Freight forwarders feel the US$10k heat, in red-hot Asia/Europe market

Tuesday, 15 December 2020

Freight forwarders say that with Asia-Europe rates rising at least fivefold year-on-year, and total rates for some cargo having topped US$10,000/FEU, shippers are delaying or cancelling shipments until rates show some correction.

Amid tight capacity and congestion in UK and major Chinese container ports, liner operators have cut UK import allocations to try alleviating UK port congestion. However, the remaining allocations are heavily overbooked resulting in severe backlogs developing in busy Chinese ports including Yantian, Ningbo, Shanghai and Qingdao.

The current situation began when liner operators blanked sailings in response to weak demand, when the Covid-19 pandemic intensified in Q2 2020, causing lockdowns in Europe. However, freight rates surged amid the usual Q3 peak season, as US and European retailers began replenishing inventories. With Transpacific rates exceeding Asia-Europe rates, containers were diverted to the Pacific.

Kerry Logistics UK’s managing director, Dave Gaughan, told Container News that the current situation is unprecedented, “Shippers have been scrambling for both equipment and space allocations on vessels that have been heavily overbooked since early October and freight rates have reached levels that I have never experienced in my career. Freight rates have continued to spiral out of control through countless rate increases, surcharges and UK premiums that are having a devastating impact, with several customers delaying orders or cancelling shipments completely until the market cools.”

Dave Gaughan MD Kerry Logistics. Courtesy Kerry Logistics

He added that the situation has been exacerbated in the UK by pre-Brexit frontloading pushing up demand and UK port and haulage infrastructure have struggled to cope with the increased activity, so vessels are constantly being delayed and even diverted to ports in the EU.

The Shanghai Containerized Freight Index shows that in the week-ended 11 December, Asia-North Europe spot rates rose 24% from the previous week to US$2,948/TEU. However, freight forwarders indicated that the index is not giving a full picture, with shippers being quoted in excess of US$10,000/FEU.

Several carriers have started to evacuate empty containers to try and get the equipment back to China in advance of the Chinese New Year holidays in February 2021, so this is having an adverse effect on UK exports too.

The shortage of containers also means that shippers who still want to proceed, freight forwarders have to ensure that containers are available, before committing to shipments.

Jana Schebera Tigers MD. Courtesy of Tigers.

Tigers’ managing director (China), Jana Schebera, said, “It has greatly increased the workload: for every booking we have to check with a variety of carriers if equipment is available to provide a reliable service to our clients. We’re facing a severe space and equipment crunch which is impacting our volumes. Apart from that, we see that nearshoring will become a big trend, as high freight costs make imports from the Far East uncompetitive, which will negatively impact our export outlook.”

At GEODIS, the company uses technology to optimise its capacity for different port pairs and to anticipate void sailings.

GEODIS’ Senior Vice President (Global Ocean Freight) Matthias Hansen, said the company’s long-standing relationships with selected liner operators ensure reliability in a crunch. “A greater degree of commitment between partners will ensure increased reliability of service in supply chains. Volatile market conditions and the need for firm commitments from all stakeholders will become the new normal in the future.”

Martina Li
Asia Correspondent