Ocean Freight is Skyrocketing

Ocean freight is skyrocketing, tearing through the clouds. Getting confirmed space booking and empty containers to any exporter has become a herculean task. Shipping industry has become a mess and is going through tremendous crises.

This article, I will try to explain the root cause of current crises, when it started and how long it remains.

1. Covid-19:

   The whole world was shaken when a global pandemic started hitting on march 2020 due to Covid-19. The effect of this pandemic leads to the implementation of new rules, regulation and SOPs in almost every place and every industry including shipping industries.

   Although the price evaluation and shortage of empty containers had not taken place very quickly, it took gradually a year.

   Everybody experiences huge transformation in their daily routine and living. People started working from home, online shopping was on rise, everybody started being cautious towards their health.

   In pursuant, inclination towards online shopping had increased, people started placing online orders for furniture, office/gym equipment and products related to health. E-commerce industries witnessed a sudden boom.

   Christmas is celebrated with great pomp in the West. People start shopping 2-3 months in advance. Big dealers and importers start stocking their inventory 4-5 months in advance.

   All these items are supplied in the West from Asian countries mainly from China and after the pandemic, demand increased right away.

   Congestion in sea ports (specially in north Europe and the US west coast) was obvious due to high demand. On the contrary, because of the pandemic, almost all the ports of the world were operating with very minimum work force, few ports were even temporarily shut down. Due to which the loading and unloading was delayed at berth.

   Many vessels were not able to meet their berthing window and the entire schedule of the shipping line became a mess.

   This was one of the reasons for increase in empty container price, not getting confirmed slot/space and also the increase in the rate of Ocean Freight.

2. Loss of containers:

   Nearly 226 million containers shipped every year and on an average 1382 containers were lost at sea. More than 3000 containers fell into the sea in 2020 and more than 1000 containers have fallen so far in 2021.

   The surprising thing is that in just 2 months, between November 30th 2020 to January 31st, 2021, 2675 containers have fallen in sea which is almost double than the annual average.

   Let me share the detail of 5 accident during these periods

   One Apes: Accident with this ship was the worst. 1816 containers lost. Date: November 20th, 2020.

   Ever Liberal: Accidents mostly happen in the Pacific due to bad weather. This ship also became a victim of bad weather. 36 containers lost. Date: December 31st, 2020.

   E.R Tianping: This ship also became a victim of bad weather in the Pacific while sailing from South Korea to North America. 76 containers lost. Date: January 14th, 2021.

   Maersk Essen: Met with bad weather while voyage from Xiamen China to Los Angeles. 750 containers lost. Date: January 16th, 2021.

   MSC Aries: This ship encountered heavy weather while en route from Long beach to Ningbo. 41 containers were lost. Date: January 29th, 2021.

   When strong wind and dangerous waves move in a rhythm in the middle of the sea, no matter how big the ship is, no matter how experienced the captain is, there's not much the captain can do to keep containers from falling off the ship. In such a time, the priority of every captain is to only ensure to not overturn the ship.

   Has anyone ever stood in front of nature?

3. Blockage of Suez canal:

   The wrath of nature had not ended on one hand that another problem had cropped up.

   Around 10% to 12% of global trade flows from this sea route. This route is the shortest route between Europe and Asia.

   About 50 ships traverse daily through this canal, which is worth 3-9 billion of cargo. 30 percent of global container traffic passes through this canal, which is around 1 trillion worth of cargo every year.

   On 23rd March, a large vessel named Ever Given got blocked in this canal. This vessel has a capacity of 20,000 TEU.

   Till 28th March, due to this blockage, around 300 ships were stalled on both sides. About 16.9 million tonnes of goods were stalled due to this blockage.

   Finally 29th March 2021, Ever Given afloat back to the sea.

   Each port has its own capacity to handle vessels and other operations. The congestion had already increased due to the pandemic in many ports. Due to minimum work force, loading and unloading at berths was very slow. After the blockage was cleared in the Suez canal, many vessels came together in the port and the congestion in the ports became even worse.

   Experts say that although this is an incident from March 2021, its impact in the shipping industry still remains the same in October 2021.

4. Imbalance of trade and supply:

   In the 1st and 4th point I told you what caused the demand to increase in the West. Along with this, there are many other reasons due to which there has been a demand and supply imbalance. Let's dive a little deeper to know more.

   November to March is the harvesting season in the United States of America. But the demand for agricultural products in the USA is not so strong in the East in comparison to the products from east to west.

   On the other hand, the carriers were also happy to take empty containers back from West to East instead of waiting for filling the container with goods and loading back to the vessel.

   As the shippers from the east were ready to pay a premium for empty containers, shipping lines were more interested in taking maximum bookings from Asian countries, especially China.

   Had there been supply and demand balance, there would not have been such a crisis.

5. Empty containers back to china:

   When the Pandemic peaked in China, this virus started spreading slowly in other countries as well.

   As the pandemic started increasing in western countries, restrictions began to increase as well. Shopping malls, road transport, sea ports all closed or were run with minimum work force.

   In the second quarter of 2020, China started recovering from Pandemic. Domestic transportation, railways, sea ports etc. were started to open. Overall China's international trade had resumed.

   On the contrary, demand was increasing in the West, but due to the increase in congestion in the port, many empty containers were stuck in the port along with vessels too.

   The demand of Western countries is met by the supply of Asian countries (specially China & India) for products like gift items, health care products, home and office equipment, electricals, electronics and others.

   Asian countries started paying a premium price for empty containers.

   Due to increasing pressure, the shipping line has started bringing empty containers from west to eastern ports like India, China and other Asian countries. Due to the high price paid by shippers from Asian countries, the shipping line was not even in loss while bringing empty containers back to Asia and this was affecting exports in the west.

   That was one of the reasons why the demand and price for empty containers has increased tremendously in recent times.

Conclusion:

Due to the high demand, the more containers the carriers ship at once, the higher the profit will be. Many companies have placed orders for new vessels. But let me tell you that it takes 2-3 years to manufacture one vessel.

Many countries like India and others have started work on ISO standard container manufacturing.

But this problem will not be solved so soon. At least it will take more than 1 year. If you are an exporter, then quote the buyer in the FOB and do advance planning with freight forwarders.

Thank you