Posted on 08/10/2021 4:58:45 AM PDT by blam
There is no COVID-era surge in global cargo demand. There’s a lengthy albeit temporary spike in congestion compounded by a localized, stimulus-and-savings-driven demand boom in America.
That explanation for skyrocketing rates gained more traction Friday when liner giant Maersk released details of its quarterly performance.
Maersk — which pre-reported record Q2 2021 results on Monday — estimated that global container shipping demand was up only 2.7% in the second quarter versus the same period two years ago, prior to the pandemic. And yet, Maersk’s average freight rate (including both contract and spot business) was $3,038 per forty-foot equivalent unit, up 63% from $1,868 per FEU in Q2 2019. The Drewry World Container Index of spot rates rose to $9,371 per FEU this week, 6.7 times what it was two years ago.
Consultant Lars Jensen, CEO of Vespucci Maritime, told American Shipper, “Global demand for the first part of the year is up around 4% compared to 2019. We did not have a capacity problem in 2019. We had enough ships, we had enough containers, ports were fine, and trucks and rail were fine, at least from a global perspective.
“With 4% global demand growth since then, we should not have a problem now. You have some skewing because of the demand boom in North America, but none of this is down to a global demand boom — because that doesn’t exist. The problem right now is predominantly one of capacity.”
Congestion Curbs Effective Capacity
Ocean freight capacity is being heavily curtailed by congestion, with equipment tied up both on land and at sea. Maersk sent out a customer advisory on Wednesday titled, “Critical help needed — congestion increasing.” The advisory pleaded with U.S. customers to return equipment more quickly, stating: “We do not anticipate the congestion decreasing any time soon. On the contrary, the industry overall is forecasting higher [U.S.] volumes into early 2022 and beyond.”
Alphaliner reported this week: “Carriers need much more tonnage as ships get stuck in congested ports in both the U.S. and Asia. Some carriers reported that they needed at least 20-25% more fleet capacity [in the trans-Pacific] to continue carrying the same amount of cargo.”
Maersk confirmed that its own effective fleet capacity was down versus pre-pandemic due to congestion.
Vincent Clerc, executive vice president of Maersk, said on Friday’s conference call: “Our fleet has grown by 2% from 2019 but our volumes are down by 3%. It basically takes more TEUs [twenty-foot units of fleet capacity] to transport each FFE [forty-foot boxload of cargo]. That will go away when congestion goes away.”
Evolution Of The Rate Spike
“The U.S. is booming enormously,” explained Jensen. “And while you can certainly shift vessels and containers from one trade to another, you cannot shift ports from one trade to another. It also doesn’t do you any good to have plenty of trucks in another country if the trucks are needed in the U.S. The same with rail.”
On the capacity side of the equation, congestion drivers have just kept on coming — “one domino after the other” — from the anchorage situation off California to the Suez Canal blockage to the closure of the port in Yantian, China. The next threat on the horizon is the delta variant outbreak in China.
“On top of that, you’ve had every conceivable little operational mishap,” Jensen continued.
“You always have some vessel breaking down somewhere. Normally if that happens, you charter a replacement vessel or shift the cargo to another service. But now, there are no vessels left to charter and shifting the cargo to another service is out of the question. They’re already all booked. So, every tiny operational mishap adds more cargo to the pile of cargo you can’t move. And things are just getting worse.”
“Everything We See Now Is Temporary”
When congestion does eventually clear, which appears more likely to be a 2022 event, spot rates could pull back quickly from ultra-high levels if more effective capacity is injected amid unexceptional global demand growth.
“We need to bear in mind, given the extreme levels that we see on the short-term rates, that the correction towards a more normal level could be quite rapid,” said Clerc.
Jensen said, “I believe everything we see now is temporary. It’s all governed by COVID and eventually it’s going to go away. I don’t see COVID changing anything structurally. So, for me, what’s interesting is the underlying trajectory of the industry prior to the pandemic.”
That trajectory, he said, had been one of gradually improving fundamentals for carriers, better capacity management due to carrier consolidation, and stronger rates.
After congestion eases and capacity returns to the market, Jensen predicts that “freight rates will come down substantially from where they are today, but they’re not going back to anywhere near where they were pre-pandemic. They will definitely tumble compared to where they are now, but it will still represent a sizable increase compared to where they came from.”
China’s Delta Outbreak Worsens As Goldman, Bank Of America Cut Growth Forecasts
Bkmk
Because of backups, based on a fake pandemic. 99.5% survival rate. What a fricking joke!
If you add up the floods, the deaths from Covid and the floods, and general chaos created by the Chinese government over tax revenue...things aren’t working efficiently.
If the stories are true over 6,000 dead in that one tunnel...you have to think about the companies they worked for, and how the expertise was lessen in one single afternoon. Then you repeat that for literally dozens of flood situations around the country.
Are You Shipping Me?!? $32,000 Container Move From China To LA
https://finance.yahoo.com/news/shipping-32-000-container-move-143839492.html
Piracies!
I ordered a sofa in February of this year and was promised an April 1 delivery. Then it became last week of April then May, then the last week of June, then the last week of July, now the last week of August.
A relative owns a furniture store and I called to see if she knew what was going on with all of the delays. She said that the price of a shipping container rental/delivery from China went from $1800 to $22,000 and the store is probably hoping I will just cancel the item so they don’t have to actually order it and pay the shipping charges.
No big deal, but why are you still buying stuff from China?
It is supposed to be American made but apparently some components come from China.
The USA, its bankers/government/elites have spent the last 40 years squeezing, optomizing and pushing global supply chains abroad to extract every last penny of cost and debt service. China was the main target, but not completely.
Now it seems we have reached the limit.
Unfortunately that’s the way many things are these days.
Those components you are speaking of are probably so miniscule in cost that it wouldn't make a difference.
There are some really great furniture manufacturers in South Carolina. I paid a bit more for my couch but the quality tells me it will last a lot longer.
Yeah...we ordered a cheap/China-made sofa in June for the sunroom (gets lots of multi-animal abuse)...due for delIvery in July. Delivery was changed to August...now to September.
Might have to go for American-made.
I didn’t purchase a sofa made in China. The cost meant nothing to me- I bought what I wanted and didn’t even consider the price.
Because the globalist media has announced and repeated over and over that there will be inflation; hence, anyone dealing in necessities can just raise their rates to whatever they can get away with.
Same thing happened to lumber prices. They leveled out.
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