by Antonis Karamalegos
The previous year was highlighted by the skyrocketing freight rates, which were a result of a combination of factors, such as the Covid-19 pandemic, high demand, global port congestion and reduced number of container ships deployed on services
While many maritime and shipping professionals are expecting prices to start to return to normal levels during 2022, there is no clear evidence that shipping companies will decrease their rates significantly. Additionally, the main question remains: When will freight prices come down?
“What goes up must come down. This random walk can be experienced in many situations in life, starting from waves in a lake to stock prices nearing their average in the long run. Nothing else will happen with freight rates. The open question is when?” pointed out Dr. Philip Blumenthal, Chief Transformation Officer (CTO) of ECU Worldwide, an international cargo & air freight logistics company, in an interview with Container News, a shipping and maritime news portal, specialized in the container shipping industry.
Current estimates are that supply and demand will come back into the 15% volatility range before mid-year according to Dr. Blumenthal, who noted that factors like the West Coast Ports Union Contract expiration, the Beijing Winter Olympics and the Covid-19 pandemic might accelerate or extend this movement. “Nevertheless, shippers should focus on a volatile 2022 but not get overly cautious and extend their exposure beyond this year,” he said.
Meanwhile, a freight rates analysis conducted in November 2021 by the London-based shipping information and data provider IHS Markit, shows that 2022 is likely to be a year of rate stabilization. “If we focus on 2022 market only, container market demand and supply balance look stable until at least mid-2022 and likely into full 2022,” report IHS Markit’s analysts, who believe that box prices will still face correction and decrease by 30–40% in 2022 with reduced impact from the pandemic.
Overall, maritime and shipping experts forecast reduced levels of freight rates for 2022, but important queries, such as how much will the prices decline and when will freight rates start to return to normal levels remain. In the end, these details will define the outcome of the current year in terms of freight rates and prices.
Global port congestion
Another crucial situation of the shipping industry for 2022 is the global port congestion, which has devastated supply chain worldwide, especially in the second half of 2021. The most challenging conditions are reported in the United States West Coast, and especially the major port of Los Angeles and Long Beach in California, and China.
The San Pedro Bay Ports have taken several measures to mitigate the effect of the congestion crisis, such as the announcement of a potential “Container Dwell Fee”, a surcharge to ocean carriers for import boxes that dwell on marine terminals. The Californian twin ports have announced that they will charge ocean carriers with US$100 per container, increasing in US$100 increments per container per day, for every box that falls into one of the following two categories:
- In the case of containers scheduled to move by truck, ocean carriers will be charged for every container dwelling nine days or more.
- For containers moving by rail, ocean carriers will be charged if the container has dwelled for three days or more.
Since the announcement of the potential fee in October, import cargo lingering nine days or more have declined by 60% at the Port of Los Angeles (POLA), according to Port of Los Angeles executive director Gene Seroka, and that’s the reason the surcharge has not been implemented yet.
A similar programme for empty containers has been unveiled by the Port of Los Angeles in the end of the previous year, but it is not effective yet, too.
In China, the ports’ congestion crisis is getting worse due to several Covid-19 outbreaks, which lead to mini/local lockdowns. Ningbo and Tianjin were the latest port cities, which reported increased numbers of Covid-19 cases and saw –hopefully– slight disruptions and delays in the supply chain sector. However, it is obvious that the situation remains fluid.
In the meantime, a recent analysis by the Danish maritime data analysts of Sea-Intelligence showed that the port congestion in Europe is not expected to improve soon, while there is a slight improvement in North America (United States and Canada).
For the European ports, Sea-Intelligence’s analysts see a situation that has been steadily getting worse since the start of October, with no signs of any improvement or even levelling out. “This also implies that we might well expect to see a continued upwards push on freight rates on this trade, as the congestion is likely to have a negative impact on reliability, and hence in turn on available capacity,” said Alan Murphy, CEO of Sea-Intelligence, who highlighted that “all the available data show that congestion and bottleneck problems are worsening getting into 2022, and there is no indication of improvements”.
At the same time, there is a slight recovery in North America region, after Golden Week (29 April – 5 May) was fully reversed by the end of 2021, and a new record was set on 30 December, albeit with a slight improvement again on 6 January, driven by better situation in the ports of Savannah and Charleston.
Furthermore, the Chicago-based visibility platform for the global supply chain, Project44 has also seen a slight relief in port congestion worldwide during December, but not in a “satisfying level”.
Port congestion at various ports such as Hong Kong, Los Angeles, Long Beach and Yantian declined noticeably during December compared to November, according to Project44 data, but congestion at other major ports, such as Rotterdam, increased significantly.
“We don’t see any major changes in the current situation until at least the end of 2022,” stated the commercial vice president of the Rotterdam port Emile Hoogsteden.
While 2021 was a dream year for shipping lines with the vast majority of them achieving all-time record high earnings and profits, the shipping industry seems to be an unstable environment. Freight rates remain at super high levels, analysts expect a decrease, but they cannot forecast the levels and the timeline of this decrease. At the same time, port congestion is still considered as one of the most challenging situations of the last decades and the experts’ estimations do not give any encouraging signs.
All in all, while the ocean carriers enjoy their most prosperous period in history, most of the remaining shipping stakeholders hold their breaths and prepare themselves for the next challenge they will face.
This article is published in the January/ February issue of Greek Business File, available here.