Evergreen Freed, Now What?

The logistics industry is facing an unprecedented series of challenges that a year of pandemic living and shipping have brought to cargo owners, carriers, airports and seaports and worldwide supply chains. We wanted to take a moment to span the globe and aggregate what we and our worldwide agent partners are seeing and experiencing to put into perspective how many different things are happening simultaneously.

Early this morning local time, salvors took advantage of the full moon and spring tide to finally dislodge the Ever Given from where the vessel came to rest six days ago during a heavy windstorm in an incident still under investigation. (Image credit: Suez Canal Authority)

As of this morning there were nearly 370 ships of all kinds waiting to pass through the Canal as it was towed out of the narrow strait to Bitter Lake for a technical investigation and survey to determine damage and seaworthiness.

Some carriers elected to not wait and sent vessels on the 3,800 mile, 12 day route around the Horn of Africa because even after the passage is reopened, it will take a significant amount of time to clear the backlog.

With nearly 30% of daily global container traffic and fully 12% of the world’s trade by volume passing through this narrow passage, the cascading effect on vessel schedules and equipment availability not just in Europe but worldwide will likely take a few weeks to materialize, but there will be an impact that all global buyers and sellers should be ready to face.

Meanwhile, here in Southern California, the situation is improving, but significant delays and challenges still remain. Along with the near quadrupling of rates from this time last year, Los Angeles and Long Beach continue to report month after month of record volumes.

Los Angeles was up 47% year-on-year and was the seventh consecutive month with growth. February was the port’s busiest month in its nearly 114 year history handling just shy of 800,000 TEU’s and 78 vessels. On Friday there were 21 vessels in port.

In neighboring Long Beach, the story is the same, with the port reporting just over 770,000 TEU’s in February.

In both ports, however, the number of empty boxes being loaded for export are also higher than average. This is due to the fact that because of the delays, more boxes are being terminated to be transloaded rather than being moved by rail inland. Carriers are also restricting the number of containers they are repositioning inland, hurting exporters in the Midwest and elsewhere who need containers to load with manufactured goods and agricultural shipments.

The federal government is stepping in as both the FMC and Department of Transportation are asking questions and getting involved.

While America is focused on our own vaccination goals, now delivering northwards of 3 million shots per day, Europe is laboring under a shortage of vaccines and countries like Germany are locking down again because of the uptick in infections.

Meanwhile, cargo moving to and from Mediterranean and European ports will be delayed as the vessel backlog on both sides of the Suez will need days to clear. These delays will also cause hiccups in import arrivals and outbound equipment availability for loading exports from Europe.

These delays are also causing shippers to hold export boxes at additional cost to them because of restrictions placed on container deliveries by congested terminals.

Equipment remains in short supply in this part of the world. In March of last year, the equivalent of more than 3 million TEU were in Chinese ports. China’s container manufacturing industry in 2019 also saw drops in sales and production, so as things ramped up in the second half of 2020, the number of boxes that could be produced in the region to immediately be loaded and shipped were not readily available.

As May 1st approaches and contract negotiations are underway in earnest, the largest retail shippers are accepting contract rates that, according to the Journal of Commerce (paywalled), are twice the amounts to the USWC as last year and 35 – 40% higher to the USEC.

While there is little shippers can do for cost containment, our focus for clients is to ensure their rate levels are competitive to secure both space and equipment as we approach the summer peak shipping season that will likely see continued strong volumes as the US economy strengthens, stimulus checks are spent on goods and services and e-Commerce volumes continue rise and are shipped by ocean until more passenger belly capacity returns between Asia and the United States.

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