A report by the United Nations Conference on Trade and Development (UNCTAD) warns 1.5 million containers of Asia-Europe rail cargo could be re-routed to the ocean freight market and drive freight rates even higher. The war between Ukraine and Russia has disrupted land and air cargo shipments between Asia and Europe. Restrictions on Russian air space, service suspensions and security concerns are complicating trade routes going through both countries which are part of the Eurasian Land Bridge.
In the last two years of the pandemic, shippers increasingly turned to rail, air and trucking services from China to Europe due to congestion and the lack of schedule reliability in ocean freight even as costs skyrocketed. “In 2021, 1.5 million ocean containers of cargo were shipped by rail west from China to Europe. If the volumes currently going by container rail were added to the Asia-Europe ocean freight demand, this would mean a 5% to 8% increase in an already congested trade route,” UNCTAD’s report stated.
Given the current lack of capacity on the Asia-Europe trade, the upward pressure on ocean freight rates will continue. UNCTAD said higher fuel costs, re-routing efforts, capacity constraints in maritime logistics, and the impact of the war in Ukraine will lead to even higher freight rates. Increases in freight rates can have significant impacts on the economy. UNCTAD simulated that the container freight rate increase during the pandemic increased global consumer prices by 1.5% (see Figure 1).
Source: Seatrade Maritime News, UNCTAD
Local authorities have eased lockdown restrictions in Shenzhen, saying the COVID-19 outbreak is now mostly under control. Factory operations and public transport in four districts including Yantian and a special economic zone have been put back into operation.
Landside logistics and productivity at key manufacturing hubs had been impacted by movement restrictions which began on March 13. Although ports continued to operate, containership queues have been growing at key Chinese ports with some carriers re-routing services to avoid the congestion (see Map 1).
An advisory from Hapag-Lloyd suggested reduced trucking capacity at many Chinese ports could see cargo volumes diminish temporarily as China battles the omicron surge.
China’s zero-tolerance policy increases the likelihood of further lockdowns if cases surge. Supply chain and logistics operations will face more pressure with implications for rising global inflation. “A slowdown in Chinese exports will exacerbate supply chain delays and reduce inventories held by businesses, which could drive further price increases,” said Niels Rasmussen, Chief Shipping Analyst at BIMCO.
Source: Splash247.com, Reuters
The Shanghai Containerized Freight Index (SCFI) has continued to decline, closing the week with an 85-point drop to 4,540 points, but remains four times higher than its historical average. Shipping container indices by Drewry and Xeneta have also reported declines, although there is generally a slowdown the weeks following the Chinese Lunar New Year.
Analysts suggest the consistent increase in inflation and the Russia-Ukraine conflict might be dampening the demand for goods from Western market. “Recent retail sales figures indicate that North America consumer demand for Far East imports may have plateaued,” commented Niels Rasmussen, chief shipping analyst at BIMCO.
“Xeneta data clearly shows falling spot freight rates on all main trades in March. And while markets have been volatile since reaching the ceiling in September, October, the pace of the decline on China to North Europe, for instance, seems steep. Falling rates are much welcomed by the global shippers, but if the origin of it is fading consumer demand, it might be bittersweet. The next weeks will give more certainty into the reasons,” said Peter Sand, chief analyst at Xeneta.
It is still too early to determine if container indices have peaked said Simon Heaney, senior manager of container research for Drewry. “This is purely speculation on my part but my take is that carriers still have the power to charge whatever they want due to the bottlenecks, but for now are happy to let freight rates drift if it helps get some of the regulatory heat off their backs. It’s good PR to be seen to be taking on more of the cost burden,” he added.
Source: Splash247.com
Another round of cargo surges could lie ahead said Gene Seroka, executive director of the Port of Los Angeles. “We’re taking advantage of the temporary lull in ship arrivals due to the Lunar New Year production slowdown in Asia to prepare for another wave of imports.”
Current COVID lockdowns in Shenzhen, China could create a surge in inbound cargo volumes after factories reopen. An increase in vessel arrivals is expected as retailers are looking to replenish inventories. Meanwhile, port labor negotiations and the annual peak-season volume increase, which last year began in June is approaching
In first two months of the year, the queue of waiting container ships have fallen from 101 on January 1 to the current 43. The sharp drop in the vessel queue is not being driven by greater cargo velocity on land though. It is largely due to fewer ships leaving from Asia around the Lunar New Year holiday according to Sea-Intelligence, which analyzed Trans-Pacific liner schedules.
That trend is now on the reverse. “We expect an increase in vessels headed our way,” Seroka confirmed. About a third of Los Angeles’ imports come from areas affected by lockdown. “If factories shut down, the impact on cargo movements is not going to be felt for weeks to come. If the factories come back and they try to catch up on purchase orders, there will be another surge,” he added.
Seroka said the port must use data to “see around the corners and over the hills better than in the past,” and “be as resilient as possible” to “handle the surges.”
Source: American Shipper
