Congestion worsens at world’s ports as pandemic hits shipping

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At the port of Lianyungang in eastern China, huge cranes are working overtime pulling containers off cargo ships in a race to stay ahead of the perfect storm unleashed by the pandemic, which has impacted global shipping.

As the huge containers were dumped onto trucks, Shi Jiangang, a senior official with Chinese shipping company Bondex Logistics, reflected on the delay. “It’s been a big challenge,” he said.

It was a South Korean vessel that normally also carries passengers, but has been entirely dedicated to cargo. In the distance, a fleet of other vessels waited offshore.

Lianyungang is not alone. The global shipping network that keeps food, energy and consumer goods in circulation – and the world economy afloat – faces the greatest endurance test in history.

Maritime trade has come under scrutiny after a Japanese-owned mega-ship ran aground in the Suez Canal, blocking the busy waterway for nearly a week. It was refloated last week, but the major crisis persists, amid warnings that rising freight costs could affect the supply of key products or consumer prices.

The situation arose last year when the spread of the pandemic clogged the predictable patterns by which sea containers are delivered to the world’s ports.

When many countries began easing Covid-19 restrictions late last summer, a surge of pent-up demand from consumers digging in and binge-shopping online provided a jolt to supply lines. Exports from countries such as China soared.

Crowding at Ports

But since the late 2020s, ships have piled up at overloaded Western ports, leaving Asian exporters clamoring for the return of empty containers needed for new shipments.

At Lianyungang – China’s 10th busiest port, according to the World Shipping Council – desperate companies are pushing for rail freight containers to be used in ocean service, placing rush orders for new ones and diverting some shipments to other Chinese ports.

The price of a 40-foot container from Lianyungang to the United States has soared to more than $10,000, up from the usual $2,000-3,000, according to Shi. The situation is “putting pressure on everyone in the supply chain,” he said.

U.S. consumer demand has been a key factor. The Port of Los Angeles said last month that volume processed in February soared 47% year-on-year, the strongest February in its 114-year history. The number of empty containers stranded there has also soared.

A Los Angeles port official claimed last week, more than two dozen ships were waiting to dock outside Los Angeles and Long Beach, the two busiest U.S. ports. Normally there is no wait, but delays are now averaging more than a week.

Compounding the logjam, many container ships have been recalled to be retrofitted to meet carbon emission reduction standards, while social estrangement and occasional coronavirus outbreaks among port workers have also slowed processing.

Port of Los Angeles Executive Director Gene Seroka said recently that the facility was focused on vaccinating dock workers and getting cargo through. “It’s critical that we eliminate cargo backlogs and bring more certainty back to Pacific trade,” Seroka said.

Commodity information provider S&P Global Platts noted that ships were also stuck in Singapore, the world’s busiest container transshipment port, and that the reliability of shipping schedules was at a 10-year low.

But not everyone is complaining. Denmark’s Maersk, the world’s largest container carrier, swung from a loss in 2019 to a $2.9 billion profit last year, largely on the back of rising volumes and higher prices in the last quarter of 2020.

But concern is growing. The head of the Federation of German Industry, Holger Losch, said in a statement that the situation was beginning to affect German industry.

“Sectors that depend on the delivery of raw materials or components, as well as the shipment of their finished products … are suffering particularly badly,” Losch said.

Meanwhile, smaller export-dependent countries from Southeast Asia to Latin America, served by lower-priority feeder routes, are having difficulty getting their products to market.

A Double Whammy

The double whammy of the pandemic and the Suez Canal logjam has sparked a debate about the reforms needed in the shipping sector, particularly the need for greater digitization to facilitate flows and help respond to crises.

Current arrangements “have proven increasingly clumsy … and equally ineffective and costly in dealing with changes in demand,” Vincent Clerc, Maersk’s managing director of oceans and logistics, said recently.

The long-term impact on trade and consumers remains difficult to foresee, as no one knows for sure when the situation will ease, or if it could get worse.

Jon Gold, vice president of supply chains for the U.S. National Retail Federation, said delays are expected to extend to the U.S. East Coast, due in part to the Suez blockade.

So far, large U.S. retailers have largely absorbed the added transportation costs, but consumers are expected to feel this increase at some point, he said. Estimates range from a few more weeks of delay to several more months.

“Who knows what happens when you come out of a pandemic?” said Maersk CEO Soren Schou at a recent conference. “I don’t think any of us alive have tasted (that) situation.”

Source The Economic Times

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