Commodities 2021: Container shippers hoping for rate relief in Q1 may have to wait

Shippers hoping for a break from escalating container rates in the new year may need to endure several more weeks of challenging market conditions before an increase in box supply in Asia balances with demand for available capacity.

Container freight rates may see an additional period of uplift for major routes from Asia in January as heavy congestion at ports in the US and Europe made it difficult to reposition equipment to export terminals in Asia. These shortages prompted shipowners to announce additional rate increases for January from what are already multiyear highs.

But major shipowners struggling to meet contract requirements amid a surge in Asia exports in the second half of 2020 are working to procure a much greater supply of containers from manufacturers and leasing companies to meet the unexpected shift in demand.

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"The container shortages we are seeing were unexpected, and we have also faced shortages from having too many containers in the wrong places," Rolf Habben Jansen, CEO of German shipowner Hapag-Lloyd, said at a virtual forum on Dec. 9. "I expect the situation for Hapag will be close to normal in six to eight weeks from today. That is with the boxes already underway, as well as new boxes and new leasings coming in."

As shipowners get the equipment they need to meet demand, more capacity will come available and shippers will have more bargaining power to push for rate reductions.

"Next year we will see freight rates that are significantly below current levels. For now, shippers are trying to squeeze through much larger volumes than before," Jansen said.

Rates for the North Asia-to-UK Continent route saw the greatest uplift this year, more than quadrupling to $6,800/FEU on Dec. 17 from $1,575/FEU one year ago, with the biggest hikes implemented just in the past few weeks. Rates from North Asia to East and West Coast North America were up 114% and 189% respectively on year to $5,400/FEU and $3,900/FEU on Dec. 17.

All were the highest levels since S&P Global Platts launched the assessments in July 2017, but did not include additional premiums imposed on the spot market's freight all kinds (FAK) rates by shipowners to ensure on-time loading and delivery, particularly in the crunch just ahead of end-of-year holidays.

"Reliability to the West Coast US has fallen to the lowest in years," said a US-based shipper supplying IT equipment from Asia to the US. "For months you would have to pay premiums of thousands of dollars per box just to get on a ship, even if you had contract volumes with the carrier."

Trade data reflected the massive increase in demand for Asia exports as coronavirus pandemic-related lockdowns caused a fundamental shift in consumer spending in 2020 towards manufactured goods and away from services and travel.

US container import volumes across 12 major ports are on track to beat 2019 volumes as a peak season surge overcame a sharp drop-off in volumes earlier in the year, the National Retail Federation said on Dec. 9.

US imports are expected to end the year at around 21.8 twenty-foot equivalent units (TEUs), matching 2018 as the busiest year on record with an annual increase of 0.8% over 2019, according to estimates from the NRF's Global Port Tracker.

Those volumes were particularly strong in the traditional third-quarter shipping season and likely peaked in September at 2.11 million TEUs, but total volumes in the first-quarter 2021 are likely to exceed those of the same period in 2020.

Many shippers have circled China's Lunar New Year holiday starting Feb. 12 as a time they hope that volumes will slow and enough empty containers can be repositioned in Asia that the worst shortages will ease. But China's typical autumn slowdown around Golden Week in October passed this year without any noticeable relief in export volumes.

"We are still booked up for several months out and big box retailers are still showing us very strong demand from January to March and beyond," a European shipowner said. "We are hearing from our clients that they are not looking to shut factories as normal around Chinese New Year and will retain that workforce. It might be like Golden Week where there is just a blip and then back to how it was going."