Rise in seafreight, fundamental and structural or hyped and covid?
Rise in seafreight, fundamental and structural or hyped and covid? We have seen, since early 2021, a constant rise in seafreights all over the table. All segments enjoy a rise of rates. Which is not bad after almost 12 years of struggling during which owners were sometimes incapable to pay their mortgages and interest.
But what drives the present rise? Is it a serious growth in worldwide economic traffic? A decline in ships due to scrapping? Interestingly I have had the pleasure in having conversations with some leading Owners active in the European trade; Baltic, Scandinavia, White Sea, UK, Europe and Med. Asking them the question why the rates had risen, they could not really explain except that there was a lot of enquiry for their ships. Perhaps one can explain that part of the enquiries may be cargo which previously was carried in containers however, the European trade did not suffer as the liner trades between China, Europe and USA with i
mbalanced container stocks. So what is it? Rates rose sharply, return on vessels almost tripled! Contracts for 2022 have seen increases in rates of 25 upto 35%, which Owners see as a fundamental and structural improvement of the market. But is this really so?
When talking more about the underlying reasons, to find out what drives the increase, I learned that many of the ships sailing in the European trade lanes suffered delays in loading as well as discharging ports. This sometimes comes down to a day at each end. So what if these ships do 2 or 3 voyages during a month, it means that some 3-6 days per month are lost to waiting times. These days the ships are not available to the market whilst the cargoes are to be shipped and thus Charterers and Shippers are seeking alternatives. In addition many of the smaller singledeckers are used to fill the gaps due to larger MPP’s are used in the carriage of windmill equipment. However, does this mean that it is ‘the impression’ that there are more orders or is it desperation by Charterers, Shippers to find a ship within the laydays of their contract. If that is the case, Charterers and Shippers should perhaps start thinking how they organize their logistics and how they communicate these with their clients. Unless their clients are not affected by the rising freights, then those clients will not be interested to seek a solution for the upward pressure.
What causes the delay? A complex situation: of course Covid is one of the sources, this causes drivers, stevedores, lashers, workers, etcetc go into quarantine for 5 days upto 2 weeks. Their absence is felt and leads to slower production for instance in loading and discharging, collecting cargo from the ports and take it to end users. End users, like automotive industry, being hit by lack of chips and therefore have to delay their production and consequently the steel needed for building cars stays in the warehouses, in ports. Also the previously mentioned reason, smaller singledeckers are used to carry cargo which otherwise was taken by larger tweendeckers which now are used in carrying windmill equipment (so ‘greener’ comes at a cost) add to more pressure. Continuing, ships are also unavailable when at the yard where they have to install their ‘water ballast treatment systems’ which took usually some 2 weeks but due delays in component delivery plus shortage of hands, has risen to 4-6 weeks with ships being idle. And so we come to the root, perhaps, ports are full and cannot work efficiently any longer. This causes ships to wait to load and discharge their cargo and so ‘eating away’ vessel capacity. The antidote? Charterers, Shippers and Receivers should look at their stocks, what is required and tune the deliveries so that ports are not filled up further with cargo which is not consumed in the short, nearby future. In that way they will create breathing space, ease the situation and lower congestion followed by improved production. With the vaccination in Europe well underway, the Covid mutation seemingly milder and milder, with work forces able to continue their work and catching up for lost production, this could be the solution to ‘normalisation’ and getting shipping costs back to a level with which all parties can live with. It’s a complex operation which requires open, transparent communication between all parties.
SeaWorks can assist Charterers, Shippers, Receivers and Owners to achieve such goals by advice on contracts, logistic chains, timing and possible mediation when one party considers the other party has to accept the goods. Do you wish to learn more, just contact hit the cotact button.