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Are geopolitics and tariffs distorting supply chains?

Photo: OOCL OOCL Spain naming in China
Questions over where the glut of container ship capacity that has been delivered, and is expected this year, are being asked by both shippers and consultants as the biggest orderbook in history coincides with the steepest rises in rates.

Global Shippers’ Forum (GSF) director James Hookham has enlisted the help of consultants to find the missing tonnage, while Xeneta’s chief analyst Peter Sand believes he may have found some of it at least.

It is not easy to hide an ultra-large container ship (ULCS), let alone hundreds of them and therefore shippers are baffled as to why there is a capacity shortage on the extended Asia to Europe trades that is now sending ripples through supply chains around the globe and sending freight rates through the roof.

According to MDS Transmodal there are 146 ships of over 800,000 teu due for delivery in Q2, another 98 in Q3 and 78 in Q4, yet Xeneta expect spot rates to rise to $5,170 per feu on 1 June, up 57% within this month, while East Coast freight from Asia will increase 50% to $6,250 per feu.

Asia to Europe spot rates are also climbing steeply, up 63% in May to North Europe, $5,280 per feu, and $5,985 per feu to the Med, up 46%.

“On 1 June, spot rates will reach a level we haven’t seen since 2022 when the Covid-19 pandemic was still wreaking chaos across ocean freight supply chains,” said Sand.

He added: “There is a cocktail of uncertainty and disruption across global ocean freight supply chains at present and this is fuelling the spot rate increases.”

Volumes into regions not previously thought of as high import regions, such as the East Coast of South America, East Africa and the Middle East are seeing huge volume increases according to Sand, who emphasised, “there are a lot, a lot of boxes going into the Middle East”.

It is unclear exactly what is happening, but one theory is that Chinese manufacturers, who will face extra tariffs in September on a number of goods imported into the US are building inventories in strategic locations around the globe.

“China is expecting more tariffs after the US elections, whoever is the president,” said Sand, “so that could be the case, but it is difficult to verify.”

A more prosaic challenge that has added to the global congestion was the carriers’ early response to the Red Sea crisis. Sand believes that in the early stages, in an attempt to maintain schedules ships were cutting port calls at Yokohama and Busan in Asia and again in Gdansk and Hamburg.

With ULCSs entering fewer ports they were discharging and loading more containers at the terminals that they were calling at.

“Jumbo ships are the problem, ports and terminals are better at handling more calls with less cargo, keeping an even flow,” explained Sand.

Since the Red Sea diversions have taken place some key ports have not only had to deal with larger amounts of cargo, but also an increase in vessel traffic as feeder ships are necessary to process the increased transhipment cargo.

“At Barcelona, which is not a transhipment port, this has meant that transhipment cargo has increased from 40% to 70% in a matter of months,” said Sand.

On the ground the reality has been that cargo is again being rolled over in key Asian ports, with Sand saying that a survey of shippers that it completed recently returned figures of 80% that had seen cargo left on the quay, much of it contract cargo.

A bewildered GSF director Hookham sighed, “Here we go again”.

According to GSF everyone has been caught out by the apparent and sudden increase in rates and congestion.

Hookham does believe that shippers “are looking to get ahead of the challenges, to have a better peak season.”

That said, shippers were not expecting the scale of rate increases that they are seeing now, and are wondering what has happened to the “glut of capacity” that has already been delivered?

TAGS: Ports