unless the trade volume slows down, the port congestion will not be alleviated

Sunny Worldwide Logistics, Shipping Partner of the Most Famous enterprises like Walmart /Costco /Huawei ,with more than 10 years business.

 Both Asian and North American ports have experienced massive congestion this year, which is damaging to the entire supply chain. From the perspective of causes, the fluctuation of demand, the management of transport capacity and the lack of port facilities are the fundamental reasons. However, from the perspective of solutions, it is difficult for liner companies to increase transport capacity and rapidly expand port facilities capacity, which can only rely on the slowdown of demand growth.

 

Causes of congestion - port

There is a large backlog of goods in storage yards and warehouses in Asian ports, and there is a large shortage of port capacity, which has lasted for about two to three weeks in ports in China and Southeast Asia. Jon Monroe of worldwide said the ports were "too backward" to meet the rapidly rising demand for goods. Now we can only wait for the demand to decline before the problem can be alleviated.

 

Monroe said that it is particularly important to note that the current container ships are not fully loaded, which seems to be in contradiction with the current situation of short supply in the consolidation market. However, if we can take into account that there is a problem with the port, then it is natural for this situation to happen.

 

"Think about it, because there is not enough transport equipment in the port, then the ship can only go to the next destination port in case of loss of hold, and the cargo not loaded on the ship can only be overstocked at the port. The backlog creates more congestion, so the overall situation is a vicious circle. At present, the container backlog at Asian terminals has lasted two to three weeks. "

 

As a result, he did not find some high-quality container transportation equipment in Asia.

 

 

Causes of congestion - US importers

 

In addition, importers insist on importing containers before returning them to the carrier. "Because the imbalance of the East bound container flow (imported from the United States) is two to one, westbound vessels cannot carry so many containers, so containers can only be piled up in large quantities in the United States. Therefore, unless the demand falls, the containers can be transferred back to Asia and the volume of containers between the two places can be balanced. When containers arrive in the United States, importers generally keep them for 10-14 days, and the average stay time of containers outside the terminal is 8 to 10 days. "

 

 

 

The cause of congestion - trade flow imbalance

 

Darron wadey of dynamar, a Dutch consulting firm, said that "trans Pacific traffic is very abnormal," he said. The data showed that, compared with the capacity shortage in the Far East, from September 19 to August 20, the capacity of the east coast of the United States increased by 16%, while that of the West Coast increased by 8%.

 

Import performance of us key ports: source worldwide logistics

 

Why does demand drop and freight rate rise instead? Isn't the shipping company canceling the blank flights?

 

Dynamar's report attributes the problem to two main factors.

 

First, the capacity calculation of shipping companies assumes that the service runs at maximum capacity and frequency, which is easy to cause illusion. "As far as we know, on Pacific routes, carriers manage capacity by reducing one service after another, rather than leaving the entire ship idle," wadey said. As a result, the capacity 'growth' observed in July 2020 is virtual rather than actual, and is actually overestimated. On the surface, by canceling the blank flights, the carrier will keep the transport capacity in 2020 equal to the capacity supply in 2019, but in fact, it is fundamentally uneven. "

 

Carriers have used the epidemic to increase freight and new charges, so trading companies need to bring their products to the market at high prices. Some importers who did not make timely follow-up measures went bankrupt. This year, liner companies have introduced a series of surcharges, and the average freight rate has been raised to a level higher than the spot level of various freight (FAK).

 

Monroe said that Herbert had suspended U.S. export transportation services to China, saying that "it is only a matter of time before other carriers follow suit."

 

The second factor is demand volatility, with container trade statistics (CTS) data showing that container traffic from the Far East to North America fell by 2% in the first eight months of this year. However, there are obvious differences between the first four months and the latter four months. According to CTS, comparing the first four months of 2020 with the same period last year, the volume of trans Pacific routes decreased by 9% year-on-year, but increased by 4% from May to August. According to dynamar's analysis, this change in demand reflects the freight rates of the Far East and west coast of North America. In the first 17 weeks of 2020, at the end of April, this route's freight rate dropped by 11% year-on-year, and since then (up to week 43), it has increased by an average of 105%.

 

"At the same time, the increase in freight rates in the last four months is only due to the rebound in sales in those four months, but the shipping companies are managing their capacity, all of which is further exacerbated by equipment availability problems."

 

"Let's talk about containers again - we don't believe that containers are in short supply, we're more convinced that containers are just not needed - and that's one of the reasons why Far East North American freight rates have risen," wadey continued

Monroe agreed with dynamar's analysis. He also believes that the imbalance of containers is not caused by the surge in container demand, but by the ship operators themselves. "If carriers don't continue to increase the number of empty flights when container loading ports are just beginning to get congested, it won't get so bad. But they know what they're doing, and they've done it before. "

 

To sum up, the reason for the increase in freight rates due to the decline in demand is that in April 2020。

 

 

The only way to solve congestion

 

According to worldwide logistics, the current congestion in ports on both sides of the Pacific will not be eased unless trade volume slows down.