Ocean shipping lines are deploying sweeper and extra-loader vessels to Australia, at a high financial cost, to help clear the empty container build-up. The willingness of shipping lines to make direct cost outlays and forego revenue to reduce the empty container backlog shows the incredible support being given by ocean carriers to keeping Australia’s supply chain functioning.
Empty container congestion is now a problem at major ports all round the world. This is a result of unprecedented consumer demand driven by a COVID-induced shift from spending on services to spending on goods. In Sydney, the problem was exacerbated by weather events and industrial action. Therefore, carriers are being limited to their contracted containers exchanges to recover schedules.
“If a ship has two thousand imports and is only allowed 2500 exchanges, then only 500 boxes can be exported”, Shipping Australia CEO Rod Nairn said.
“Container congestion is inevitable unless additional calls are made just to pick up exports. Our members are paying for extra ships and extra port calls in an effort to alleviate the problem. But this comes at a cost.”
State Transport Minister recognises record evacuation of empties
NSW Transport and Roads Minister, Andrew Constance has noted in a publicly released letter that it is important to recognise that the international supply chain is not within the State Government’s control. He added that it is necessary to ensure that any intervention in one part of the supply chain does not result in a long term impact on overall supply chain costs or have unintended outcomes.
Minister Constance also noted that record numbers of empty containers have been exported. He points out that in October 2020 more than 78,000 empty TEU were exported and in November more than 75,000 empty TEU were exported. That compares to a low of about 51,000 empty container exports in February and a monthly average of about 64,000 empty TEU in the preceding 12 months.
Shipping lines take action!
The extra efforts by shipping lines are working. Member shipping lines have reported to Shipping Australia that:
- lines have been forced to curtail laden exports so as to evacuate empty containers. This of course, costs a lot of money in direct costs and foregone revenues (see more below);
- a line has successfully reduced its empty inventory from 13,000 to 5,000 TEUs;
- another line has reduced empty inventory from 25,000 to 16,000 TEUs;
- a third line has completely emptied its empty container stock out of NSW;
- a vessel on the North East Asia to New Zealand service has been diverted to Sydney to evacuate empties;
- two vessels will omit Melbourne and will only call at Sydney and Brisbane, and will fill up with empties;
- a vessel normally deployed on the Singapore-Fremantle run will be taken out of service to run a Singapore-Sydney-Singapore voyage to load empties; that vessel has already been re-directed to pick up empties twice before;
- a shipping line introduced two vessels as peak season extra loaders – one of about 2,200 TEU and another of about 2,800 TEU to pick up empties;
- yet another shipping line has evacuated over 12,000 empty forty-footers and just over 9,000 twenty footers, equalling about 33,555 TEU over a four month period. About 75 per cent of that, about 25,166 TEU, was from Sydney and Melbourne;
- the same shipping line ran an ad hoc loader (included in the volume figures immediately above) which took out 2,114 empty TEU;
- a shipping line ran an empty loader in November to take out 1,384 empty TEU – but it had to wait SEVEN days for a berth. That will have been at an EXTREME cost. Publicly available data shows that box ships were generally on charter (i.e. the cost charged to container shipping companies to hire the ship) in late November from anywhere between USD$15,500 a DAY for a 2,500 TEU ship up to $36,000 a DAY for an 8,500 TEU ship. At the bottom end of that range, it’s a cost of AUD$143,668 to $333,683 on the charter costs alone before other costs (crew wages, fuel, provisions, stores, lubricants) are taken into account. This is also before the huge opportunity cost of forgone freight rates.
Shipping Australia’s ocean carrier members are bearing a heavy financial burden to help ease Australia’s supply chain woes. To illustrate the scale of the commitment of the shipping lines, we can put some rough figures to at least one of these examples. For the avoidance of doubt or confusion, in the following illustration we have obtained figures from publicly accessible sources. The illustration below does not contain actual data from any shipping line.
Expensive: deviating a ship from the Singapore Fremantle run
For the purpose of this illustration we will assume that the vessel deviated from the Singapore-Fremantle run is about 4,250 TEU in size. Incidentally, the cost wouldn’t be much less for a smaller ship, but it would be substantially greater for a bigger vessel. As ships get bigger and go faster, they consume a disproportionately greater and greater volume of fuel to overcome water resistance and to propel the vessel. The more fuel consumed, the greater the cost.
A return journey Singapore to Sydney is more than 9,500 plus nautical miles. At a speed of 24 knots, that’s at least a 16-day sailing time (not counting time in port). The actual sailing time may be a little more taking into account weather, currents, routing and other such variables. With crew wages, fuel, daily insurance costs, lubricants, stores, crew provisions, daily charter rate, towage, pilotage, mooring fees, port charges and so on, that’s easily an AUD $1.5 million voyage. That voyage is completely empty with no freight revenue at all.
And remember: the shipping line in question has already deviated that vessel from regular service to pick up empties in Sydney at least twice.
Then we have to consider the opportunity cost of the freight forgone.
Shipping Australia understands that that the Shanghai Containerized Freight Index (Shanghai-to-Melbourne) can be considered as a proxy for freight rates on the Singapore-Fremantle route. The south bound freight rate Shanghai-to-Melbourne is currently about USD$2,431 per TEU (AUD$3,229). However, and unfortunately, the spot freight rate simply cannot be multiplied by the number of boxes to give even a rough estimate of revenues. High volume and repeat customers are likely to have negotiated discounts; some boxes will have been booked a long time ago when freight rates were much lower; different cargo may affect different freight according to shipping company policy and so on. But the current spot-market price of the south bound freight rate does illustrate that there is highly significant revenue being forgone the shipping company.
Consider also the forgone freight rate on what would have been a return Fremantle-Singapore journey. According to MizzenIT, the northbound freight rate is about 62 per cent less than southbound. So we will estimate the northbound freight rate of about USD$924 (AUD$1,227).
As about 57 per cent of export boxes from Fremantle are empty, we will further assume that the 4,250 TEU box ship will also be 57 per cent empty too. That would potentially give the ship about 1,807 full boxes for the backhaul. Again, a lot of variables, but clearly the shipping company is forgoing a large amount of revenue on the backhaul voyage too.
There is no doubt that a shipping line deviating from the Singapore-Fremantle route to pick up boxes from Sydney is incurring massive financial costs and is foregoing an even greater amount of freight revenue to clear the congestion of empty containers.
“The level of demand is unprecedented, the congestion of empty containers has been the worst I have seen, but it is now improving. It should be recognised by everyone that ocean carriers are doing all they can to clear the backlog and to keep our international container supply chain moving efficiently”, Rod Nairn concluded.