Consequences of Port Closure Due to COVID-19


  • Freight rates and port congestion levels increase due to  Port closures caused by COVID-19 outbreak
  • Fleet growth is expected to slow down in 2022
  • BIMCO expects the container market will remain strong well into 2022

As ports and hinterland transport struggle to keep up, delays at ports are soaking up capacity leading to frustration on the shippers’ side and leaving carriers struggling to keep up all the while making record profits , reports an article in BIMCO.

Impact of COVID-19 outbreak

The container shipping market has frequently appeared in the headlines over the summer as freight rates and port congestion levels increase due to  Port closures caused by COVID-19 outbreak.At the end of August, over 40 container ships were waiting to berth outside the ports of Los Angeles and Long Beach.

The delays mean that more ships are needed to maintain scheduled sailings. It is estimated that the number of ships on the two main east-west trades rose to 10.12m TEU on 1 July 2021, representing 41.4% of total fleet capacity and up from 34.6% a year earlier.

Capacity on the Far East to Europe trade has risen 19.7% over the past year to 5.25 million TEU, while capacity on the Far East to North America trade has risen 30.6%.

Even with these extra ships, carriers are struggling to meet their scheduled departures, which leads to cancellations of sailings or port calls because the supply is not there rather than due to a lack in demand

Limiting factor

The limiting factor is the number of  containers the ports and hinterland connections can manage,and storage space in temporary container yards and final destinations. Adding more ships results in longer waiting times outside ports and increasing capacity issues on the smaller trades. The large year-on-year increases in capacity can also be attributed to the sharp reduction in the idle fleet compared to July 2020.

In the first half of 2021, growth on the Far East to Europe trade was more coherent  with the rest of the world than the transpacific trade. Excluding volumes on the latter, global container shipping volumes rose by 9.3% from the first seven months of 2020, compared to just 3.0%  in 2019. This is in line with supply growth and proof that the current strength of the market is due to congestion issues driven by strong growth on the world’s second busiest trade.

Container shipping market

Higher freight rates are the main attraction for capacity being moved from smaller trades to the main east-west lanes. Some shippers are paying thousands of dollars in surcharges to ensure their load gets on board a ship in time.

The supply side of the container shipping market confirms carriers’ desperation to get hold of tonnage.146 ships(each with a capacity of 13,000 to 16,999 TEU) of this size with a total capacity of 2.1m TEU have been ordered so far this year. 

For those wanting to add tonnage more immediately, the sale and purchase market is also heating up. A total of 363 ships have changed hands so far this year and prices are rising.Referencing disclosed sales prices for container ships, the average price per TEU has jumped more than 400% this year. 

Given the earning potential on both the freight and second-hand markets, the number of ships heading for demolition has stalled.The largest container ship to be demolished was the 27-year-old, 1,839 TEU Tasinge Maersk.

As long as the strong market continues and the new tonnage ordered this year is still in the process of being built, demolition rates will remain low.  BIMCO expects demolition this year to fall to levels last seen in 2007.

Fleet growth

Of the capacity expected to be delivered in 2021, around two thirds has already arrived. In combination with the low demolition activity, it means the container shipping fleet has already grown by 2.5% this year. BIMCO expects a  fleet growth of 3.8% over the full year.

Fleet growth is expected to slow down in 2022, before the many ships ordered at the end of 2020 and in 2021 are delivered, prompting a return to higher fleet growth in 2023 to 2025.

Years of low freight rates resulting in rigorous cost cutting by carriers have left them in a great position to maximise profits now .Looking to the future, they have proven to lock shippers into longer-term contracts at today’s higher freight rates.

Future of container market

In addition to attractive higher charter rates, tonnage providers are managing to secure longer-term contracts. In recent weeks, the steep rise in charter rates has stopped, but this is more a reflection of the lack of tonnage available for charter rather than falling demand.

BIMCO expects the container market will remain strong well into 2022. The true test for the container shipping market will likely come in 2023, when the huge volumes of new build shipping capacity ordered over the past year starts being delivered. Once this happens, the strength of the contracts currently signed may be tested as shippers and carriers, attracted by lower freight and charter rates, will try to  get out of their obligations, when the  market recalibrates to a very different level.

Before this happens,, the world will continue to watch the container shipping industry and its ability to deliver on its promise of delivering global trade, even though the bottlenecks preventing a return to normal are mostly outside of carriers’ controls in ports and warehouses.

Situation may get worse before it gets better

As long as China continues to pursue a zero-tolerance COVID-19 elimination strategy, the risk of more ports being closed or disruptions to hinterland connections remains high, adding to the time it will take for the container shipping market to normalize.

At the top of the list will be to ensure schedule reliability and return to the status quo in which the sea-transport of goods returns to smooth sailing, and not the current situation, albeit potentially at higher freight rates than shippers had enjoyed in the past decade.

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Source: BIMCO


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