The term ‘unprecedented’ has never been so overused than right now, and that’s no exception for the global freight industry.
It’s the reason why all your lockdown-fueled online purchases are taking longer than usual to arrive, and why over here at McHugh & Eastwood we’re working hard to keep your shipments sticking to schedule.
If you’ve been keeping up with the latest shipping news then you’d know that the pandemic has heavily impacted all global supply chains…
This includes port delays and a global container imbalance which has resulted in crazy costs for shipping rates, with all major shipping lines implementing General Rate Increases (GRI) fortnightly to all Southbound services.
Unfortunately for us, we’ve been hit hard by the current situation.
But why did this all happen?
Let’s go back to a pre-COVID world…
Before the pandemic, shipping lines weren’t great investments – many large carriers reported millions of dollars in loss. To prevent further losses, skint shippers and pure tonnage providers – companies that lease ships to the shipping lines – didn’t order new ship builds, which meant that there weren’t a lot of ships.
When the pandemic first hit, this wasn’t a major problem – COVID had shut down economies and idled ship fleets. But then large stimulus packages from countries started rolling in, which resulted in increased spending, that meant one thing for the: more demand. As people started spending, trade lanes started reopening with a shortage of vessels.
In the US alone, demand for containerised goods has risen as much as 40%. This is largely due to our change in spending – we moved away from spending on things like eating out and travelling, using our new-found excess income on things to make living at home more bearable – like treadmills or oversized wearable blankets. Interestingly, European demand rose by only 3% – but the impact from the US has seen the trade lane cost of Asia to Europe soar.
So now with the increase in demand, coupled by blockages from Yantian port, the Evergiven crisis and Ningbo port, there’s a lot of demand, but not a lot of ships. New-build ship orders are coming in at record levels which could see capacity increase 5-6% in 2023.
Why is Australia affected?
Container rates run hot on the world’s most popular trade lanes. Ships which previously ran the routes from Shanghai to Africa, Australia, New Zealand and South America are being placed on more ‘favourable’ routes, as they are far more profitable for the shippers.
Why’s this? Well, let’s say an exporter in China could receive $8,000 from sending their 40-foot container to Australia, or $25,000 to send the same container to Los Angeles – unsurprisingly, Australia’s being ditched for the more profitable route.
This route cost imbalance also means that shippers are ferrying more air than ever – as prices are biased, the number one priority is getting empty containers back to Yantian or another Chinese port. Currently Australia is dealing with labour shortages and industrial action between wharfies and port terminal operators, which means that getting containers back to China takes longer than other countries.
So to summarise:
- Not enough ships to keep up with global trade demand
- Increase in demand means increase in trade lane cost
- Exporters are favouring more profitable trade lanes
Unfortunately, it looks like these current states are here to stay – at least for now. Any easing in supply-demand crunch isn’t predicted until later 2022.