Port congestion improving, but post pandemic pricing pressure expected to continue into Q3 & Q4
Congestion at USA seaports is improving but is expected to endure into the summer and possibly through to the end of the year. Gene Seroka, Executive Director of Port of Los Angeles expects the backlog to be eliminated by end of May 2021 or early June 2021. The average wait time is about 4-7.5 days, and ships continue to steadily arrive. The Port of Los Angeles in March experienced an over 100% increase in container volume. While it is good news that the US economy is beginning to sizzle, it counteracts the ability of market forces to impact any hoped for soon reduction in ocean freight rates.
Shipping capacity continues to be very tight thus the continuing pressure for rising freight rates. There are no long term contracts being signed by ocean carriers. Carrier FAK’s rates are currently quoted per month plus an additional premium surcharge. Factors including increased manufacturing production and rebounding consumer demand as the world economy reopens up with worldwide vaccination ramping up. Businesses are actively restocking their shelves as they experience rising consumer demand. These market conditions are expected to continue through and beyond the end of 2021.
Ocean freight carriers are utilizing all their ships, although some industry experts suspect some carriers are “managing” their capacity to take advantage of the tight market. It is obvious the current market condition is not sustainable in the long run. However, there is no doubt that cargo demand greatly exceeds carriers’ available sailing capacity. As passenger air travel increases it will also increase air-freight capacity therefore helping to reduce some of the ocean carrier backlog. However, rising fuel costs are also a factor moderating anticipated lessening of market pressures on freight costs in Q3 and Q4 2021.
As CPC Consultants has previously shared in February, there is a shortage of containers in ports which continues to impact shippers. Some reports show demand for containers in Asia is up nearly 220% compared to March 2020. Carriers are diligently repositioning containers that were left at unusual and unplanned global locations due the impact of 2020’s sudden COVID-19 shutdowns. There are new ship orders in the system, but the demand for shipping is greater than the existing fleets. It will take 2 to 4 years for these newly ordered cargo ships to be built, so shipping capacity will remain tight in the meantime.
The message to shippers from all this is that pricing pressures will continue for now, including expectations of paying premium surcharges as carriers implement differentiated service offerings which guarantee capacity at a premium rate. This type of pricing is expected to slowly become the industry norm as the industry adjusts to this era being a carriers’ market. Some of the premiums shippers can expect to pay for include guaranteed capacity, on time service, as well as no-rolls.
However, hope springs eternal and shippers can find comfort knowing that due to these skyrocketing rates the United States Federal Maritime Commission and China’s Ministry of Transport are closely watching and monitoring the market charges to help prevent abusive practices.
To fulfill their shipping needs, shippers will need the services of an experienced and reliable freight forwarder. Below are critical things to help a shipper accomplish their goal for freight transportation:
How To Pick An Experienced and Reliable Freight Forwarder:
- Verify the relationship between the Freight Forwarder and the Ocean Carriers. Confirm if they get preferential treatment from the carrier
- Is the Freight Forwarder presenting all the costs, such as Market Rate; Special Premium Rate (the Guarantee Rate that the freight will indeed sale on that sailing)
- Is the Freight Forwarder showing you the route to be used for the planned transportation? Is it a reliable port of entry in the intended country to help avoid delays? This market requires real time visibility and a shipper cannot afford to be left in the dark or redirected to a remote or inefficient port
- Will the Freight Forwarder provide you with market indicators that might cause a change to the current rate when the contracted rate expires? Make sure you have good communication with the Freight Forwarder
- Trust & Reputation: Call and verify their references to determine if they can be trusted and inquire into their industry reputation
CPC Consultants’ years of experience in the logistics industry will greatly help a shipper select the right Freight Forwarder and help you navigate this tumultuous period in the shipping industry.