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Ocean Cargo Capacity Stretched Thin

Posted by Mihlfeld & Associates on Apr 6, 2021 2:23:21 PM

Every Importer and Exporter has an eagle eye on Ocean Cargo rates right now. There are so many factors at play that even the best forecasters are hesitant to give hard numbers on what the next 30-60-90 days look like regarding pricing. The consensus is that they will trend up and below are the factors to watch.


Suez Canal Backlog


The Ever Given blocked traffic through the Suez Canal for a week bringing more than 360 ships, 96 of which were container ships, to a standstill. While it has been a week since the Ever Given was freed, allowing ships to begin passage again, the backlog of ships still has not cleared. At this point, that means just the immediately affected ships are running anywhere between 8 days and 14+ days behind schedule. Freight Forwarder Kuehne & Nagel estimated they had approximately 30,000 FEU affected and the impact of the blockage could be felt through all of April and June.


The larger effect can be seen when we look at available capacity. The Suez Canal blockage has negatively affected roughly 6-7% of the global ocean cargo capacity and up to 30% of Maersk’s capacity. It is important to look at Maersk’s capacity as many pricing specialists view Maersk as a weighted carrier in their pricing algorithms. If Maersk sharply increases prices in response to so much of their capacity being affected by the blockage, there can be a ripple effect in other carriers’ pricing that was maybe less affected by the actual blockage.


Containers & Vessels at a Standstill


The Port of Los Angeles recorded the largest number of imports in history in February. U.S. Ports have been over capacity for months now trying to move containers. Rail is backed up, the truckload market is doing its best, but an estimated 33,500 fewer drivers are operating now compared to this same time last year. Add that to figures showing the industry was already short a conservative 50,000 truck drivers and it is easy to see how such tight capacity can have huge effects across the entire US transportation network.


There are vessels in queues waiting much longer than usual for their turn at the U.S. Ports. This doesn’t just add to the congestion problem, it creates a shortage of containers and vessels in other places. Chinese exporters are complaining there are too few containers and vessels to meet their needs, which is delaying their ability to get products to their destinations.


Economy Reopens and GDP Expectations


Perhaps the Suez Canal blockage, port congestion, and container shortage would add up to minor headaches and create a blip on pricing and transit times if we were still in the middle of COVID. However, many countries have boosted their vaccination efforts and businesses are reopening or on schedule to reopen within the next couple of months. Factories are ramping up and consumer confidence (at least in the U.S.) is high. The expectation is the U.S. GDP will grow by 6-8% this year with the World Trade Organization (WTO) estimating global merchandise trade will grow by 8% as well. This is a huge amount of new shipping demand without an estimated growth in available capacity.


What About Pricing


As we mentioned at the beginning of this piece, no one is forecasting hard numbers. However, based on current trends, current issues, and expectations – ocean cargo prices can only rise over the next 30 days and most likely 60+ days. The pricing increase for East Asia to West Americas could rise somewhere between 2-4% and barring something unexpected happening, not too much higher before they level out and begin to decline early summer. Asia to Europe and Asia to East Americas will see a much higher increase over the next 30 days and perhaps 60+ days of up to 7-8% before they also level off and begin to decline by early summer.

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