According to eeSea, a business that studies carrier timetables, over 60 container ships full of import cargo delayed offshore of Los Angeles and Long Beach, while there are more than double that — 154 as of Friday — waiting to load export cargo off Shanghai and Ningbo in China.
In recent weeks, the number of cargo ships stationed off the coasts of Shanghai and Ningbo has increased dramatically. There are currently 242 container ships awaiting berths across the country.
Whether owing to high export volumes, Typhoon Chanthu, or COVID, rising congestion in China is yet another wild card for trans-Pacific commerce.
Highly volatile trade flows.
Congestion in Chinese ports, which slows the flow of exports, is terrible news for American importers, but it may relieve strain on the ports of Los Angeles and Long Beach briefly.
Ships at anchor in California’s San Pedro Bay fell after operations at the Chinese port of Yantian were severely hampered by a COVID outbreak in June. The challenge for California ports was that an influx of backlogged cargo quickly followed the brief respite.
“The whiplash effects are the devil in these things,” eeSea creator Simon Sundboell told American Shipper. “You’d rather have more stability than these swings, and I believe everyone is concerned that the swings will become much more volatile. All of these unexpected events might be a cause of congestion when the system is already stretched.”
The money leads the ships.
Landside capacity (terminals, trucking, rail, warehousing) is restricted, but the vessel capacity of a single ocean trade lane is very flexible. This is a primary cause of congestion on both sides of the Pacific Ocean.
While the total number of ships in the world is limited, operators can move ships to make the most money. The trans-Pacific trade is currently incredibly profitable: spot rates, including premiums, can exceed $20,000 per forty-foot comparable unit (FEU).
“These assets [ships] are quite mobile,” Sundboell explained. “What is going on now is the polar opposite of what has plagued the industry for the past two decades. People wondered five years ago how the trans-Pacific rate could drop from $2,000 to $1,500 [per FEU] in just six days. It was because you could take a ship from one location and sail it to another, resulting in an influx of ships, a price war, and lower rates.
“Now we see the inverse,” he explained. Congestion increases, delays increase, the motivation for shippers to pay premiums increases, and all-in rates remain at record highs as ship operators pack additional capacity into the trans-Pacific.
An increase in the number of services
The number of Far East-West Coast services has increased from 48 in January to 67 this month, according to eeSea. Last year, however, the number of services on this lane remained relatively stable, at 42-46.
In addition, ships from other trades are being drafted to serve as “extra loaders” (ships that perform one-off voyages). Repeated ad hoc ships are making multiple round voyages in some situations, acting as a hybrid of an extra loader and a scheduled service.
Sundboell stated, “We’re seeing carriers dragging ships from Asia-Middle East and Asia-Africa and placing them into the trans-Pacific traffic.”
“I don’t think the carriers even know themselves right now whether it’s for one round trip as an extra loader or whether it becomes semipermanent. They’re just playing the market, and if it makes more financial sense to take a ship from the Middle East and put it on the trans-Pacific, they’ll do it, whether for one month, three months, or six months — which is why no one knows what this network will look like in six months.
“In Copenhagen, Geneva, and Marseille, line managers look at yields per container and costs per container. Not just per container, however. They’re looking at it on a per-day and per-TEU [twenty-foot equivalent per]-mile basis.”
The size of trans-Pacific ships is shrinking.
Another factor contributing to rising trans-Pacific congestion is that not only are there more ships, but they are also getting smaller, necessitating the use of more boats to transport the same number of TEUs.
According to eeSea, the average capacity of ships covering Asia-West Coast routes was 8,601 TEUs in January and is now 7,125 TEUs, a reduction of 17%.
The average size of vessels at anchoring or drifting off the coast of Southern California was recently compared to the Q1 anchorage peak on Feb. 1 and found a comparable decline: from 8,060 TEUs to 6,184 TEUs, or a 24 percent drop.
Sundboell believes that a smaller average vessel size will “definitely slow things down even more.”
Some companies have expanded their trans-Pacific capacity by purchasing or leasing ships on the secondary market. In 2021, the majority of the ships offered for purchase or charter were in the lesser size categories.
Because the cannibalized trades involve lower-capacity ships, liners moving capacity from other trades also reduces average size. Sundboell explained, “The reason you have smaller vessels coming in is that they’re taking them from the Middle East and Africa trades.”
How is this going to end?
Shipowners can send as many ships as they want into the trans-Pacific to chase record spot rates, leaving other trades in the lurch. However, the imbalance should eventually rectify itself.
“It becomes something that balances itself out,” Sundboell observed, noting that removing ships from other transactions would cause rates in those trades to rise to the point where ships would return.
“At some point, the rates of the trades you’re leaving rise too high, or the expense of having the ships sit at anchor becomes too great [in terms of future cargo lost],” Sundboell explained.
Carriers could not send enough ships back to Asia in time to load cargo in Q1, as anchorages filled off Los Angeles/Long Beach. Thus they had to “blank” (cancel) many sailings, reducing congestion in Q2.
Given the harsh anchoring situations off China and in Southern California, a recurrence of the blank-sailing scenario appears to be a distinct possibility in Q4, which is a worrying prospect for importers.
Visibility issues
Even organizations that track blank sailings, such as eeSea, can’t predict what will happen in Q4.
When carriers blanked sailings owing to lockdown-induced demand declines in the first half of 2020, they disclosed voyage cancellations months in advance, sending a crucial signal to the market. There is significantly less warning this year because congestion, not fewer ahead of demand, is the reason for blank sailings.
“There are only eight blank sailings [on Asia-West Coast] in November, and only three in December,” Sundboell says, “but that is mere because the carriers haven’t communicated them yet.” We only enter a blank sailing into our system if the carrier confirms it.”
Carriers assumed they were bound by extensive notice periods for service modifications before COVID, he added. “However, Corona provided them with a platform to quickly remove capacity,” Sundboell explained. “Now they’re attempting to bring in additional capacity, but they’ve taken the liberty of being both more volatile with their capacity and with their service forecasting.
“And I believe that is what is driving the BCOs [beneficial cargo owners; shippers] to be frustrated. A BCO despises being forced to accept that the vessel will always be ten days late — or that they won’t even know when it will arrive. I don’t believe that’s the intention of the carriers, but they’ve discovered wiggle room to modify services on short notice that they didn’t have before.”
