The ocean shipping industry is aware that the current market is, for a lot of importers and exporters, profoundly upsetting. It’s no secret that there are a lot of problems right now. There are three main reasons why:
- ship operating costs have gone through the roof
- demand has surged
- port congestion has crushed supply
Ship operating costs: up
The cost of marine fuel has increased by about three and a half times. The cost for a ship operator to hire a vessel has gone up in some cases by over 1,000%. The current one-day sailing cost of a ship with a capacity of 4,000 twenty-foot containers is about AUD$238,000 a day. Back in January this year, it was about AUD$101,000 a day. Operating costs have more than doubled within ten months.
Demand: consumer increase
On the demand side, consumers are buying more goods (which means a higher demand for shipping) because they are spending less on services (like holidays and eating out). Australia’s agricultural sector has had a bumper harvest of late, so, again, more demand for container shipping.
Supply: ocean shipping industry expands
Shipping has reacted by massively expanding supply. Companies have placed huge orders for new ships and new shipping containers. Ships are being kept in service for longer; hardly any vessels are going to the scrapyard now. The previously-idle part of the container shipping fleet went back to work a long time ago. Non-specialised vessels are being hired to carry containers.
There are plenty of shipping services to / from Australia. The United Nations Liner Shipping Connectivity Index, which measures container shipping to / from Australia, has never been higher. About 1.8 million to 2 million twenty foot fully loaded boxes leave Australia each year along with millions more empty boxes. As a booking is required for each container exported, high export volumes conclusively prove that there are millions of container bookings available.
Ships are doing their job. They are moving goods from A to B. Ships are delivering the goods.
So if supply has expanded, if there are bookings available, and if ships are delivering the goods, why is there a problem?
It is because ports cannot keep up.
[fl_builder_insert_layout id=”14677″]
Supply: port congestion is crushing
A recent check showed that there were about 67 container ships waiting off Los Angeles (US West Coast); 20 off the coast at Savannah (US east coast); 16 at Rotterdam (Europe) and 97 off the coast at Shenzhen (China, south coast). There are other huge queues elsewhere too, with delays ranging from a couple of days to 12 days.
Port congestion has cut 12% from the supply of global shipping capacity and has nullified the recent supply expansion.
This is why freight rates are so high. This is why the cost to hire a ship is so high. This is why there are delays in the delivery of goods. This is why ships are skipping ports. This is why ships are reducing their sailing frequency. This is why ships are arriving late. This is why ships get later and more off-schedule with every call.
This is why the supply chain crisis is really a crisis of port congestion.
A problem: serious and lurking
The current crisis will likely unwind in due course as the surge in demand tails off. But the current market indicates that there is a serious, lurking, problem. Forecasts suggest there will be a truly massive increase in trade over the coming years. Ocean shipping has demonstrated that it can cope by buying more ships and boxes.
But ports have demonstrated that they cannot cope with a comparatively small surge in trade.
How will they cope if the forecast, massive, permanent, increase in trade does actually eventuate?
Ports must up their game. Ports must improve their performance.
Reading: further
Container ports and landside must solve their problems to resolve freight crisis
Dreadful performance of Australia’s container ports is revealed
