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Container market turmoil looks set to spill into H1 2022

After navigating choppy waters for more than a year now, market sources fear that despite some signs of a rebalancing in demand and supply, the container industry faces another challenging year in 2022 — with port congestion issues set to remain a major pain point.

Although there has been a weakening in spot rates on the ex-Asia routes since the Chinese Golden Week holiday in early October, many in the industry expect prices to remain elevated through at least the first quarter of 2022 as logistical challenges continue.

The all-inclusive container rates on North Asia to West Coast North America are currently at $11,000-$14,000/FEU against $15,000-$19,000/FEU before the Chinese Golden Week holiday. The trans-Pacific trade lane has seen a rise in premium surcharges on top of base rates this year. Platts Container Rate 13 — North Asia-to-West Coast North America — was assessed at $8,400/FEU on Nov. 29. The Platts container assessments denote the FAK (Freight All Kind) spot rates.

Most shippers have already placed their pre-Christmas bookings, leaving demand tepid currently. The ongoing power rationing in China has further slowed factory manufacturing and consequently cargo volumes.

Looking ahead, the market’s attention is firmly on two key events in China — Lunar New Year at the start of February, and the Winter Olympics in Beijing later the same month — and demand is likely to pick up again in December as shippers gear up to ship goods before the Lunar New Year.

For the Asia-to-Europe trade lane, sources expect prices to rise in late January as many shippers around the world look to front-load ahead of China’s holiday season, to ensure shipment before this break.

“Some shippers are now holding back to book further out, which means there is almost a speculative demand spike at the end of the year which could push rates higher,” a freight forwarder said.

During February, exports from China are expected to largely cease for almost three weeks, which should bring some much-needed respite to logistics providers around the world who are currently struggling under the weight of imports and cargo demand, according to market participants.

Rates easing
With demand expected to drop off in the first quarter, many market participants are expecting rates to fall through the year, as logistical constraints start to ease further. However, this fall is not expected to be precipitous and is likely to be cushioned by a host of void sailings from the carriers.

“Rates and demand are going to come down a bit like a ziggurat rather than a gentle slide, it’ll move in fits and starts,” said a carrier source.

“Even when (and if) the rates start to fall, they are unlikely to come down to the pre-COVID levels. There could possibly be a 30-40% decrease from where they are currently, throughout the year, but that will still be much higher than 2018 or 2019,” Rakesh Pandit, co-founder and CEO at CONBOX Logistics, said.

In fact, the ongoing power rationing in China may add more strain to the supply chain down the line as cargo that’s been held back due to the curtailed factory operations builds up, leaving a huge backlog to clear when the power situation does return to normal. At the moment, power rationing is widely expected to last throughout the winter season, which runs till January.

However, Peter Sundara, global head of ocean freight for a major cargo owner, spots a silver lining to the situation. “Because of the blank sailings now, there is currently no added pressure on the destinations, they have a breather to clear out the cargo… demand is still going to come up again but the prices will not be as high as they were before golden week.”

Port congestion
Even as most of the Christmas cargo is already at its destination or in transit, the Asia-to-Europe trade lane is seeing delays grow, largely as a hangover from the sustained demand in September and October. The delays are expected to continue well into the new year, as a dearth of trucking and rail capacity continue to hinder movement in the hinterlands.

Things are not much different for Asia-US routes as the port congestion and supply chain disruptions are far from over.

“There are so many factors that the carriers can’t control themselves,” Sundara said. “One of the major factors is the labor shortage. In all the ports, especially the US, there is a huge labor shortage and we do not have sufficient manpower to manage terminal activities… not enough truckers to pull out the containers and chassis shortages… inadequate [numbers of] people in the warehouses. So, all these landside operational activities are delayed due to labor crunch. Unless all port workers get vaccinated and pandemic cases subside, we do not see port congestions subsiding any sooner.”

Despite the ongoing challenges, the situation at ports is likely to be better than in 2021, sources said.

“The rotation of equipment is better now, most NVOCCs have their vessels freed up and shipping lines are also offering higher capacity. The congestion issues are still there, and a complete recovery may take months, but it is much better than before,” a freight-forwarder based in India said.
Source: Platts

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