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Cargo Congestion Infecting East Coast Ports, Drewry Warns

The ocean cargo supply chain, including historically high freight rates, isn’t likely to see a return to normal until next year, Simon Heaney, senior manager for container research at maritime consultancy Drewry, said Tuesday in forecast webinar.

“Ultimately carriers’ ability to charge customers extremely high freight rates is going to be dictated by the longevity of the liner supply chain bottlenecks,” Heaney said. “Unfortunately, those still certainly remain highly unpredictable. That’s going to mean at least another 12 months of lengthy delays and high freight rates, but we do expect to see some gradual improvements beforehand.”

Drewry’s forecast calls for average global spot and contact freight rates to rise another 39 percent in 2022 after a 110 percent increase in 2021. Drewry’s composite World Container Index (WCI) decreased 0.9 percent to $7,874.43 per 40-foot container or equivalent unit (FEU) for the week ended April 21, but was 60.3 percent higher than a year earlier. The year-to-date WCI was $8,965 per FEU, $5,708 higher than the five-year average of $3,257.

Heaney detailed how global port handling increased an estimated 6.5 percent in 2021. For 2022, Drewry has now downgraded its guidance to an increase in demand of 4.1 percent from 4.6 percent. Its outlook for 2023 global container shipping demand fell to 2.8 percent from 3.5 percent.

“Over the past two years, the dominant drivers of freight rates and carrier profits have been system inefficiencies, disruptions and port congestion,” he said. “We now estimate that effective container ship capacity was around 17 percent below its potential in 2021 and similar is expected in 2022.”

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Regarding port congestion, Heaney said ship tracking data backs up what the industry has said, showing significantly more “waiting events outside high-volume ports” during 2021 and 2022 to date.

“The problem is now spreading to medium- to low-volume ports, too,” he said. “There is also a big movement of ships and congestion to East Coast ports, as well.”

Heaney said container lines face mounting headwinds. Topping the downside risks is the Russia-Ukraine war, which has put a drag on economic growth and container demand. However, it could expedite supply chain recovery, leading to lower freight rates and carrier profits.

In addition, geopolitics and Covid-related risks are combining to dampen consumer and business confidence, while fast-rising inflation, to some extent driven by supply chain issues, will reduce consumption, according to Drewry’s outlook. In conjunction to these issues are increased fuel costs.

China’s zero-Covid policy could either worsen container logjams by reducing logistics capacity or reduce manufacturing production and subsequently container shipments,” Heaney said. “The former could act as inflationary for freight rates, the latter deflationary.”

“What’s going to happen to freight rates in the short term really depends on how long the situation in China lasts and also what the economic impact is of the Russia-Ukraine war,” he added.

The only aspect of the industry that has benefitted from the turmoil has been carrier profitability. Drewry estimates that carrier earnings before interest and taxes (EBIT) reached $214 billion in 2021. Drewry’s forecast is that more disruption-driven freight rates should more than compensate for rising costs and deliver as high as $300 billion in EBIT profit this year.