Shipping congestion and stretched carrier capacity are the most pressing issues the global freight & logistics sector is facing today. With the COVID-19 pandemic, international container shortages, union strikes, inadequate port infrastructure, mega-vessels and increased maritime incidents dominating the shipping landscape, it’s clear the industry is in crisis mode.
Below, we’ll look at how the shipping industry has fared since the beginning of the pandemic and explore in detail the impacts of port congestion on the sector. We’ll also look at potential solutions that importers, exporters and ports could consider to address these impacts while remaining profitable.
The content for this article is based on a recent webinar hosted by Project44 featuring Rachel Premack, Senior Investigations Reporter at Business Insider, Michael J Gordon, senior advisor at the U.S. Federal Maritime Commission (retd), and Hariesh Manaadiar, Founder of Shipping & Freight Resource.
- Overview of the shipping industry (2020-2021)
- Shipping congestion: the ultimate impact of COVID-19
- Container shortage – is it really a ‘shortage’?
- The future of shipping: what to expect?
- Will shipping ease up soon?
Overview of the shipping industry (2020-2021)
Just before COVID-19 hit the shores of Australia, we detailed our projections of the impact of the pandemic. But nobody expected what eventuated. Prior to COVID, most players in the industry expected an impact similar to what occurred during the SARS pandemic. SARS was largely contained in China, and many thought COVID would be the same.
But SARS, as we all know, did not have an impact like that of COVID-19. Nobody had any time to react. As country after country, business after business, began to shut down from March 2020, ocean carriers cancelled voyages and rapidly withdrew their capacity. Blank sailings from Asia to Australia, Europe, and the United States skyrocketed. Many ships withdrew from service, drydocking or attending special surveys while demand dropped exponentially.
But soon after this happened, an immediate boom in demand for goods transpired. From June to August 2020, we saw sharp increases in demand for imports leading to a significant rise in container demand at origin ports. Many terminals simply lacked the infrastructure and equipment necessary to meet this unexpected ‘demand shock’ whilst operating through full or partial lockdowns as a result of COVID-19. The situation was made even worse in September locally, when we experienced union strikes in ports across the country.
The effects of the pandemic led to a container imbalance in October, as empty container parks in import countries found themselves at complete capacity. Demand for goods “outstripped” container availability, causing a trade imbalance that is ongoing and increasing problematic. As containers are collected for repositioning, import volume continues to grow – and the cycle continues.
Meanwhile, across 2020 and the first half of 2021, increased congestion contributed to more maritime incidents than usual. We saw the Ever Given, the largest container ship in the world, run aground at the Suez Canal in March 2021. The ONE Apus experienced bad weather leading to 1,816 containers falling overboard in November 2020 and over 50 containers fell overboard on the APL England in May 2020, with the Australian Maritime Safety Authority (AMSA) alleging that inadequate cargo loading was an underlying factor.
More recently in Australia, the situation has intensified:
- MSC and CMA Ex Europe announced in June that they would not accept bookings into Australia until further notice.
- In July, the growing number of COVID-19 outbreaks in NSW led the government to slash the number of airplane passengers allowed into Australia from 6,000 to 3,000.
- Overseas, we’ve seen another COVID outbreak in Southern China. Resulting in operations being paused and contributing to increasing congestion (with OOCL, COSCO and CMA cancelling more than 20 vessels).
These events have all one thing in common: they have either contributed to or have been caused by (or both) shipping congestion to a level we’ve never seen before.
Shipping congestion: the ultimate impact of COVID-19
Whilst there have been numerous major effects of the pandemic on shipping, the events over the past year resulted in an unprecedented amount of congestion. This is now arguably the most critical issue facing the logistics industry this coming decade.
According to recent IHS Markit data, international container terminal congestion rose by 20% in the second half of 2020, year on year. Vessels needing to load and unload over 6,000 containers per visit spent approximately 83 hours on average at major seaports during that period, a 20% rise from the previous year.
In 2021, analysts at Sea Intelligence looked closely at the effects of port congestion on different shipping schedules. They found:
- 695 vessel arrivals were over a week late in January to May 2021 on the Asia to North America West Coast route (343 of which were over 14 days late and 132 of which were over 21 days late).
- 461 vessel arrivals were over a week late in January to May 2021 on the Asia-North Europe route (134 of which were over 14 days late and 30 more than 21 days late).
- 134 vessels were late on the Asia-Oceania route in just May 2021 alone.
The impact of the Suez Canal blockage only exacerbated the problem. Project44 reported that the blockage led to a delay amounting to 1,072 days. German carrier Hamburg Süd reported their own delays of up to 59 days. These delays are inevitably going to congest ports all around the world. Lars Jensen, chief executive of Sea Intelligence Consulting, argued that cargo could flood European ports “like ketchup out of a bottle”.
The lack of equipment and infrastructure suffered by ports across the world, unable to deal with the influx of vessels, has also contributed to the problem. A 2020 Maritime Transport Infrastructure Discussion Paper published by Engineers Australia found that increases in the size of container vessels is putting “greater stress on current [port] infrastructure“. These massive vessels require “expensive upgrades to berthing and mooring infrastructure on wharves and shipping navigation channels”. It also requires “dredging and dredged material relocation sites … to provide deeper and wider shipping channels and vessel turning basins”. Without such expensive infrastructure upgrades, ports will continue to face problems of port congestion.
Chittagong Port in Bangladesh is a striking example. While throughput in that port has risen exponentially over the past few years, the port authority did not invest in continuing expansion projects to meet the increased demand. Inadequate infrastructure at that port has caused severe congestion, a problem only exacerbated with damage suffered to two of its gantry cranes in June.
Michael J. Gordon, former Senior FMC advisor, argued that signs of the congestion were there before the pandemic. Maersk had rolled out their fleet of Triple E-class container ships, with a capacity in the range of mid-15,000 TEU. Other carriers followed suit, ordering their vessels of equal size (ships like COSCO’s CSCL Globe and more recently CMA CGM’s Jacques Saade). Many of these ships were already too large for some of the world’s ports. This was at least the case for the United States. In early 2019, before the pandemic entered our lives, severe gridlock was already present at U.S. ports such as Los Angeles-Long Beach.
These problems are not going away any time soon. In July 2021, terminals at Los Angeles and Long Beach warned of massive congestion even before peak season. They reported “vessel bunching, chassis shortages, and excessive container dwell times”. Closer to home, Shane Walden, Managing Director of CMA CGM subsidiary ANL Container Line, stated that ongoing port congestion in Sydney is also continuing to create expensive delays for carriers.
The key factor driving modern congestion problems may, ultimately be the consumer. According to Mr Manaadiar, U.S. consumers were the key factor behind the congestion problem at American ports. With local stores closed, and the rise of e-commerce, consumers have purchased their goods online in droves. Amazon’s e-commerce revenue alone grew 47% year over year in Q2 2020, totalling approximately $70.11 billion (up from $68.34 billion in Q4 2019). It may very well be that consumerism is the predominant factor underlying congestion – when people buy things online, they want their goods yesterday.
Container shortage – is it really a ‘shortage’?
The massive amount of port congestion has been coupled with a so-called ‘container shortage’. Lockdowns throughout the world in 2020 meant carriers were forced to reduce the number of their vessels going out, stopping the flow of goods but also the collection of empty containers. The massive increase in demand for goods added to the problem, as carriers were unable to secure the right number of containers to meet the change in demand.
This resulted in a massive build-up of empty container parks across the world. Containers are moving into parks where there is already a surplus. Mr Manaadiar, founder of Shipping and Freight Resource, noted Port Yantian as an example, which continues to suffer from a massive container backlog. Ports in Australia are experiencing similar woes, with a build-up of over 50,000 empty containers. It has come to the point now where our second largest export is the empty container.
However, Mr Manaadiar argued in the webinar that, actually, there is no container shortage. We have enough containers to service the global supply chain – it’s just that they’re in the wrong places (i.e. in places where these containers are not actually needed). The impact of the pandemic effectively led to containers being abandoned, while the locations that need them struggling to retrieve them.
The future of shipping: what to expect?
Delays are becoming the norm for most shipments; with freight rates skyrocketing and maritime incidents stemming from poor stowage on the rise. Project44 estimated that only 8% of shippers had actually found solutions to the shipping crisis. So where do we go from here? Are we doomed to suffer endless delays and container shortages, exacerbated by port congestion and ships running aground?
As Mr Manaadiar argued, if ships are running into congestion issues in one port, the solution is not always sailing to another port. This is especially the case for mega-vessels. Ports simply do not have the infrastructure to meet the demands required of some large container vessels.
Below are some potential solutions discussed in the webinar to alleviating these congestion issues.
Moving away from ‘Just in Time’ shipping
Many businesses that trade internationally rely on an inventory system known as “Just-in-Time” shipping. It is premised on ordering and receiving inventory on an “as needs” basis, keeping warehouse overheads low as inventory constantly moves in and out. These minimal costs improve a shipper’s bottom line, making their supply chain ultimately much more cost-effective.
But Just-in-Time has been accused of contributing to the ongoing congestion crisis. Singapore’s Minister for Transport, Chee Hong Tat, emphasised the need to urgently address supply chain disruption caused by congestion, questioning the model of “just-in-time” and suggesting businesses adopt alternatives.
Mr Gordon flagged the idea of “Just-in-Case” as a potential alternative. Just-in-Case is essentially the opposite of Just-in-Time, where businesses keep large amounts of inventory on hand “just in case” they need them. This minimises the risk of their products running out of stock but also could possibly reduce the consistent level of demand for their goods.
Mr Manaadiar, however, stated that Just-in-Time is not going anywhere. It is instead being supplemented by a range of alternatives such as ‘Just in Sequence’, a development of Just-in-Time whereby materials are delivered in quantity and type in sequence at the time required for production. He also suggested that shippers could start sourcing their goods closer to home – relying on rail and road transport as opposed to sea freight. But ultimately the increased costs of this could fall on the consumer.
It was also suggested that the use of foldable (or ‘collapsible’) containers could help alleviate some of the congestion. These are literally containers that ‘fold’, freeing up space at the terminal and creating more space on vessels. An example is HCI’s “4FOLD” containers which, once folded flat, can fit four containers in a space that would otherwise be occupied by one normal container.
But, as was also stated by Mr Gordon and Mr Manaadiar, it will ultimately be a question of cost to a shippers’ bottom line. It will also depend on what type of cargos these containers can carry. Staxxon, who came up with another foldable container design, estimated that they would cost approximately 30% more than traditional containers.
Using landside to the port’s advantage
Ultimately, the solution to modern maritime congestion will also depend on the improvement of existing port infrastructure. It was suggested in the webinar that better use of landside would assist to achieve reduced congestion. The Australian Competition and Consumer Commission stated in their 2019-20 Container Stevedoring Monitoring Report that:
“Landside efficiency refers to the performance of the container terminal in providing for trucks and trains to pick up or drop off containers. Lack of adequate facilities can result in delays and ultimately the overall capacity of the port.”
Ports therefore could and should look at their surrounding areas for opportunities to increase their capacity. Increasing truck and rail access is a must. Australian ports have already shown their commitment to increasing rail access. NSW Ports announced plans to expand Port Botany’s rail capacity to 3 million TEU while the Port of Melbourne has committed to the Port Rail Transformation Project (PRTP), seeking to transport more freight via railway.
Mr Gordon suggested that we could more effectively use internal waterways and barges to supplement rail and truck traffic. He referred to the Port of Shanghai as a possible ‘blueprint’, which relies on using barges to supplement landside traffic. He suggested a similar model could be adopted in the San Francisco Bay Area. “You have the Port of Oakland, and then you have Stockton and Sacramento 90 miles away, and you’re just taking everything by truck when you could be putting them on barges”, he said.
The Biden administration recently announced $2.3 trillion in infrastructure spending, including $17 billion for inland waterways, ferries coastal ports and land entry ports. This might see some progress in the years to come.
Can a better alternative be found?
Although not discussed in the webinar, we believe that shippers with limited amounts of flexibility should consider either:
- The use of air freight if your budget can allow for this; or
- Using a mixture of the two through adopting an air-sea solution (a good option for shippers on a tight budget but have cargo needing urgent delivery).
Although air freight rates are expensive, we are seeing ocean schedules suffering from very low reliability, with delays now becoming the norm. Cargo transported by air, however, tends to travel much faster. Unfortunately, the air freight industry has also suffered as a result of COVID-19 and there are limited services putting pressure on pricing and we are still seeing delays.
As we move into shipping peak season, we recommend that shippers plan at least four weeks in advance if they decide to transport by sea. Importers and exporters should study the advantages of air freight over sea freight, and conclude which option would be more effective for their supply chain.
Will shipping ease up soon?
A lot of us in the industry are asking: is it all bad news? The outlook may seem particularly bleak for regular importers and exporters navigating these challenges.
We predict that we will not see any normality returning to this market until there is a major economic shift, a reduction in consumer spending, the success of the vaccine rollout and the free flow of airfreight worldwide. This could be for another 24 months. Mr Gordon advised to have patience, and that all we can do now is play the waiting game.
The next shipping crisis, Mr Manaadiar flagged, was the case of containers going overboard. He said:
“The next shipping crisis could be the continuance of containers falling off the ships because quite a lot of that has happened in the past year. One ship alone had around 1,900 containers that fell off. There’s a widespread concern that it is because of these big ships, the stability and the stowage has not been really tested under full circumstances because it is impossible to test it with so many containers.”
Indeed, it was reported in Bloomberg that the industry is seeing the largest spike in lost containers in seven years, with over 3,000 boxes falling overboard in 2020 and Since December 2020, five major incidents have occurred resulting in over 5,000 containers lost.
Use a professional freight forwarder to navigate the waters
Working with an experienced freight forwarder can help you best position yourself to overcome port congestion and the various obstacles facing international shipping today.
We can work with you to place bookings in advance, negotiate lean rates for your shipping and figure out the best logistics strategy possible to get your goods where they need to go.
We also have combined air/sea services available for those who have urgent cargo but are operating on a tight budget.
Get in touch with our team today at International Cargo Express, or leave a comment below, to discuss your next shipment.