Container crisis - freight rates

Rates scale new heights as one carrier tries to stem the tide

These are unprecedented times for liner shipping. A faster-than-expected recovery from the global pandemic has led to super high freight rates, incidences of serious port congestion and a general lack of available slots and tonnage. How to resolve this? Capping freight rates, deploying non-container ships to carry boxes or going breakbulk? There are no easy answers.

Let’s face it, it has been a tremendous 18 months or so for global liner operators as carriers have more or less named their price to move containers. And they look like they will be able to do so for many months to come and well into next year - or at least they did.

The soaraway box rates of 2021 are in marked contrast to previous years when the world’s leading operators struggled to make money yet continued to invest eye-watering amounts in bigger and bigger tonnage as they drove down slot costs. Only to then see these hard-won savings passed on to shippers in the form of lower freight rates. Now the tables have been dramatically turned.

But what is good news for both global and regional carriers and for the wider shipping industry is probably bad news for more or less everyone else – especially many fragile Caribbean island economies already reeling from the coronavirus pandemic and its negative impact on tourism and cruise revenues.

OK, not all Caribbean imports arrive in containers, but a large percentage do. So, depending on the cost of the freight element in the final price of any particular imported item then this will have in 2021 been feeding its way into rising prices for consumers and stoking inflation. Somebody has to pay these increased costs and, naturally enough, it will be end users who will be picking up the tab.

Phenomenon

This is not just a Caribbean phenomenon, of course, and it’s a situation that is impacting the entire globe. A quick look at Drewy’s World Container Index shows that the average cost of moving a 40 ft box has increased fivefold in just over 12 months from under US$2,000 in August 2020 to just below US$10,000 by September 2021. These high rates have resulted in record earnings for many shipping lines.

Ports, too, have seen record cargoes. For example, PortMiami – a bellwether of our region’s box volumes – has reported a 30 per cent jump in container traffic this year over 2020.

But it’s not just boxes. It’s much the same in non-containerized markets. The situation was neatly summed up by Hamburg shipbrokers Toepfer – compilers of a widely watched multipurpose shipping index. The present situation in other sectors, Toepfer says, “reflects high demand and a shortage of available tonnage”. Adding: “While container and wind-power related cargoes are further taking up the available general cargo space, so shippers and forwarders are now forced to book their cargoes fairly in advance instead of spot or prompt, as in the past, to ensure that the transport will take place within the required time frame.”

But help, of a kind, could be at hand. French carrier CMA CGM and its associated brands (that’s CNC, Containerships, Mercosul and APL) took the decision in September to prioritize its long-term relationship with its customers rather than to impose higher and higher spot rates on them – as had been the case until this point.

As CMA CGM noted, container shipping spot freight rates have continued to rise due to port congestion and a major imbalance between demand and the effective capacity of maritime container transport. The carrier nevertheless decided to put any further increases in spot freight rates on hold for all services until February. CMA CGM’s decision was followed by Hapag-Lloyd.

lazyllama | Shutterstock.com

Increases

But despite CMA CGM’s actions, the carrier also acknowledged that rate increases in the wider market would continue into 2022. Jean-Yves Duval, CMA CGM’s Senior Vice President of Latin American & Caribbean, told Caribbean Maritime: “We have gotten very good feedback from clients here.” He also believes that the move has "put some optimism" (into the market) and that things could now stabilize. Adding: It also allows shippers to use the latest prices as a max to work on their budgets for new and continuing business rather than worrying about profitability changing drastically due to constant increases.

On the other hand, and contrary to the prevailing mood elsewhere, rates between the US and Puerto Rico have this year held fairly steady. Economist José Joaquín Villamil, CEO of Estudios Técnicos, says that the increase in rates from freight outside of the Jones Act trade should open the door for rethinking negative assumptions about the cabotage law. Music to the ears of Jones Act proponents.

Forecast from French carrier CMA CGM.

DE-CONTAINERIZATION

There is, at the margin, a way around skyrocketing container rates and the lack of box availability and that’s what might be called de-containerization. If it takes effect, it will buck a steady 40-year trend in the opposite direction. So, if you can’t find containers for your cargo or don’t want to pay over the odds when you do, why not switch to breakbulk. OK, rates are still higher than they were a year ago but still represent good value for money for the right type of freight. There have been several examples of this in recent weeks with cargoes such as bales being shipped as breakbulk instead of in containers.

In turn and in the current rising market, breakbulk vessel owners appear to be getting choosier about the freight they are prepared to transport with these de-containerized cargoes taking precedence over previously popular out-ofprofile items such as wind turbine blades (see also Russbroker report on page 43). Or taking matters a step further in the same direction and more bizarrely, perhaps, loading containers onto bulkcarriers. And it’s already happening. Singaporeheadquartered Swire Bulk is among the first dry-bulk owners to be actively moving containers on its dedicated fleet of bulkcarriers, with a host of other wellknown names in the sector thought to be looking to follow suit. For example, another Asian owner, Hong Kong’s Pacific Basin Shipping, is also said to be ready to offer some box shipments on its handy fleet. As is Oslo-based Golden Ocean Group.

Rob Aarvold, general manager at Swire Bulk, explains: “It’s obviously less efficient to stow containers on a bulk vessel, but it can provide critical supply chain support for shippers that have urgent requirements.”

Some regulation and much-needed guidance are on their way, too. Bureau Veritas, for instance, has developed a formalized approach to support the safe carriage of containers in bulkcarriers. The guidance outlines two main pathways for stowing containers in holds, either as a ‘block’ of lashed cargo without retrofitting of special container securing fittings, or as more conventional stacks of containers, in which case such equipment may need to be fitted permanently or temporarily.

What gives people feelings of power?

MONEY ===

STATUS =====

CONTAINER SLOTS ======================