Ship Backlogs Expected to Ease by Mid-2022
Ship backlogs have lasted for two years already due to the global health and economic crisis. According to experts, however, backlogs are expected to let up in mid-2021, easing pressure on carriers and container capacity. This would also mean less revenue for the big cargo carriers from the spot market. So far, freight rates have been record-high, up to 10 times that of 2019 levels on the busiest shipping routes.
Shipping experts point to the fact that while we are moving toward a post-pandemic future, we don’t really know what it will look like. The global community doesn’t have much experience with that type of scenario. Some analysts believe that ship backlogs will begin to ease during the third quarter of 2021, which is a source of optimism for an industry plagued by supply chain disruptions, repeated port congestions, and labor shortages. There is one big unknown, however, which is whether demand for goods will continue once the pandemic is over.
According to analysts, there is still uncertainty as to what will happen when container capacity stuck in Long Beach and Los Angeles gets released, bottlenecks ease, and staff returns to work. While there is a glimmer of optimism, we shouldn’t be overly optimistic about how things are going to work out. For one thing, timing is difficult to predict because of China’s zero-Covid policy and lockdowns.
When it comes to freight rate normalization, it may take between 18 and 30 months to return to normal levels. While shipping rates have declined recently, on some routes where demand is robust, rates are almost 300 percent higher than in 2020.
What Carriers Have Done
Major ocean carriers have gone to invest their windfall profits in strengthening their trucking and air freight capacity and diversifying their logistics chains. A number of liner carriers chose to diversify their assets beyond sea freight.
During the past century, international freight forwarders gradually adopted the asset-light model, using contract labor and leasing aircraft, trucks, and warehouses to cut capital expenditures and maintain flexibility. Many carriers have logistics divisions but the main focus is on intermodal transport, transloading, and short-haul port drayage. In 2021, a year after the onset of the global crisis, major carriers transitioned to becoming integrated logistics powerhouses with a focus on customized services.
Such are, for example, end-to-end supply chain management, port-to-port transportation, and customized brokerage. Also, the bulk of acquisitions that carriers focused on aim at upgrading their e-commerce capabilities and modernizing port terminal operations to improve handling and access. Some commercial liners also expanded their regional distribution and warehousing capabilities and invested in expanding their air cargo volume. Having recently purchasing freighters, big ocean carriers are now serving major destinations such as Dubai, Beirut, Istanbul, New York, Chicago, and Atlanta. Other ocean liners already have a logistic arm and offer non-port services, including door-to-door delivery combined with barge, rail, and truck transportation.