No relief from ocean freight disruption any time soon
The difficulties experienced throughout the global ocean freight logistics chain over the past months, including poor vessel schedule reliability, capacity issues, port congestion and acute equipment shortages of maritime containers - which combined have contributed to keeping rates at elevated levels - are unlikely to disappear any time soon, a senior executive at a leading freight forwarder has warned.
“If I’d been asked earlier this year when I expected to see some improvement in the situation I’d probably have said that during the second quarter (of 2021) things would be looking better. But today I don’t think such a prediction stands up at all,” Dominique von Orelli, EVP Global Head of Ocean Freight at DHL Global Forwarding (DGF) told Lloyd’s Loading List in an interview.
“There really is no sign of an upturn in operating conditions. Demand for ocean shipping remains extremely strong. The equipment shortages are still there and shipping schedule reliability continues to suffer as a result. I think this will be the case until at least the end of Q2 but am hopeful that we'll start to see some relief early in the second half of the year.
“Having said that I don't expect schedule reliability to be at acceptable levels in 2021 as a whole and that the challenges we are facing at the moment will keep everybody - shippers, carriers and forwarders - busy the entire year.”
'Enormous' volumes
Von Orelli was reluctant to point the finger at any section of the industry as being responsible for the prolongation of the current predicament, considering the carriers to be an easy target for criticism.
“I think the situation has just got out of hand - a 'perfect storm' of factors in a way. Carriers get the blame for a lot of things, but we have to be careful and realise what they can and cannot influence. I know that the carriers have tried to get the situation under control, for example, through blank sailings and othe measures but it's been a struggle.”
He continued: “A lot of it has to do with the congestion at the major US West Coast ports which impacts trade lanes globally. The carriers are trying their best to bring new equipment into the market and get the schedules under control and return to a more normal state of doing business but it is just not happening yet. I wouldn't question their resolve.”
Von Orelli underlined that in addition to the usual infrastructure challenges, US West Coast ports are having to accommodate an “enormous” surge in import volumes.
“And when I say enormous I mean, it's a surge nobody ever expected to see. And on top of that, you have COVID-19 infections (among dock workers) and if you only have around one half of the (normal) workforce, operating the terminals (at the ports of Los Angeles and Long Beach) than you have a kind of peak on top of a peak.”
Modal shift
He highlighted that given the ongoing disruption to ocean freight, a number of shippers have switched to air where possible with solutions focusing largely on charters.
“It depends very much on the trade. For example, there is quite a significant amount of air freight on the trans-Pacific at the moment which would normally move by ocean and this is because the situation is so unpredictable and demand is so strong (for ocean freight). Here we see a clear shift from ocean to air. But ocean freight volumes continue to go through the roof for all that which indicates just how exceptional the current surge is. On Europe routes, some customers have moved shipments from ocean to air too and there is also a clear trend in shippers making a modal shift from ocean to rail.”
Pricing
Turning to contract negotiations on rates between carriers and shippers in the current context, von Orelli said his message to customers for some time now has been “to lock in acceptable rates as soon as possible” - advice, he said, many of them are now heeding.
“We can sense more and more urgency on the part of customers to conclude long-term, multi-year deals on rates in return for commitments on capacity. Customers are taking a proactive approach and asking: 'What is the (contractual) model of the future? How do we construct a workable, predictable business model which balances long term and short term goals ?' What do we need to do? What commitments do we need to make in return for a reliable service? This is the agenda on the negotiating table between shippers and carriers at the moment.”
Given the elevated ocean rates currently, there is the prospect of a little “softening”soon and perhaps more markedly in the second half of the year, von Orelli argued but not to the pre-pandemic levels of 2019.
“Clearly, some of the spot prices we’ve seen - US$10,000 or more per container in some cases - simply aren't sustainable but shippers who are waiting and banking on the rates to really come down risk having a problem finding capacity in a market which will continue to be supply-squeezed. Obviously it will depend on the volume (of cargo) they ship and if you're a small shipper it's maybe a different story.
“What customers need most is some kind of predictability on capacity. I think what the past year has taught us is that supply chain resilience will win out over the quest for lower operating costs. The market is so volatile at the moment with little or no visibility on what's going to happen and the best policy is to conclude deals on rates as soon as possible.”