The world’s supply chains are in crisis. Long delays in the shipping of containers mean there is a real possibility of shops having empty shelves in the lead-up to Christmas. The hold-ups are already feeding spikes in the prices of many goods, fuelled by a spectacular surge in freight rates. Bottlenecks in the world’s ports are getting most of the blame, with Morton Engelstof, chief executive of APM Terminals, a major container port operator, warning in the Financial Times this week of a “vicious circle” for terminals that can’t clear their backlogs quickly enough to keep up with new demand.
WiC caught up with Parash Jain, HSBC’s global equity sector head for shipping and ports, for more on what’s causing the container crunch and how long it’s going to last.
It’s boom time for freight rates and shipping charters?
Spot rates for containers have been on a huge roll. Last week the Shanghai Containerised Freight Index, which shows current freight prices for container transport from the main Chinese ports, increased for the 17th consecutive week and the index is now up 244% on the same time last year.
Containers on key lines such as the Transpacific route are being priced north of $10,000. But we think that upcoming rate hikes and increases in port congestion over the peak season will actually bring higher prices in the remainder of the year.
The industry is seeing similar increases for charter rates for container ships: 4,000-teu vessels are being charged out at more than $70,000 a day for year-long contracts, which is more than twice the levels of the previous peak in 2005. Some shorter-term contracts are being priced even higher at more than $100,000 a day.
What’s driving the surge in freight rates?
It’s largely a supply-side story. By that I mean that it’s mostly related to the problem of congestion at ports, which is having a huge impact on the wider market.
The current cycle in freight rates started in June last year when the US economy began the process of reopening after a period of Covid-related disruption. This unlocked pent-up demand from American consumers, many of whom had more disposable income than usual. Much of the surge in their spending has been for consumer goods and home improvement items but retailers had cancelled many of their orders because of Covid earlier in the year so there was a sudden rush to replenish inventories.
And now we are into peak season in advance of the Christmas period, which is fuelling demand for freight space as well.
The problem is that the supply chain is struggling to cope. Even though the main ports on the US West Coast have been setting records in container throughput for months, it’s still not enough to meet demand. The number of vessels at anchorage has risen to record levels and waiting times are well above average, including ports in China as well. These longer waiting periods tie up shipping capacity and the availability of containers, putting further pressure on rates.
Read More at https://www.weekinchina.com/2021/09/congestion-charges/
Image Courtesy : SCMP