Demand vs. Supply in oversubscribed Container shipping market
Demand vs. Supply in oversubscribed Container shipping market
For past many weeks the world liner shipping is the newsmaker for its obvious reason and we see reactions and comments are flowing in, propelling to some narrative which may be entirely misleading unless we take a deep insight of the industry.
While we will try best to identify the broad ranging causes which have catapulted the beleaguered market for more than a decade, let us analyse the various developments which has surely attributed to today’s turmoil of the current Maritime shipping in general and box trade in particular.
Maritime Shipping is the backbone of world trade accounting for almost 80% of all goods carried by sea, out of which as high as 60% share is of container trade. Out of total 56,000 merchant ships that have been deployed worldwide, around 17000 ships are general cargo ships as per data available in 2020, thus the percentage share should be approx. 30%.
Over the past decade, the number of container ships in the global fleet increased from 4,966 ships in 2011 to 5,371 ships in 2020, while the carrying capacity of the global merchant fleet reached approx 11.08 billion deadweight tons in 2020 with total container handling surpassing 811.2 million teus which is expected to grow at 4.8% in 2021 as per UNCTAD forecast.
Major flow share accounts for the leading trade route as under:
Transpacific – 25 million
Asia – Europe – 23 million
Transatlantic – 7 million
Around 10% of the global market share is held by China while USA alone is the front runner with highest share of 20%. It is therefore appropriate to call them as world’s biggest consumer country.
We shall now analyse further to know what went wrong or right to turn a sagging morale of the Freight market into buoyancy in past 15-16 months.
As the Pandemic had its far-reaching impact in the Socio-economic periphery, Shipping cannot be untouched which in any case has witnessed inflation and deflation to record high & low outturn of things as the economies performed in the past.
It has witnessed several mergers and acquisitions, with some players going bust too in last decade.
For more than a decade the low performing industry of box trade, saddled by overcapacity and poor demand, suddenly could recover from 2nd half of 2020.
“Changes in consumption and shopping patterns triggered by the pandemic, including a surge in electronic commerce, as well as lockdown measures, have in fact led to increased import demand for manufactured consumer goods, a large part of which is moved in shipping containers” - the UNCTAD policy brief says.
Contrary to expectations, demand for container shipping has grown during the pandemic, bouncing back quickly from an initial slowdown in the first 2 quarters of 2020. In 2021 Maritime trade flow is further increased as some governments eased lockdowns and approved national stimulus packages, and businesses stocked up in anticipation of new waves of the pandemic.
Now let us understand what led to this unprecedented demand and supply shock for which we need to closely monitor the supply side as to why container availability and vessel space could not met customers’ expectation simply because both Ships and Containers stay time on water has ever increased, causing the disruption. This has direct link with the COVID’19 restriction and related protocols all around the globe.
Various quarantine measures adopted by different economies has also led to higher port stay or higher waiting time at anchorage points, only accumulating demands due to delayed supply.
Other issues like Port labour shortages in various Terminals and their reduced working hours have thrown the situation out of the gear. In some developed ports in the word the average ship’s working time has increased from 8 hours to 1.5 days. The yard capacities of all the transhipment hubs including Singapore have reached their saturation levels.
BBC reports analysed the story as “A dramatic slowdown in the early stages of the pandemic was followed by a frenzy of activity, as customers, unable to travel or socialise in their normal ways, ordered more consumer goods. This sudden shift in demand, from famine to feast, threw delicately balanced supply chains out of kilter”. Ports in Europe and North America became clogged with too many vessels arriving at the same time, while the supply of empty containers for new consignments dried up, because too many of them were sitting at quaysides around the world.
Further, the closure of one of the world's busiest shipping lanes, the Suez Canal, in March delayed hundreds of ships. However, when it reopened the sudden arrival of the delayed vessels triggered new congestion at European hubs such as Rotterdam and Antwerp.
The growing crisis in southern China is just the latest blow to hit the shipping industry, which has been suffering from acute disruption for more than a year. Yantian International Container Terminal is one of the many ports in the Shenzhen region, which collectively form a vital gateway for exports from the Pearl River Delta, a major Chinese centre for manufacturing and technology. Since late May, the terminal has been operating at a fraction of its normal capacity, with operations restricted due to controlling the spread of Covid. This has led to severe congestion, with dozens of ships waiting outside the port for a berth to become available. One of the biggest ports in China has nearly closed down for around three weeks.
To tackle the problem of higher turnaround time almost all the carriers in the world have started deploying more ships, so much so that the idling fleet capacity has almost come to insignificant number, thus leading to the historical high Charter demand which has appreciated by even 300 times in some category of ships. This together with higher port stay / turnaround time and high bunker cost have caused increased input cost.
When we therefore analyse the freight market, it is necessary to look at all the verticals and should not assign one particular reason for the current freight market appreciation as the issues are quite diverse and complex.
As we progress further, faster turnaround of ships, quicker devanning of laden containers by the Customer and lower pre carriage free time can improve the box availability and space matrix.
However, to match the current demand which has a backlog from 2020 and incremental traffic, the market shall keep busy till 2022.
New building can hit the market not before 2023 and mere addition of freight containers alone cannot solve the problem as a semblance between fleet capacity and freight containers. Efficient handling capacity at ports & Terminals and equally robust shore logistics, inland transportation can complement, if we want to have quick and effective control of the situation.
Collaboration amongst stakeholders to agitate the square wheels of growth can only ensure a calmer and brighter future for the industry as blames and counter blames are not going to help the case.
Ashok Janakiram
Chairman
Federation of Ship Agents Association of India (FEDSAI)