Industry Update April 2022
Global trade is shifting, and it's getting more difficult to transport cargo from Point A to Point B.
Here's 5 things you need to know today.
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- Shifting port congestion & backlogs
- Trucking in the US
- KwaZulu-Natal Flooding
- China's COVID lockdowns continue
- Looking ahead: German Rhine water levels critically low
As COVID restrictions, labor shortages, and consumer spending dominate the headlines, port congestion is not disappearing – it is just shifting. A sobering report from Windward, the maritime AI company, indicates that 20% of the world’s containers are currently stuck in port congestion (Maritime Executive).
Congestion has eased on the USWC, but has shifted to Gulf and East Coast ports.
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- The slowdown in China is providing temporary relief to US ports on both coasts, as well as in Europe, but will likely be followed by a tsunami of deferred cargo once the lockdowns are lifted. (FreightWaves)
Sanctions against importing Russian goods have strained the European supply chain.
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- European ports, railroads and trucking junctions are seeing increased congestion since mid-February. Isolating, storing, and inspecting containers carrying Russian goods, has resulted in a backlog of over 4,500 containers.
- Of all containers passing through Rotterdam, about 10% are linked in some way to Russia. About 30% of Russian crude oil, 25% of LNG, and 20% of oil products and coal are imported via Rotterdam. (Fortune)
- Russia’s invasion of Ukraine and the EU’s resulting sanctions have led to production halts and components shortages for many companies, particularly automotive manufacturers and their suppliers. (Bloomberg)
Capacity remains tight and unpredictable in India; lockdowns in China are hampering local manufacturing and global trade.
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- The economic crisis in Sri Lanka is causing a severe shortage of container trucks (due to fuel scarcity) at Colombo Port, which handles the bulk of cargo transshipped in and out of the region. Several carriers are skipping the port, or will only accept shipments “Freight Prepaid,” due to a shortage of USD and the devaluation of Sri Lankan Rupee (LKR). Alternate ports of Mumbai and Vallarpadam are seeing increased volume due to diverted ships. (JOC, Logistics Update Africa)
- Lockdowns in China are impacting manufacturing, production, and global trade. Windward, a maritime AI firm, estimates that 25% of all container ships are waiting offshore at Chinese ports (Maritime Executive). Import dwell times for containers at Shanghai marine terminals has increased nearly 75%. Export storage time has fallen. (FreightWaves)
- More than 90% of trucks supporting import/export deliveries are out of action because of the restrictions. Slow cargo pickup has resulted in long container dwell times, leaving less room to place arriving import boxes. Decreased terminal efficiency is causing container vessels to wait at anchor to berth while others skip the port altogether.
- Manufacturing hubs in Vietnam and Cambodia are suffering a shortage of Chinese components for manufacturing industries. Pharmaceutical companies in India, which source 70% of their active ingredients from China, are facing limited supplies. (FreightWaves)
Flooding in southern Africa has led to a backlog at the Port of Durban, with several carriers attempting to redirect to alternate ports. Alternate ports of Cape Town, Port Elizabeth and Ngqura handle significantly lower volumes and will likely suffer congestion as more ships are being redirected. (FreightWaves)
Trucking in the US
Several factors have contributed to a high spot truck rate: clean energy initiatives, increased diesel prices, increased salaries to attract truck drivers, maintenance and repair, and new purchase orders. In addition to the above, many carriers signed contracts in the first quarter at high rates to guarantee capacity. However, many experts state that we are at a peak and will see a trucking capacity glut in the second half of 2022.
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- Market volatility and higher fuel prices make it unclear how far or for how long truckload spot rates might drop. Declines in rates have been met by increases in fuel costs and surcharges that could affect truck capacity moving forward. (JOC)
- Operating expenses have increased and the price of diesel is rising (FreightWaves, CNBC, FreightWaves)
- March saw soft truckload volumes, an oversupply of trucking capacity, and a low rejection rate. (FreightWaves)
- Consumer spending and operating costs are key factors in how this will play out. Experts anticipate that people will spend more on experiences than material goods as restrictions lift. However, even if consumer spending on physical goods decreases, if operating and maintenance costs continue to rise, it will cut into the anticipated spot rate decrease.
KwaZulu-Natal Flooding
Torrential downpour in KZN province triggered massive flooding and mudslides that have disrupted services at South Africa’s largest port, Durban. Several areas reported as much as 13 inches of rain in less than 24 hours, resulting in a devastating loss of life and wiping out critical infrastructure.
- Port of Durban has resumed operations, but the 36-hour closure of the port resulted in a backlog of more than 23 cargo ships waiting at anchorage outside the port, and a backlog of between 8,000-9,000 containers, which will take between 5-9 days to clear. In addition to wiping out critical infrastructure providing access to the Port, floodwaters brought a variety of natural, household and industrial debris into the harbor, which was cleared after 72 hours of dredging. (US News)
- Floods caused extensive damage to Bayhead Road, which handles 13,000+ heavy vehicles per day and links the port operations to the rest of the country. The damage to roads leading to the port, railroads, and warehousing facilities, is estimated to total 10 billion rand ($675m). Damage to the rail system could take up to eight weeks to repair fully. (M&G South Africa)
China's COVID lockdowns continue
With many cities in China experiencing the most extensive lockdowns since the initial outbreak in early 2020, carriers are shifting strategies to keep on schedule. The ripple effect of the lockdowns is being felt throughout the world:
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- COVID lockdowns are spreading as surges of new cases are affecting more cities. Guangzhou, Kunshan and Ningbo have all initiated partial lockdowns, mass COVID testing and/or other low-level restrictions.
- Truck rates have soared. Due to restrictions, more than 90% of trucks supporting import/export deliveries are out of service. Special permits and negative COVID tests are required to get in and out of cities or enter certain zones, resulting in huge traffic jams at ports. There are reports of truckers waiting up to 40 hours at certain highway entrances to pick up cargo.
- Lack of labor and cargo has caused air carriers to announce widespread cancellations, along with some ocean carriers skipping port calls to avoid delays. Experts anticipate ocean carriers may temporarily idle vessels or cancel outbound Asia sailings.
- Many carriers are unloading temperature-controlled and dangerous goods containers at other ports due to lack of warehousing capacity in Shanghai; others are not accepting new bookings.
- Rerouting cargo has become challenging as scattered outbreaks have led to a virtual ban on truck drivers transporting cargo from low-risk areas to medium- or high-risk areas. No cargo will be accepted if the driver has been to or picked up cargo from medium- or high-risk areas within the last 14 days.
Looking ahead: German Rhine water levels critically low
Barge transportation on the Rhine River is critical to Europe’s supply chain, linking German and Swiss industry with Rotterdam. Without significant spring rainfall, water levels may drop dramatically in late summer, causing a repeat of the crisis of 2018.
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- At the end of March, the water gauge stood at just 95cm at Kaub, a major chokepoint for barge transportation connecting north and south Germany. Typically, the river carries twice as much water at this time of year. Waterway traffic is already beginning to slow down due to unusually low water levels for this time of year after a mild and dry winter. (Bloomberg)
- Energy plants are reporting shortages due to shipping restrictions on the Rhine. Current levels mean that a typical 110m barge carrying diesel fuel or chemical products can only transport about one-third of its capacity to avoid getting grounded.
- A low water surcharge is imposed when water levels drop under 150cm, increasing the cost of freight significantly. An “extreme low water” alert is issued if it drops under 80cm. Traffic must stop if the water drops below 40cm.
- Over 100 trucks would be required to replace the transportation capacity of a barge. With diesel prices rising and potential shortages looming, this could have an even larger impact than in previous years.