Crunch time for international shipping – keeping containers in the supply chain
International shipping lines play a crucial role in bringing essential goods to Australia and supporting Australia’s economy by taking our export to global markets. These services are even more important during the current COVID-19 crisis.
Like many other organisations in the supply chain, shipping companies in all sectors are experiencing cost pressures as overall global trade is in decline.
In the container shipping sector, there is a clearly a reduction in forward import orders towards the end of this month and thus the likelihood of significantly reduced shipping volumes to Australia occurring after April.
Shipping Australia expects that reduced demand for imports will force lines to reduce their services in order to survive. This is likely to impact on the availability of equipment such as food grade and reefer containers for export and on the availability of slots to and plugs for exports. This will have an impact on Australian markets, and all organisations in the supply chain. It is time the Government started looking at a subsidy for shipping lines and/or exports and imports, to ensure the continuity of shipping remains viable when the import volumes shrink.
With this outlook, it is even more important now that the containers are unpacked and returned so that they remain in the supply chain.
Container hire charges
There has been a lot of noise made recently on container hire/detention charges. The first thing to realise is that these charges are a commercial matter between the shipper and the carrier. They are part of the carriage contract, so shippers should consider the full cost of their transport when choosing their carrier.
Shipping lines are in the business of having satisfied customers. If you have a specific exceptional circumstance, and are unable to meet your obligations, talk to your carrier as soon as you can. Most shipping lines are willing to listen and make determinations on a case by case basis to reduce the financial burden during this difficult time.
But be aware that the lines need their containers to carry out their business, and shippers are the first to complain when there is a shortfall in available containers, be they dry, food grade or reefer. If you don’t return a container on time, then the cost to the line is not only the cost of the container it is also opportunity cost of the lost revenue for a sale that they could not make. This is even more crucial when there is a shortage in container availability due to reduced services.
At this time, no additional allowance has been made by the terminals in Australia to extend the free time of port storage at the terminal (demurrage). This is a good thing as we all have a vested interest in seeing units picked up from the terminal (minimising the risk of terminal congestion) stripped and returned for export. This is what keeps trade flowing.
For the same reason it would not be good for shipping lines to make a general extension on de-hire periods as it would encourage all, not only those in earnest need, to be slow to unpack and return their containers. Containers are an essential part of the supply chain, they need to remain in circulation, without containers there is no carriage. Their rapid processing, unpacking and return needs to be incentivised.
Recently some agitators have tried to draw a comparison between New Zealand and Australia in relation to overdue container de-hire relief. New Zealand have got a few things wrong and this is one of them. Their Level 4 COVID 19 Alert locks down exports and stops a lot of the freight and logistics industry by classifying it as “non-essential”.
This is not what is happening in Australia. Australia has done the opposite by actually encouraging and supporting the movement of all freight and generally exempting the freight and logistics sector from restrictions on the movement of personnel. As a result, the ports and depots in Australia all remain operational and the wheels of industry and trade continue to turn. New Zealand is a completely different scenario so you can’t draw a comparison.
Responding to the challenge
There is already more idle container ship capacity than there was during the Global Financial Crisis and the challenges in international shipping are going to get worse before they start to recover. It is important for Australia’s future that COVID-19 is not the catalyst for shipping line bankruptcies and forced mergers. It is important that shipping lines are able to weather this storm and survive to rise again as the emergency passes. Australia needs to continue to be serviced by regular shipping services though these difficult times, albeit at a reduced frequency.
Shipping Australia has written to all ports and service providers asking them to consider discounting their charges or at least deferring any planned annual increase while this emergency continues. We are also calling on Governments to consider subsiding shipping costs for exports and imports so that the continuation of regular shipping services to our trading partners remain viable.
Source: Shipping Australia Ltd.