Just as China’s factories splutter back to life and its gigantic supply-chain slowly starts moving again, Europe and the USA are seeing a rapid escalation of the COVID-19 pandemic. A shocking wave of fatalities across Italy and a subsequent country-wide lockdown, followed by a surprise US ban on EU flights, have sent a cold shiver across the world. The question facing container line operators is whether or not we will see a major collapse in consumer confidence and import demand from western economies over the coming weeks and months.
In the past couple of weeks there have been indications that the shipping lines have been repositioning empty boxes from the West back to the East ahead of an anticipated upswing in exports. Though backhaul rates for US-China have been stable, rates for North Europe-Asia have jumped in the last two weeks, as exporters compete to get their shipments on a limited number of available ships.
According to freight marketplace and benchmark provider Freightos, these developments show carriers are getting ready for what they hope will be a return of demand in the near future. It is possible that there will be a surge in late April when late orders meant for summer overlap with the back-to-school push.
Eytan Buchman, Chief Marketing Officer at Freightos said:
As production recovers, a spike in prices becomes more likely – and carriers are getting ready for this rebound. This week’s sharp drop in blank sailings is a good indication of this preparation.
Carriers Maersk and MSC are reportedly already adding three more vessel calls to Los Angeles and Long Beach at the end of March as bookings rise and empty containers continue to pile up in Southern California. Empty boxes are also clogging up European ports, with a run of bad weather in February exacerbating the situation. The HHLA terminal in Hamburg for example has implemented a rule that export containers cannot be delivered more than 48 hours ahead of the vessel’s arrival.
According to the China Ports & Harbours Association, for the week of 2-8 March, container throughput at eight major Chinese container ports increased 9.1% meaning that more cargo is on its way.
But at the same time box freight rates from China to Europe and the US remain steady. Rates for moving a 40’ box from China to the US west coast stood at $1,477 on 18 March according to Freightos.
FBX 01 China/E.Asia to W.Coast USA
FBX 11 China/East Asia to North Europe
FBX 13 China/East Asia to Mediterranean
The first three weeks of February saw the bulk of cancelled sailings as the container line operators reacted to the first wave of COVID-19. Without enough cargo ships skipped ports on their schedules as China went into shutdown mode. According to analysis by Sea-Intelligence, most of the blank sailings were announced during weeks 7 (10 February) and 8 and new announcements of blank sailings is back to the normal level. The number of blank sailings was recorded at 47, 70, 77 and 83 in weeks 7, 8, 9, and 10, respectively. The number for week 6 was 24.
However, the full impact of blank sailings, is still to be fully felt in many European ports. Door to door cargo transit times between China and Germany for example are typically around six weeks. This means that ports such as Hamburg are just beginning to feel the full impact of the February Chinese shutdown. China is Germany’s biggest trading partner. In Hamburg, more than a quarter of the 9.3 million TEU handled by the port in 2019 originated from or went to China.
But it is not just about China. The outbreak in South Korea may be the next concern for American ports in particular. Busan is a major trans-shipment hub, and any disruption from a big outbreak in South Korea could also impact volumes on the US West Coast.
Below: Daily vessels arriving in Hamburg November 2018 – March 2019 vs November 2019 – 17 March 2020
Below: Daily vessels departing Shanghai, November 2018 – March 2019 vs November 2019 – 17 March 2020