance surcharges for areas with acute container shortages.
Port and Shipping Operations
- While all ports are operating, throughput is down by 30% as a result of workforce shortages.
- Shipping lines are executing business continuity plans, which include work-at-home arrangements for the majority of staff and the reduction of office-based staff to a practical minimum.
- Some carriers are practicing slow steaming on specific strings, adding up to five extra days of transit time, to ease inbound cargo congestion at customers’ warehouses.
Origin: The Middle East & Africa
- As a result of demand reductions, many blank sailings feature in carriers’ schedules for May, and capacity availability is variable, depending on the trade lane.
- March saw fewer blank sailings, but we expect these to rise again during April as demand falls and European markets remain closed. Capacity availability will vary across trade lanes. For example, the upcoming Ramadan season will undoubtedly generate increased demand on some routes.
- Since Saudi Arabia closed its borders to transit cargo, and congestion has increased at land borders, ocean freight demand has risen in the GCC.
- Capacity from Turkey into the Gulf States has increased somewhat, but space is still constrained for freight from Egypt into the GCC. Standard-rate bookings must be placed at least two weeks ahead of the required dispatch date. Even with a confirmed booking, there is a risk that containers will fail to make it onto scheduled sailings.
- Several carriers are accepting priority container bookings, subject to additional surcharges. This action is to encourage earlier booking and mitigate against rollover.
- Over the last week, carriers have seen demand slowing down on all trade lanes to the Middle East. However, activity is still high on intra-Middle East trades.
- Major concerns still surround the reefer situation in Egypt.
- Aside from the possibility of impacts from blank sailings, the situation in Africa is mostly normal, although a few West Coast destinations are experiencing issues. Right now, equipment and space availability are not an issue.
- Peak season surcharges (PSSs) are applicable to rates on some trade lanes from Egypt, the UAE, Saudi Arabia, and Turkey.
- The PSS rates for dry-goods containers and reefers applicable during April have now begun to reduce.
- We recommend that you place all bookings a minimum of two weeks in advance if you wish to benefit from standard rates. Bookings at shorter notice may attract premium rates.
- In Saudi Arabia, port authorities are requesting shipping lines to present papers certifying that crews are Coronavirus-free and that vessels are not calling at certain countries.
- Crews of vessels calling at UAE ports are not permitted ashore, except in the case of emergency.
- The South African government is fining companies for moving non-essential freight within the country. Clearance is only possible for shipments of cleaning and hygiene products, food, and medical supplies, which are the only goods-categories considered as essential.
- Carriers are beginning to lower tariffs and permit extra free time at ports in countries under lockdown.
- Port operations are slowing down as staff shortages and lockdowns in the UAE, Saudi Arabia, and Kuwait start to impact the region.
- Workforce shortfalls are the primary cause of operational slowdowns at several ports in Lebanon, Jordan, the UAE, and Egypt.
- Dammam port is experiencing a staff shortage, because most port and customs employees live in Qatif City, which is currently under quarantine.
- Delays are expected for cargo on vessels calling at Jeddah Port, a vital transshipment point, as heavy congestion continues to impact vessel operations there.
- In general, seaport facilities have operated smoothly up until now, with no special restrictions or requirements. Physical cargo handling is not currently impacted by the COVID-19 pandemic.
- Some export trade lanes, such as those between Egypt, Turkey, and, to a lesser extent, the UAE to the Americas, are being impacted by space constraints and equipment shortages.
- Egypt is experiencing reefer equipment shortages due to high demand and container availability problems. With large quantities of cargo transitioning from road to ocean freight, the pressure on source equipment is escalating, as are the associated challenges.
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