Covid, the Suez accident and the weather: the trinity that changed more than just international shipping
Major ports in China reported a decline in container throughput for the January-November period last year compared to the same period in 2020, but the reason was not lower demand. The real cause is a combination of negative factors that have piled up over the past two years and caused huge problems in transport around the world, with implications far beyond logistics. Imported goods are unavailable, significantly more expensive and the prospects for improvement are still uncertain.
According to David Knobloch, international transport expert at Geis CZ AIR+SEA s.r.o., it all started at the beginning of 2020: "The first major problems started to appear after the Chinese holidays in 2020, when businesses were closed, production and airports were halted. Ports were operating very limited due to a lack of labour. When production subsequently restarted, lockdowns began in the US and Europe."
While there was an unprecedental recovery in demand during July 2020, shippers were still cutting back on capacity. There was a shortage of staff and additional spare capacity. It was not possible to ensure the timely return of unloaded containers to ports and the acceptance of those newly arrived. Problems with missing containers also began and continue to this day in some regions.
When the Suez Canal was reopened after it was blocked in March 2021, European ports also began to experience problems with unusually irregular landings and extremely congested terminals. Shortly after this event, the capacity of the port of Yantian in Shenzhen, China, was reduced for a month due to the spread of the coronavirus. As a result, huge traffic jams appeared, with up to 40 container ships at anchor outside the port. Shippers began to use nearby ports and shipping times were extended.
Adverse weather was another factor causing the escalation of problems. Due to typhoons in China, some port terminals were closed for several days. There were complications in Germany, for example, due to flooding. But as David Knobloch, managing director of Geis CZ Air + Sea, says: "The fundamental cause of the transport crisis, however, remains the covid and hand in hand with it the introduction of zero tolerance in China, which significantly affects staff capacity." He adds: "The situation is spilling over to inland train terminals in some cities. Drivers are escorted to the unloading point by a police escort and are not allowed to get out of the car at all. They cannot pick up import containers at the terminals and deliver them to the unloading points. Containers destined for export are not allowed to enter the port and, if they do, must remain in quarantine for 14 days. This increases the pressure on nearby alternative ports.“
Nearly 400 container ships are at sea around the world in front of ports that cannot handle individual containers.
Operational traffic management is under considerable pressure - information changes from day to day and it is not easy to coordinate everything so that people get the first-class service they are used to. The whole transport chain is significantly disrupted and delivery of goods is delayed by weeks. David Knobloch explains how Geis tries to meet the needs of its customers despite these major complications: “However, we are quite unique in shipping from China to Europe directly by truck. This option is faster compared to sea and rail and significantly cheaper compared to air."
The level of ocean freight rates is as a result of above problems at a very high level. Unfortunately, it cannot now be expected to fall, or at least come close to its pre-covid level.
A major downward break in rates could occur in the second quarter of 2022, depending on demand. Shippers could see a small straightening of the reliability of individual services and ports could start to clear the backlog of containers. This is all assuming, of course, that China relaxes its zero-tolerance covid strategy, which applies strict anti-epidemic measures.
A truly positive scenario, however, can only be expected in 2023, when more new large-capacity ships will be arriving in the various services, and especially the ports could be cleared of the container backlog by then.
However, David Knobloch does not forget another aspect of the potential problems: „It will be interesting to see the strategy of the brokers themselves, who are still enjoying the highest rates ever and will certainly do their best to maintain this exceptional period as long as possible. They have already revised their expected profits several times and are getting to incredible numbers. In fact, thanks to the high rates, they have doubled what they earned during the first three quarters of 2021 from 2010-2020."
The final consumer have started to feel the effects of these problems as early as the end of 2021, or will feel them fully in the first half of this year. Inevitably, imported goods will become significantly more expensive. Traders who have not yet adjusted prices in 2021 will already start to pass on the increased costs fully to their goods.
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