When Will the Maritime Shipping Crisis End?
A year and a half since the pandemic started, shipping cargo from China to Europe now costs 6 times more than it did back in 2019. Surging costs have only made the situation worse, adding to existing problems such as the high cost of raw materials and the global semiconductor shortage. There is only a 5 percent increase in demand for shipping worldwide, with contraction partly due to the rise in Covid-19 cases. In addition to low demand, there are other factors causing strain on the maritime supply chain.
Container Turnaround Times
The turnaround times for ships, trailers, and containers in port terminals and intermodal links has been slower than usual. This is because international freight forwarding companies and transport providers have to comply with social distancing protocols and health regulations still in place.
Maritime freight capacity is not growing up and the main reason is congestion, with equipment tied up at sea and on land. Major carriers warned that congestion would not decrease any time soon unless U.S. customers return equipment quickly.
As commercial ships are queuing in congested ports in Asia and the U.S, carriers need up to 25 percent more vessels to continue shipping the same volumes of cargo. And ships break at some point somewhere. In that case, carriers either use alternative modes of transportation or charter a replacement ship. Now both options are out of question, with air carriers resuming passenger services and no ships available to charter. Every problem, even a minor mishap only adds more volume to the cargo waiting to be shipped.
At the same time, even if carriers could add fleet capacity, rapidly doing so can congestion. This is precisely what happened by the end of 2021. Carriers added more sailings to move cargo and meet the significant spike in demand. This caused a build-up of congestion while limited labor availability at major ports only made things worse. Additionally, ports are not flexible enough when it comes to adding more equipment as they are capital-intensive. This limits their short-term capacity to adapt to big changes and spikes in demand. The fact that ports and ships are asset-based businesses makes it difficult to scale up quickly.
The Good News
Congestion will clear eventually as what we face is only temporary. Experts predict that this is a more likely scenario in 2022, and spot rates will go back down, especially when carriers add more shipping capacity. As the crisis is mainly caused by the Covid-19 pandemic, it is set to improve. The health crisis has not resulted in structural changes that can cause long-term problems.
At the same time, experts warn that shipping prices may not return to pre-pandemic levels. There has been overcapacity during the last 10 years which is why shipping rates had been so low. There is no overcapacity at present and while carriers have already ordered new ships, it takes time to build them.