Health Crisis and International Trade
Since January 2020, all international maritime flows have been considerably disrupted by a major health crisis, which has caused the deterioration of port productivity and crippled major parts of the supply chain.
The epidemic wave spread very quickly in Europe and the United States. International trade has been severely impacted. Today we are faced with a recession in maritime flows, and an increase in freight rates which are disrupting all the players in the supply chain.
China, a major player in international trade, is the country most affected by this humanitarian crisis. Strict lockdowns have been announced, and all port staff work at just 50% of the workforce. This shortage of manpower greatly slows down port activities and impacts ship rotations. We are therefore faced with equipment shortages, spaces onboard ships are very limited, and transit times are no longer respected. The congestion that took place in the Suez Canal last July was an additional event that contributed to this global slowdown. More than 22,000 TEUs remained stranded on board the ship Evergreen for more than 6 days. Around 10% of world trade passes through the Suez Canal and in 2020 it accommodated more than 19,000 ships.
Suspensions of Port Activity in China
The arrival of the Delta variant also accentuates this phenomenon and creates major unrest, especially in China. Indeed, several Chinese provinces, including Yantian, a strategic port in China, fell victim to a cluster resulting in the suspension of port activity and a strict lockdown of the population has been announced by the Chinese government. These latest directives have resulted in an accumulation of containers on the docks, the cancellation of several calls, and many ship delays have been reported. Shipowners are looking for compensatory solutions to limit the influx of ships into ports so as not to experience further congestion. All charterers are at their wit’s end when it comes to securing a container or space onboard ships. The effects of the variant are also spreading in Malaysia, which is currently under severe lockdown. Indonesia is on the brink, and things are not going to improve anytime soon in Thailand.
This August 11, the third international port, Ningbo-Zhoushan is virtually at a standstill following the detection of a positive case for Covid-19. Note that more than 25% of the freight passes through this main port. This latest information raises fears of the continuation of this crisis that has never existed before. With growing demand in the industry, freight rates have also exploded to around $ 15,000 per 40’ container exiting Asia.
The shipowners determine the prices, and request advance reservations at least 2 months in advance. GRI counters (General Rate Increase) are announced by the companies, some allow equipment to be prioritized, others are more general. The law of supply and demand also comes into play, a lot of demand for very few containers available, which explains the soaring prices of freight rates.
Suffice to say, this is a very challenging time for all involved in international trade and shipping. The situation will of course eventually stabilise, but when and how are the 2 big and unanswered questions right now.
Original article: “La Crise du Transport Maritime – Situation Inédite du Transport International” (Bolloré Logistics France – 25th August 2021)