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Some relief from global supply chain congestion on the horizon

Cargo movement inefficiencies, disruptions, port shutdowns, Russian invasion stall goods movement recovery
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A truck navigates through a valley of shipping containers at a Metro Vancouver cargo transportation yard. Delays in moving containerized cargo on the transpacific and other major trade routes are forecast to continue into 2023

The weather is getting brighter, but the overall outlook for containerized goods arrival times is not.

Earlier this year, Shifl, a New York-based freight-forwarding company, reported that the average transit times for container ships on the transpacific trade loop had jumped 96 per cent in December 2021 compared with May 2021.

Transit data measures the time it takes for a container to leave its port of origin until it is unloaded at its destination terminal.

That time hit around 54 days for a container to get from the ports of Shanghai, Shenzhen, Hong Kong or Tianjin and to be unloaded in Los Angeles-Long Beach in California. That is 238 per cent higher than the average pre-pandemic transit time of 16 days.

But container transit delays are not unique to California ports.

Transit time delays to the ports of Vancouver and Prince Rupert hit anywhere between nine and 12 days during the same period in 2021. Added to the normal container transit time of between 16 and 23 days to B.C.’s two main ports from the same Chinese ports, a container took between 28 and 35 days to get to its destination via B.C.’s West Coast.

But what about 2022, shippers might ask?

Answers from analysts do not provide much light on the horizon for supply chain congestion relief.

Simon Heaney, senior manager of container research at Drewry, characterized the current global container shipping market as “crazy.”

That is an apt description for a market in which the global outlook for port cargo handling is forecast to drop but container shipping rates and maritime carrier profits are predicted to increase substantially.

During Drewry’s most recent outlook for the global container market, Heaney pointed out that high rates for containerized cargo will be dictated by supply chain bottlenecks, “which, sadly, remain highly unpredictable.”

Key 2022 contributors to that unpredictability are the Russian invasion of Ukraine and China’s zero-tolerance COVID-19 strategy that has disrupted cargo movement through such main ports as Shanghai and Shenzhen.

Drewry, a U.K.-based shipping consultancy, has therefore downgraded its 2022 baseline forecast for global port cargo handling to a 4.1 per cent increase from its previous forecast of 4.6 per cent.

Its forecast for 2023 has likewise been lowered to a 2.8 per cent increase from 3.5 per cent. 

However, updated data released from Shifl on May 9 shows significant improvement in transpacific transit times to the U.S. West Coast. They dropped to 24 days in April from the 54 recorded in December 2021. Shifl attributed the reduction in transit times to lower freight demand and COVID-19 lockdowns in China and noted that while the improvement is significant, transpacific transit times are still below pre-pandemic levels. It added that some West Coast cargo congestion has shifted to North America’s East Coast.

Transit times to Vancouver and Prince Rupert have continued to show heavy cargo congestion. In March, they reached 53 days to Vancouver and 45 days to Prince Rupert, but eased slightly to 44 and 31 days, respectively, in April.

Negotiations for a new contract between the International Longshore and Warehouse Union and marine terminal operators on the U.S. West Coast also have the potential to disrupt transpacific cargo handling. Those negotiations are scheduled to begin May 12.

But were those negotiations to break down and result in a work stoppage at major West Coast U.S. ports, Vancouver would not currently have the extra container-handling capacity to provide shipping lines with an alternative entry point to North America, according to the Vancouver Fraser Port Authority’s vice-president of infrastructure.

Speaking at the Journal of Commerce’s May 12 Canada Trade and Shipping Outlook, Cliff Stewart said the Port of Vancouver’s major container terminals are “pretty much at capacity now. The West Coast of Canada, in no way, shape or form, could begin to relieve the pressure that a U.S. West Coast shutdown would have.”
Stewart noted that almost a whole month’s worth of rail capacity was lost in B.C. because of 2021’s floods and wildfires. That lost capacity created a serious backlog in containerized cargo movement from B.C.’s ports.

He lauded Canadian National (TSX:CNR) and Canadian Pacific (TSX:CP) for their relatively quick recovery from the damage their B.C. operations suffered from the fires and flooding.

“We really do have to tip our hats to the railroads. They didn’t just have an outage; they had significant destruction of their infrastructure and the land that their infrastructure sat on.”

But Stewart added that while the velocity of container cargo handling has recovered for port operations, the backlog created by the natural disasters remains.

“Before the pandemic, we never had container ships [waiting] at anchor. That was almost an unheard-of event. The challenge we are having now is that we not only have container ships here, [but] we have ships full of containers that aren’t container ships … so we have all these people who have piled into the business that are a completely separate challenge.”

Space at major container terminals in B.C. is also extremely tight, which further complicates cargo movement efficiency.

The result, Stewart said, is that it’s probably going to take “a couple of months, maybe more, to dig out from under” the B.C. container terminal backlog.

Container xChange’s most recent survey of forwarders, traders and shippers found the majority of respondents expecting 2022’s summer peak season to be even more chaotic for global supply chains than it was in 2021.

According to the poll from the technology infrastructure provider for container logistics companies, 51 per cent of survey respondents expect the summer peak shipping season to be worse than last year’s.

Meanwhile, the overall profit set to be reaped by the global container fleet in 2022 could be as high as US$300 billion. That would be on top of the US$214 billion profit generated by the sector in 2021.

Considering that the 2021 profit for ocean carriers was more than the US$109 billion they generated in all of the previous 20 years, the 2022 total is massive.

As Heaney pointed out, the COVID-19 pandemic has been good for ocean carrier profitability because it created capacity shortages “in nearly every link of the freight transportation network at a time of high demand.”

Drewry numbers show container cargo movement inefficiencies, disruptions and port congestion resulted in a 17 per cent container ship capacity shortfall in 2021 and a similar shortage in the number of container ship slots available to the market in 2022.

Heaney added that any new factory shutdowns in China could be bad news for ocean freight carriers because they would reduce demand for container services, but additional manufacturing interruptions might also provide some good news for shippers by correcting some of the capacity challenges they have been facing over the past two years.

Those challenges combined to drive containerized maritime freight rates up 110 per cent in 2021 and what is projected to be another 39 per cent this year.•

trenshaw@biv.com

twitter.com/timothyrenshaw

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