The Freightos Baltic Global Container Index (FBX) climbed 9 percent in November to a rate of $2,442 per 40-foot container or equivalent unit (FEU), an 89 percent increase annually, driven by an extended peak season and a container shortage that is driving rates up on Asia-Europe and Asia-Mediterranean lanes, Judah Levine, research lead at Freightos, said.
Drewry’s World Composite Index (WCI) increased 0.5 percent, or $16, to stand at $3,451.32 per FEU for the week ended Dec. 10, which was 127.8 percent higher than the same period in 2019. For year to date, the WCI was $2,044 per FEU, which is $530 higher than the five-year average of $1,514 per FEU.
Reasons for high rates
“Demand is still surging on China-U.S. lanes, but rates nonetheless stayed level (for November), likely due to pressure from Chinese regulators on carriers to keep already steep prices from climbing,” Levine said. “As peak season normally fades in November, this year’s extended peak has China to U.S. West Coast rates of $3,870 per FEU at 191 percent of last year’s price and East Coast rates at $4,900, nearly double a year ago.”
Freightos said the transpacific demand is leading to congestion and delays in U.S. ports, declining reliability, and a shortage of empty containers in Asian origin ports and elsewhere.
Levine said in his analysis that as restocking and the shift from spending on services to goods are responsible for a significant amount of the demand on both lanes, most observers expect volumes, as well as the shortages, disruptions and elevated rates, to persist into the new year and possibly up to Chinese New Year in February.
“But, of course, this year much remains uncertain, as the recent pandemic surge may impact consumer spending and the expected distribution of vaccines could impact trade, as well,” he said.
Freightos noted that on the demand side, the key driver right now is the large growth in demand, with the transpacific “clearly taking the lead, with growth rates now in excess of 20 percent year-on-year.” The reason for this sudden and sharp growth is to be found in the impact of the pandemic.
“People across the world find themselves in a situation where they cannot spend as much money on a variety of services such as traveling, restaurants and parties as they normally do,” Lars Jensen, CEO of SeaIntelligence Consulting, said in the Frieghtos analysis. “Instead, they are forced by circumstances to spend more time at home, which leads to a shift in spending over into goods, especially bought online. With the hope of a vaccine growing stronger, we are likely to see a reversal back into services, but this might be a more slow and gradual transition unfolding over the full course of 2021 and in any case not an element the carriers can control.”
On the capacity side, the problem is the presence of several bottlenecks, he noted. With a decade of vessel overcapacity, when demand grew sharply, there was excess capacity that could be deployed. However, there are now no idle vessels left, so increasing capacity went from having a timescale measured in weeks to now a timescale measured in years, as it would require new ships being built.
Turning the corner
“As the demand peak is likely temporary, this solution will not help the problem,” Jensen said. “Then there is an even more acute capacity problem presently–the lack of empty containers in key locations. There is even anecdotal evidence in the market pointing to the departure of vessels which were not full simply because there were not enough empty containers available to load the goods into. This problem is solvable on a timeframe measured within a couple of months. The solution is a combination of faster return of empties, especially from Europe and North America, in combination with container factories in China right now working flat out in producing additional containers.”
Another issue is the capacity in ports and terminals. The surge in demand and the rapid increase in vessel arrivals strains the capacity of how many containers can be handled within the port and how many ships can be at berth and be serviced. Additionally, the demand boom leads to larger vessels arriving with more cargo than originally planned, meaning longer time spent at berth.
“Expanding port capacity is at best a process measured in a few years,” he said. “In some locations as much as a decade for major expansion projects.”
As far as how long the current bull market can persist, Jensen said if the demand abates, the problem gets resolved almost immediately. However, the carriers will likely show their resolve and yet again reduce vessel capacity matching the decline, “which means that the very high spot rates now will come down somewhat and the new surcharges for equipment availability will disappear. But rates are unlikely to collapse.”
If demand continues, the acute problem with the equipment is likely to be resolved within a couple of months, setting an end of the current situation to coincide with the lull after Chinese New Year.