- There is a shortfall of containers and cargo has no chance to move anywhere.
- To reposition the empties the charges are quite hefty.
- The price increase to bring back the empty containers is clear.
- At the same time, empties are being brought back to Asia.
- The good news is that the number of blanked sailings is declining.
Greg Miller, senior editor gives an interesting as well as a real note concerning containers in FreightWaves. He raises a simple question, Will enough containers get where they need to be? and that’s increasingly difficult to answer given how nebulous demand has become.
Empty-repositioning challenge
- As there are no containers, cargo can’t move anywhere.
- To reposition the empties there may be a lot of price pressure for full containers on the same vessels.
- Larger number of sailings from China to the U. S. and Europe led the empty-repositioning challenge.
- Especially, in the weeks following Chinese New Year, when the coronavirus outbreak brought Chinese exports to a near standstill.
How does it usually work?
In general, container ships bring loaded containers on headhaul runs to the U.S. and Europe. The boxes are emptied and then used for backhaul export cargoes from the U.S. and Europe.
The blanked sailings slashed the number of boxes arriving on headhaul routes, and at the same time, impaired the ability to return empties via the backhaul routes.
Box repositioning and freight rates
Alan Murphy, CEO and founder of Copenhagen-based Sea-Intelligence, told FreightWaves,“With the blanking of sailings due to headhaul volume shortfalls, there are a lot of containers in destination regions that will not get their intended return trip back to Asia, either laden with backhaul cargo or for empty repatriation.”
Problems caused by the lower number of empties returned to Asia “will be somewhat balanced by the fact that a lot of headhaul cargo did not move, leaving empty containers in Asia that are ready to go now,” Murphy explained.
“If we see a pickup in demand [for Asian exports], stocks [of empties] will be drawn down and the carriers will try to get the backlogs in destination regions back to Asia,” he continued.
In general, he said, “when we have equipment shortages, carriers usually focus on empty repositioning over backhaul cargo” given that “the premium for backhaul cargo is very low.” This dynamic can “lead to massive spikes in backhaul rates.” In other words, backhaul cargo moving from Europe to Asia, for example, would compete for space on ships with empty containers — and the cost to ship those backhaul cargoes would increase.
Price increase apparent
- The hike in prices is apparent in the daily indices compiled by Freightos.
- The rate from Northern Europe to China (SONAR: FBXD.NAEC) is up 55% since Feb. 18.
- The rate from the Mediterranean to China (SONAR: FBXD.MEDC) is up 70% (rates from the U.S. have not materially increased).
Mediterranean Shipping Co. (MSC) deploys Megamax-class vessels
MSC, which usually deploys 13,000 TEU ships in the trans-Pacific as part of the 2M alliance with Maersk Line, is now deploying the 23,756-TEU MSC Mia (the world’s largest box ship), the 23,656-TEU MSC Nela, 19,224-TEU MSCO Oscar and 19,368-TEU MSC Anna.
Alphaliner believes that “the ad hoc deployment of Megamaxes will allow the shipping lines to carry a typical service load and at least an additional 6,000 TEU worth of empty containers to America.”
The number of blanked sailings is declining
According to Murphy, “The weekly measure of carriers’ blank sailings out of China shows that the coronavirus impact is now subsiding rapidly. This means that carriers are seeing demand ramping up back to normal levels over the next few weeks.”
Lars Jensen, CEO of Copenhagen-based SeaIntelligence Consulting (a different company than Sea-Intelligence) addressed the issue in a series of online posts.
Jensen wrote that “until now, the focus has been on the shortfall of cargo from China” but “the next effect we will see” is “due to the virus impact in Europe and the U.S., the import demand will drop sharply.” As a result, he believes that “the expectation of a surge out of China to make up for the earlier shortfall will be postponed.”
Jensen said that “the situation is unprecedented” but “there is one clear comparison: the financial crisis in 2008,” when global container volumes dropped by 10%. If the same contraction rate occurs this year, “this equals a decline of 17 million TEU globally for container lines” and ports and terminals could “potentially be looking at a loss of 80 million TEU of handling volume,” he warned.
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Source: Freightwaves
