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Bottlenecks in The Global Shipping Industry Are Difficult To Eliminate, Prices Remain High

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Frequent incidents of blockage and delay


   As early as March and April this year, the blockage of the Suez Canal triggered thinking about the global logistics supply chain. However, since then, incidents of cargo ship jams, detention in ports, and supply delays have continued to occur frequently.

      According to a report by the Southern California Maritime Exchange on August 28, a total of 72 container ships berthed at the ports of Los Angeles and Long Beach in one day, exceeding the previous record of 70; 44 container ships berthed at anchorages, of which 9 were in The drifting area also broke the previous record of 40 ships; a total of 124 ships of various types were moored at the port, and the total number of ships moored at anchorage reached a record 71. The main reasons for this congestion are labor shortages, pandemic-related disruptions and a surge in holiday purchases. California ports in Los Angeles and Long Beach account for about one-third of U.S. imports. According to data from the Port of Los Angeles, the average waiting time for these vessels has increased to 7.6 days.

   Southern California Ocean Exchange executive director Kip Ludit said in July that the normal number of container ships at anchor is between zero and one. Lutit said: "These ships are twice or three times the size of those seen 10 or 15 years ago. They take longer to unload, they also need more trucks, more trains, and more. More warehouses to load."

   Since the United States restarted economic activities in July last year, the impact of increased container ship transportation has appeared. According to Bloomberg News, the trade between the United States and China is busy this year, and retailers are buying in advance to greet the US holidays and China's Golden Week in October, which has aggravated the busy shipping.

      According to data released by American research company Descartes Datamyne, the volume of maritime container shipments from Asia to the United States in July increased by 10.6% year-on-year to 1,718,600 (calculated in 20-foot containers), which was higher than that of the previous year for 13 consecutive months. The month hit a record high.

   Trapped by the torrential rain caused by Hurricane Ada, the New Orleans Port Authority was forced to suspend its container terminal and bulk cargo transportation business. Local agricultural products traders stopped exporting operations and closed at least one soybean crushing plant.

   Earlier this summer, the White House announced the establishment of a supply chain disruption task force to help ease bottlenecks and supply constraints. On August 30, the White House and the U.S. Department of Transportation appointed John Bockarie as the special port envoy of the Supply Chain Interruption Task Force. He will work with Secretary of Transportation Pete Buttigieg and the National Economic Council to resolve the backlog, delivery delays and product shortages encountered by American consumers and businesses.

   In Asia, Bona Senivasan S, president of Gokaldas Export Company, one of India’s largest apparel exporters, said that three surges in container prices and shortages have caused shipping delays. Kamal Nandi, chairman of the Consumer Electronics and Electrical Appliance Manufacturers Association, an electronics industry organization, said that most of the containers have been transferred to the United States and Europe, and there are very few Indian containers. Industry executives said that as the shortage of containers reaches its peak, exports of some products may decline in August. They said that in July, exports of tea, coffee, rice, tobacco, spices, cashew nuts, meat, dairy products, poultry products and iron ore all declined.

   The substantial increase in demand for consumer goods in Europe is also exacerbating shipping bottlenecks. Rotterdam, Europe's largest port, had to fight congestion this summer. In the UK, a shortage of truck drivers has caused bottlenecks in ports and inland railway hubs, forcing some warehouses to refuse to deliver new containers until the backlog is reduced.

   In addition, the outbreak of the epidemic among workers loading and unloading containers has caused some ports to be temporarily closed or reduced.

    The freight index remains high

   The incident of shipping blockage and detention reflects the situation that due to the rebound in demand, epidemic control measures, the decline in port functions, and the decrease in efficiency, coupled with the increase in ship detentions caused by typhoons, the supply and demand of ships tends to be tight.

   Affected by this, the rates of almost all major trade routes have skyrocketed. According to data from Xeneta, which tracks freight rates, the cost of shipping a typical 40-foot container from the Far East to Northern Europe has soared from less than US$2,000 to US$13,607 last week; the price of shipping from the Far East to Mediterranean ports has risen from US$1913 to US$12,715. US dollars; the average cost of container transportation from China to the west coast of the United States increased from 3,350 US dollars last year to 7,574 US dollars; shipping from the Far East to the east coast of South America increased from 1,794 US dollars last year to 11,594 US dollars.

  The shortage of dry bulk carriers is also tending to be prolonged. On August 26, the charter fee for the Cape of Good Hope for large dry bulk carriers was as high as US$50,100, which was 2.5 times that of early June. Charter fees for large dry bulk ships transporting iron ore and other vessels have risen rapidly, reaching a high in about 11 years. The Baltic Shipping Index (1000 in 1985), which comprehensively shows the market for dry bulk carriers, was 4195 points on August 26, the highest level since May 2010.

   The rising freight rates of container ships have boosted container ship orders.

  Data from the British research firm Clarkson showed that the number of container ship construction orders in the first half of this year was 317, the highest level since the first half of 2005, an increase of 11 times over the same period last year.

   The demand for container ships from large global shipping companies is also very high. The order volume in the first half of 2021 has reached the second-highest level in the history of the half-year order volume.

   The increase in shipbuilding orders has pushed up the price of container ships. In July, Clarkson's container newbuilding price index was 89.9 (100 in January 1997), a year-on-year increase of 12.7 percentage points, reaching a high of about nine and a half years.

     According to data from the Shanghai Shipping Exchange, the freight rate for 20-foot containers sent from Shanghai to Europe in late July was US$7,395, a year-on-year increase of 8.2 times; 40-foot containers sent to the east coast of the United States were US$10,100 each, since 2009 For the first time since statistics are available, the US$10,000 mark has been exceeded; in mid-August, container freight to the West Coast of the United States rose to US$5,744 (40 feet), an increase of 43% from the beginning of the year.

   Japan's major shipping companies, such as Nippon Yusen, predicted at the beginning of this fiscal year that "freight rates will begin to decline from June to July." But in fact, due to strong freight demand coupled with port chaos, stagnant transportation capacity, and skyrocketing freight rates, shipping companies have substantially raised their performance expectations for the 2021 fiscal year (up to March 2022) and are expected to obtain the highest revenue in history.

   Multiple negative effects emerge

   The multi-party influence caused by shipping congestion and rising freight rates will gradually appear.

   Delays in supply and rising prices have a significant impact on daily life. According to reports, the British McDonald’s restaurant removed milkshakes and some bottled beverages from the menu and forced the Nandu chicken chain to temporarily close 50 stores.

      From the perspective of the impact on prices, Time magazine believes that because more than 80% of the goods trade is transported by sea, soaring freight is threatening the prices of everything from toys, furniture and car parts to coffee, sugar and anchovies. Exacerbated concerns about accelerating global inflation.

   The Toy Association stated in a statement to the US media that supply chain disruption is a catastrophic event for every consumer category. "Toy companies are suffering from a 300% to 700% increase in freight rates... Access to containers and space will incur a lot of heinous additional costs. As the festival approaches, retailers will face shortages and consumers will face more High price."

   For some countries, poor shipping logistics has a negative impact on exports. Vinod Kaur, executive director of the Indian Rice Exporters Association, said that in the first three months of the 2022 fiscal year, basmati rice exports have fallen by 17%.

   For shipping companies, as the price of steel rises, shipbuilding costs are also rising, which may drag down the revenue of shipping companies that order high-priced ships.

   Industry analysts believe that there is a risk of a downturn in the market when ships are completed and put on the market from 2023 to 2024. Some people are beginning to worry that there will be a surplus of the new ships ordered by the time they are put into use in 2 to 3 years. Nao Umemura, chief financial officer of Japanese shipping company Merchant Marine Mitsui, said, “Objectively speaking, I doubt whether future freight demand can keep up.”

   Yomasa Goto, a researcher at the Japan Maritime Center, analyzed, "As new orders continue to emerge, companies are aware of the risks." In the context of full-scale investment in a new generation of fuel ships for the transportation of liquefied natural gas and hydrogen, the deterioration of market conditions and rising costs will become risks.

   UBS research report shows that port congestion is expected to continue until 2022. Reports released by financial services giants Citigroup and The Economist Intelligence Unit show that these problems have deep roots and are unlikely to disappear anytime soon.

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