STATE OF PLAY
So Q3 is upon us, and traditionally, this means the start of the ocean peak season. I regret to be the bringer of bad news, but conditions in the ocean freight market continue to deteriorate, particularly the case in the Asia-to-EU and Asia-to-North America trades.
Due to the global supply-chain gridlock, weekly container availability in Asia continues to shrink, while concurrently, carriers continue to announce last-minute “blank” or “void” sailings, in an effort to alleviate congestion at arrival ports throughout Europe and North America.
Today, we examine the entire supply chain, breaking down the situation in Asia, the latest in containers situation, developments across US ports, the flow on effect facing US rail network and lastly, i’ll share some recommendations on how ecommerce brands can alleviate what will inevitably be a tough second half of the year.
Buckle up, it’s going to be bumpy ride.
THE NEWS FROM ASIA
As Western economies roar back to life, a fresh wave of Covid-19 clusters in Asia—where vaccination campaigns remain in its infancy—is creating new bottlenecks in the global supply chain.
Let’s dive into the numbers first. Boxes handled by China’s eight leading gateway ports — led by Shanghai, Ningbo-Zhoushan and Shenzhen — rose 4% between May 21-31 year on year, the latest data released by the China Ports and Harbours Association shows. Among those, export and import container volume was up 3.9%.
That compares with a 13.3% and 16.8% increase, respectively, from May 11-20, and 15.8% and 24.2% during the first 10 days of the month.
The slowdown is partly a result of the situation at Shenzhen’s Yantian Port, where operations have been largely halted since the first infection case was confirmed on May 21. The congestion has spilled over to nearby Chinese hubs, including Shekou and Nansha.
When Yantian announced it wouldn’t accept new export containers in late-May because of a Covid-19 outbreak, the supposed recovery timeline was day, however, as the partial shutdown drags on, it’s further affecting back trade routes and lifting record freight prices to stratospheric heights.
June 17 2021, anchored container ships. courtesy of Bloomberg
Currently, per the latest advice from the Yantian International Container Terminal (YICT), congestion is easing, and its yard density has been decreasing. The terminal is steadily working towards resuming normal terminal operations before July. YICT has announced the following gate-in guidelines to facilitate yard operations:
From 15 June
- Gate-in of laden containers only if load vessel’s ETA is within 7 days
- Daily gate-in quota increase to 8,000 trucks, and expected to increase further • Pick-up of empty* or laden containers remain permissible, as per normal
*All empty containers will only be available for pick-up 5 days before ETD.
Trucking capacity is also limited in the South China area where drivers from high-risk areas are being quarantined for 14 days and thereafter can only enter Yantian after two negative COVID-19 tests.
However, as I write this, the recent COVID-19 spikes throughout Asia have resulted in further disruption, including heightened disinfection and quarantine measures. Currently, the average waiting time at Chinese ports is 16 days In the case of south China, many carriers such as AP Maersk, are completely omitting Yantian port calls and diverting most of its ships elsewhere in June..
Please be open to instructing factories to deliver to other south China ports, such as Shekou, Chiwan, Nansha, DaChan Bay and even Hong Kong. I believe we are no longer surprised by how plans can be flipped in the blink of an eye, but this is yet another thorn in planning amidst pandemic times.
THE LATEST WITH US PORTS & RAIL
There was a brief glimpse of hope that the container pressures at LA, Long Bay & Oakland would improve in Q3. Yet by mid June, the vessels-at-anchor situation at west coast ports are worsening, with over 500,000 containers still floating idle on the west coast.
Interestingly, May was the busiest month in the 114-year history of the Port of L.A., moving a total of 1,012,248 TEUs, up 74% from May 2020. Historically, this marks the first time a port in the Western Hemisphere ever processed more than 1 million TEUs in a single month.
Whilst that is good news, what we are seeing is the procession of that roadblock further down the supply chain. At Port of Long Beach, terminal operators have begun using the Pier S’ overflow facility to provide temporary storage for rail containers that would otherwise be stuck inside heavily congested marine terminals.
The reason? the US rail networks are finite and can only handle 20% of the container volume. This means even if containers clear the port and customs, they are still gridlocked idle at the west coast terminals, simply unable to move. Due to a severe shortage of intermodal railcar allocations, containers that move by rail to western and eastern halves of United States are sitting at marine terminals for more than 11 days. This is 3x the 3.65-day average dwell times for containers destined for local delivery, according to the Pacific Merchant Shipping Association.
Congress has taken proactive steps towards addressing port congestions & US export challenges with US maritime regulators and a group representing container lines, longshore labor, exporters, and the Port of Los Angeles to mitigate container shortages and delays affecting US containers and shippers. However, the flow on effect of implementing takeaways from these talks is still
CONTAINERS, WHERE ART THOU?
Stateside, with so many distribution centers bursting at the seams and lacking the space to off-load incoming containers, containers are being used for storage, and as a result, more containers are sitting idle in the USA.
Carrier side, because the terminals are completely overrun with incoming containers, carriers are now requiring appointments to return empties back to the terminals for USA exports, So, despite the need for empties in Asia, the carriers are actually limiting how many empties they can take into U.S. terminals for export back to Asia. Carriers are cancelling more and more transpacific east bound services. Simply, they are “calling a time out” in an effort to ease the relentless influx of containers into U.S. ports, especially on the west coast. So, even if containers become available in Asia, a sailing may be cancelled.
It will only get worse into the summer months as peak shipping season will start early, as traditional “peak season” goods are loading out of Asia earlier, in order to off-set increased transit times. One might question whether the Q4 2021 preparations should have started much earlier.
- Remain flexible to allow for just about any booking/routing option.
- Given the disparity between supply and demand, it is now widely accepted that “FAK+Premium” is probably the only option right now.
- As Q3 transitions to Q4, there is a high possibility that an additional amount ON TOP OF FAK+Premium will be charged. The bottom line is this: importers are asked to be flexible on the rates in order to have access to more carrier options.
- Any size containers should be considered….even Non-Operating Reefer containers should be acceptable.
- Most ocean carriers’ posted sailing schedules are now completely out of alignment and should not be relied upon. It is recommended to check sailing details within 3 days of scheduled departure.
- Consider Air Freight for extremely urgent shipments that cannot afford delays of an additional 30+ transit days
Flexibility On Final Destination
- Start considering and planning on alternative routing/carrier service. Whilst US West Coast & US East Coast have been the standard go to destinations, now is a time to factor in Canada east coast & even US Gulf Coast (Houston, Mobile, New Orleans). This is not just a safety net for Q4 2021, but most likely a more flexible last mile solution for 2022.
- Focus on PORT-to-PORT. Carriers are now restricting/reducing IPI cargo to improve their container turnaround time. As such, customers will have a better chance of getting space by booking up to base ports and then separately arranging trucking/transload to final destinations in the USA. – what does this mean?
Start Planning From The Manufacturer
- Consider other possible origin port options for cargo originating in factories in inland China. Open as many chances to outbound your inventory.
- The recent COVID-19 spikes throughout Asia have resulted in further disruption, including heightened disinfection and quarantine measures. In the case of south China, many carriers are completely omitting Yantian port calls. Please be open to instructing factories to deliver to other south China ports, such as Shekou, Chiwan, Nansha, DaChan Bay and even Hong Kong.
- Consider flexibility to split large volume purchase orders among multiple carriers or split over 2- 3 weeks’ sailings. This is especially crucial when a single P.O. requires multiple containers.