Jumping sea freight may recur with ongoing port congestion

The trading price of Trans-Pacific route and European route sustained high now. As factories in China successively restarted operation after the Lunar New Year’s holiday (Jan 31-Feb 6), sea freight is anticipated to shiver at high level. Many insiders of marine industry thought the shipment is expected to surge again in Asia after the Lantern Festival (Feb 15). That means a new challenge will start.

Some forwarders were active in snatching containers in order to get the customer's goods on board as soon as possible, while cargo volume was far bigger than anticipated. Therefore, the port congestion in North America improved slowly and remained severe.

European route

The spread of pandemic remained austere in Europe. Demand for various materials including pandemic prevention materials kept high and the port congestion was still serious. The average utilization rate of seats from Shanghai port to basic ports of Europe was still near 100%, so did that on the Mediterranean route.

North America route

The spread of pandemic sustained serious in US amid the spread of Omicron variant and the daily new infections remained high, with total infections near 80 million. Demand for various goods sustained high. The stagnated of containers and the congestion at ports caused by the pandemic kept. The average utilization rate of seats in W/C America Service and E/C America Service was still near 100% at Shanghai port.

According to the data from Signal from the Los Angeles port, as of the 11th, there were 40 ships waiting in line, of which 38 were wandering 150 nautical miles from the port waiting for berths. The average waiting time for berths increased to 18.8 days after several weeks of decline.

According to the forecast data, the cargo volume started increasing and rebounded from the 8th week after declined for 2 weeks amid the Spring Festival holiday.

However, in the next two months, negotiations on the contract for dock workers at West American ports will begin. By convention, if the negotiations do not go well, it may lead to a slow down or even a strike, and shippers restocked ahead of time, which will further push up the demand for transport capacity in the first quarter and support high freight rates. Therefore, high freight rates are expected to remain high until at least the second or third quarter.

How difficult is it to relieve the pressure of port congestion?

It is worth noting that on February 1, 2021, there were 40 container ships waiting for berths in the ports of Los Angeles and long Beach. A year later, in early-Feb, 2022, there were 101 ships waiting for berth. Last year, the queue fell by 30 between the beginning of February and the third week of June, after which seasonal imports mercilessly pushed the queue up to the end of the year holiday.

In order to reach the same figure as the starting point before the peak season in late-Jun by 2022, the number of ship queues must be reduced by three times as fast as last year over the next 15 weeks. However, given large backlog, the spread of pandemic and instable, the prospect of clearing queues by 2023 looks increasingly unrealistic.

"It will take several years to restore the stability of the supply chain before the outbreak of COVID-19 pandemic," said Josh Brazil of the Project44.

Will the peak season of summer come early?

Gene Seroka, executive director of the Port of Los Angeles, said on Feb. 9 that the demand peak of this summer may come earlier than usual. "Most retailers said they would replenish inventory in the second quarter of 2022 to make inventory safer, giving them a chance to enter an earlier-than-normal peak season in early Jun or early-Jul." He said.

However, this outlook also depends on a big unknown whether US consumer demand for goods will continue as the epidemic recedes and service spending returns to normal.

On the demand side, unless US demand plummets and must be sluggish for two months or more, the problem will ease over time as imports of goods fall and congestion decreases.

Container shipments are expected to rise in 2022, even though global trade is affected by risk factors such as geopolitical tensions, according to professional analysts. Maersk estimates that global container growth will reach 7.8% in 2021.

But challenges remain-Deutsche Bank's cargo congestion index shows that there are still significant pressures and supply chain disruptions in a wide range of supply chains, with port congestion and inland transport delays being the main problems. Freight rates are expected to continue to rise. Supply chain pressure and port congestion is likely to continue until 2023.