The logistical backbone of global trade – the shipping industry – is crying out for help
One of the earliest aspects of the coronavirus pandemic was the mass-breakdown of supply chains and the ensuing pressure on entire logistical frameworks, causing supply shocks and disrupting international trade on a massive level. Over the course of the last few months, although many of these problems have been addressed, major fault lines still remain in global supply chains – especially in the container shipping industry, considered the backbone of global trade.
The Perfect Storm?
Copenhagen-based Danish logistics firm, Maersk Line, has been the largest integrated shipping company in the world since 1996, active both in inland and ocean freight transportation as well as associated services such as port operation and supply chain management.
According to its chief planner of services, Lars Jensen, the container shipping industry has now been caught in the eye of a ‘perfect storm’ – caused by the reduced capacity of logistics systems and continuously rising demand. Additional pressures caused by staff illnesses, social distancing and quarantine measures and disruption to factory output owing to lockdowns has only led to the exacerbation of existing problems.
Jensen opines that terminal congestion and a shortage of able drivers have been central to the problem’s exacerbation; “particularly out of Asia, (where) we see a part of that is linked also to the fact that a lot of companies are restocking”. This has led to a widespread loss in productivity, which, in turn, has caused an even greater delay in ships, thereby aggravating the vicious cycle.
In the United States, Long Island and Long Beach are the two busiest container ports. Its monitoring authority, the Marine Exchange of Southern California, recently reported “17 container ships at anchor waiting for berths. Another four vessels were due to arrive later that day, while only three were due to move into the port.” It is particularly alarming, because this comes at a time when the ports have already recorded nearly a 33% rise in container volume from October last year, with current estimates suggesting over half a million containers in import volume. The only viable response to this has been order cancellation and the diverting away of vehicles.
Higher Demand, Higher Pressure, Higher Rates
Singapore, the world’s second-largest container hub, reported that its rollover ratio had reached 31% in October 2020 – almost 10-percentage points over the 21% recorded in October 2019. This means, that almost one-third of the cargo arriving at the port is being ‘rolled over’ to being shipped on a different vessel than what was intended. These are clear signs of high-pressure environments unequipped to cope with the (unnaturally) high demand for logistical requirements.
According to Rolf Habben Jansen, chief executive at Hapag-Lloyd, another of the world’s largest container shipping companies: “The entire supply chain is under pressure; the market situation is extraordinary.”
The pandemic has forced a rather sticky situation on the port’s employees: if a greater number of workers are being recommended isolation, the lack of workers almost immediately forces log-jamming in the port’s quays rendering even the most industrious port authority helpless. According to Jansen, “we’ve had examples where, in a port, 600 port workers were put into quarantine…. [Even] if that port was on top of its game, then within a week you have 10 vessels struggling to get alongside [the terminal’s quays].”
As a response to this, several other major global shipping lines such as CMA-CGM (the world’s fourth-largest), have stopped accepting new orders until the last week of December, hoping to ease off the pressure from its ports by January 2021. However, deferring orders may just lead to compounding the problem, leading to even higher freight rates eventually.
The high-demand scenario that we see today is a result of pressures being forced on the line since the very start of the pandemic. In order to cope with the rebounding of demand after the major contraction noted in the first half of the year, several firms, such as German-based Hapag-Lloyd, have boosted capacity by almost a quarter of a million containers. This increased investment, coupled with the major e-commerce boom noted in the pandemic, has resulted (in many cases) in the doubling of rates required to move containers. According to the Financial Times, “rates from Asia to the US west coast, in particular, have rocketed in recent months, and are now at record highs.”