Global supply chains disruption is expected to last in the end of 2021, and how come?
Global supply chains disruption is expected to last in the end of 2021. Shipping between China and the U.S. has become so expensive that many companies find it hard to sell lower-value goods in the international market. No extra container ships in China keep up the increasing demand, while increasing container ships are piling up in the ports of destination. A series of events related to severe weather and the coronavirus have exacerbated the impasse.
Drewry's WCI is still 368 per cent higher than previous year.
Drewry's Composite World Container Index (WCI) rose 4 percent, or $344, this week to $9,330.28 per 40-foot container, still up 368% from a year ago.
The year-to-date WCI average composite index evaluated by Drewry is $6,090 per 40-foot container, $3,957 higher than the five-year average of $2,133 per 40-foot container. In particular, rates from Shanghai to New York surged 13% to $13,434 per 40-foot container, a 300% year-on-year change.
The main factors behind the continued high rates include still very tight shipping capacity, continued service delays, container shortages and various surcharges, the BIFA said. In a new report, BIFA expects more surcharges to be imposed on routes, partly to cover higher charter fees, as well as additional port charges, dock hire and demurrage charges.
Robert Keen, Director General BIFA commented: "There is a suspicion that container lines and others are taking advantage of the global container shipping crisis, which is largely due to the shippers' own actions. Just this week, a global port authority announced a ￡5 energy transition charge for each imported container loaded! The number of surcharges and fees continues to grow -- often without real explanation or justification." Soaring shipping costs have been a hot topic in the industry since the coronavirus-driven e-commerce boom, so let's take a look at how the surge in shipping costs has taken shape step by step:
The three global alliances shifted the advantage to sea carriers
Extreme consolidation in the container liner industry is a dream for owners of tankers and bulk carriers. It began a few years ago with the creation of three major shipping terminals
The shippers' union now controls 85% of the world's container capacity.
New data from Alphaliner show the extent of liner consolidation.
The top 10 carriers now operate 85 per cent of global capacity. The top four groups - Maersk, MSC, CMA CGM and Cosco - control more than half of capacity (58 per cent). The top seven, including Hapag-Lloyd, ONE and Evergreen, controlled 78 percent. Before the alliance, each ship company manage its shipping capacity more or less on its own. Even there were some alliances, but they were not that close, set prices in accordance with the number of slots on weekly basis, rather than focusing on the profit margins. Now the alliances become more stable, resulting in rapid growth of sea freight. This is bad for shippers, because things are changing in favour of shippers - towards three centralised and well-structured alliances. But it was the beginning of what we are now seeing: price and capacity rules began to take shape: increased rates and deserviced ships, resulting in an overall increase in revenue per ship.
In the last few years, we've started to see this rule spread to trade - shippers are starting to reduce supply by air voyages (blank voyages: blank voyages are voyages canceled by the carrier, which cancels certain port calls, meaning ships can't unload or load their cargo). Shippers reduce the number of Spaces available to shippers in order to match capacity with demand, or to keep it above what we see as the current demand for capacity, and thus help raise rates. This rule is at the root of the current sea freight explosion.
COVID-19 affects shipping markets, carriers cancel sailings to keep rates steady Let's go back to 2020, when COVID-19 hit us around the world. The alliance quickly implemented "blank sailing" in a coordinated manner to prevent rates from plummeting. But the biggest problem is that the shipowner sat on it for too long, until Last July. The shippers saw an opportunity to make a quick profit and wanted more. After years of losses, many shipowners also see this as some sort of payback, rather than a completely unreasonable or unexpected artificial reaction. But at that moment in May, June and July 2020, the seeds of disaster were sown.
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