2022 has begun and the container shipping sector is off to a challenging start. To some degree there is a sense of deja-vu on multiple levels.

One familiar element is more subjective than fact based. It is the sense that every time one believes that “it surely cannot get any worse”, then reality intervenes and shows that this is indeed possible.

One a more fact-based note we are indeed highly likely to see familiar challenges from 2020 and 2021 unfold yet again in the coming weeks and months.

During late October as well as during November there was a slight improvement in congestion issues related to vessels and terminals in North America. And whilst there was no material improvement in Europe, then at least it was not getting worse either.

In early January 102 vessels were waiting to get to berth in Los Angeles and Long Beach. The average time it takes from an exporter making the cargo available in Asia until the importer picked it up in North America was a staggering 110 days compared to 45 days pre-pandemic

However, since mid-December congestion has only been getting worse. In early January 102 vessels were waiting to get to berth in Los Angeles and Long Beach. The average time it takes from an exporter making the cargo available in Asia until the importer picked it up in North America was a staggering 110 days compared to 45 days pre-pandemic (according to data from Flexport).

Under normal market circumstances we will see a strong demand surge in January leading up to Chinese New Year meaning matters will worsen in the coming weeks. But then one could hope that the usual slump after Chinese New Year would help alleviate matters.

But looking at developments right now in early January there are two major elements likely to not only prevent alleviation of the problems, but instead enhance them further.

One element is the surge of the Omicron variant in the world outside China. Reports are already coming out from Los Angeles of 100 port workers testing positive for Covid on January 4th. And in the worls of the president of the Pacific Maritime Association dealing with the ports: “The next two weeks are going to be horrible.”

In practical terms, ports across the globe could well be challenged in terms of labour availability. Not that this will shut down any ports, but it will limit their ability to effectively reduce the congestion issues.

The other elements going forward is the Covid impact in China given their zero-tolerance policy. This has the potential for creating disruptions at a very large scale. Some of this is already being set in motion but will take a while to manifest itself.

200 river pilots on the Yangtze river are now in quarantine. This severely limits the flow of traffic connecting the port in Shanghai with manufacturing in central China. In the short term this is problematic for exporters. However, there is a bigger issue down the line.

200 river pilots on the Yangtze river are now in quarantine. This severely limits the flow of traffic connecting the port in Shanghai with manufacturing in central China. In the short term this is problematic for exporters. However, there is a bigger issue down the line. This reduction in pilot availability also reduces the ability to reposition empty containers back into central China, in turn setting the stage for severe container shortages down the line. Furthermore, as per normal, large vessels are coming into Shanghai to discharge empty containers destined to go inland. Hindering the inland flow will increase the risk of congestion issues arising in the world’s largest container port, setting the stage for further disruption.

Add to this the fact that China has seen multiple shut-downs in the past couple of weeks due to small outbreaks. Thousands of trucks got stranded on the border between China and Vietnam due to this. Supply chain impact was seen in recent days in Ningbo where a number of warehouses and container depots had to be closed and the movement to and from the port became more problematic – even though the port itself is not presently directly impacted.

Another indication of the impact on supply chains, though not container shipping related, was that Cathay Pacific shut down air freight operations in Hong Kong due to location restrictions – and they accounted for 25% of the total volume.

With the Omicron variant being much more contagious it is highly likely that we will see more outbreaks and more disruption in China in the coming weeks.

All of this has been the cause of rising freight rates in recent weeks, and it leaves a clear view of further increases going forward. How much this can rise further depends on the magnitude of shut-downs in China the coming weeks as well as the magnitude of labour shortfalls in the ports across the world as workers need to stay home if tested positive.

 

About Lars Jensen, CEO, Vespucci Maritime

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 19 years’ experience hereof the last nine within multiple companies he has founded, with the main focus as CEO of Vespucci Maritime.
 

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