It’s been a wild ride for the shipping industry since the pandemic began. The coronavirus continues to rock the boat, changing shipping situations daily, and leading experts to predict deep and long-term shipping impacts in the years to come.
The European Maritime Safety Agency reports a significant drop in port calls between the U.S. and Europe since the pandemic began. Port calls from container ships dropped 41.6% for exports to Europe, and 20.4% for imports to the U.S.
But there’s good news on the horizon. Shipping giant Maersk predicts a better 2021, reporting that a rebound in U.S. retail sales will lead to a resurgence in shipping demand. The carrier also notes that the second wave of COVID-19 has had less impact on shipping than the first wave, when governments across the globe ordered severe and sweeping lockdowns.
Boost in Blank Sailings and Transportation Costs
Manufacturers and shippers are better adapted to COVID-19 impacts than they were in February and March when concerns first arose. Because the pandemic struck during contract negotiations, impacts were more devastating when the virus first emerged.
Carriers began removing capacity, using blank sailings to cut expenses and keep rates high as demand plummeted in the U.S. and Canada. Carriers either skipped ports along the route or canceled entire journeys. Their actions tripled shipping rates.
COVID-19 also impacted air freight, with airlines removing approximately 40% of air capacity from the market. The move pushed air freight rates to the highest levels ever seen. Airfreight traditionally costs $3 to $4 per kilo, but as COVID concerns escalated, rates skyrocketed to $16 per kilo.
Companies often lock in shipping costs for the year. In the past, a company might pay $1,500 for container cargo. Today, manufacturers pay upwards of $4,000 for the same service.
For example, before the pandemic, manufacturers traditionally booked two weeks out to guarantee space. Now, companies must book three to four weeks out or pay a premium charge—carriers began charging a premium for standard service by the third quarter of 2020. For example, a company trying to move a container from Shanghai to Los Angeles at a rate of $4,000 now pays another $1,500 to guarantee space. The truth is that there’s nothing premium about the service beyond the space guarantee.
Carriers like Matson and CMA shifted to commodity rates, which include a set rate for furniture, lumber, and other goods, as well as premium routes that offer faster transit times. Experts predict commodity rates will disappear once COVID concerns ease.
The combined changes will radically alter contract negotiations for 2021, even as carriers grow in capacity. Larger customers may give more cargo orders to NVOs (Non-Vessel Operating Common Carriers) that buy space from containership operators and sell it to shippers whose freight is less than a full container load (LCL). Manufacturers may also shift cargo loads to freight forwarders or go direct-to-carrier to secure better rates.
Equipment Shortages Continue
Carriers ship empty containers to ports that need them to resolve shortages. Doing so requires unloading containers faster to put them back into reuse. Carriers respond by shortening the 10-day grace period before assessing detention and demurrage fees when companies cannot pick up, unload, and return containers within this grace period. Carriers also assess detention charges after the free period ends—but trucking scarcity, port congestion, and equipment shortages complicate companies’ ability to unload containers in time.
The Harbor Trucking Association has asked the Federal Maritime Commission (FMC) to review unreasonable demurrage and detention charges at key East and West Coast ports. The association seeks relief from unreasonable charges and unfair detention and demurrage practices.
Meanwhile, India continues to wrestle with the worst container shortage in its history. The country experienced a severe pandemic lockdown, and as consumption fell, blank sailings increased and shipping lines repositioned containers to more lucrative trade routes.
Efforts to stop the spread of COVID-19 continue to disrupt normal trade patterns, causing delays that have led to container shortages at major export ports in Asia. The shortages of 40-high and 40-standard containers persist.
Bouncing Back
Both freight volumes and rates are moving up as the U.S. enters the fourth quarter, fueling speculation of a shipping rebound.
Consumers barred from restaurants and bars, sporting events, and concerts are spending their money on goods that range from flat-screen TVs to sporting equipment. During the lockdowns, consumers purchased products to fill the time, such as bikes, musical instruments, and electronics. Favoring online ordering over brick-and-mortar stores requires companies to keep inventories high, leading to an increase in imports to the U.S.
Consumers and companies also increased orders for personal protective equipment (PPE). As manufacturers revamped to produce PPE, imports of supplies to manufacture these goods also increased.
Freight volumes continue to rise, which is unusual—carriers typically see a lull in volume during the last month of the year. Experts predict the capacity crunch will continue until the end of 2020, along with correspondingly higher rates. As contract negotiations begin with these higher-than-normal rates, companies can expect to pay more for shipping through 2021.
In spite of some predictions, the new year may disappoint companies looking for calmer seas in 2021. Unfortunately, capacity constraints and high shipping rates will likely be the new normal for some time to come.
