The container sector is the star of the show in terms of earnings right now, and demand is expected to remain at a high level. Nevertheless, Rolf Habben Jansen, the CEO of Hapag-Lloyd, Germany’s largest liner, remains careful in his predictions about what’s next. Habben Jansen believes that despite the unexpected boom in demand since the second half of last year, looking far ahead into 2022 is very difficult, especially with volatile market conditions and current infrastructure challenges. Further complicating matters, the pandemic’s development remains uncertain. “However, we remain cautiously optimistic,” says Habben Jansen.

As analysts expect the extraordinary current rates to pass as well as the current squeeze on ship capacity, the Dutchman, who’s been at Hapag-Lloyd‘s helm since 2014, notes it is important to consider that the current rate discussion is only about spot rates. “As of today, we are still loading containers at 2020 rate levels, which means that customers with medium and long-term contracts are not affected by the current rate development,” he argues.

On average, container rates were at Hapag-Lloyd about $400 more per teu in the first quarter of 2021 compared to the same period last year. For its interims, Hapag-Lloyd revealed it earned more in six months than in the previous 10 years. In terms of ordering new capacity, Habben Jansen reckons the liner sector is still not close to the order boom seen in 2008 and 2009, and he doesn’t see that much of a risk that the book will grow again to such a size. “Last year we already said that the orderbook was a bit too small, as too many shipping companies were reluctant to invest after 10 years of losses. We expect a slight increase in demand and an increase in scrapping of vessels, and in addition, stricter environmental regulations and the drive to reduce emissions will most likely accelerate the need for a renewed global fleet,” he tells Splash Extra.

The Hamburg-based company made headlines recently with six megamax orders and the addition of ten 13,000 teu neo-panamax containerships. Larger ships are justified by economies of scale – the larger, the more cost-efficient. However, Habben Jansen also notes that as ships get bigger and bigger, the additional cost savings become smaller and smaller. When it comes to port congestion issues, he believes it will continue in the months to come – mostly due to continuous high demand, full ships, and Covid-19-related restrictions.

Today, the sector looks pretty much consolidated. But to entertain the idea of creating maybe three or four top carriers for Habben Jansen is something he deems highly unlikely. “We don’t believe that we are going to see mergers among the top players in container shipping within the next few years. Our industry has seen lots of consolidation in recent years. Synergies from larger combinations will be limited, valuations are high right now and competition authorities will have a very close look and might impose harsh restrictions on any major merger that could come up,” Habben Jansen reckons.

Whether we are looking at a fundamental shift in the market, Habben Jansen says that is currently very difficult to assess. “We expect to see a strong market in the next quarters – visibility beyond that is limited,” he concludes.

There is nothing quite as exhilarating as a shipping boom: a real Nantucket sleigh ride with market demand taking the place of a harpooned whale. A spate of new milestones have passed in current days, the latest being the value of the world shipping fleet hitting $1.2trn. Soaring container and dry bulk trades have led the wider charge. The Baltic Dry Index surged past 4,000 points on 20 August to reach its highest level since 2010. Capesize tonnage on spot charters on the Europe-to-China route was averaging over $67,000 a day — more than $50,000 across the piste.

The reasons for these high times are well rehearsed: the major bounce back of world trade after tight Covid-19 lockdowns. China has been sucking in raw materials on bulkers and pouring out finished goods for export by containerships. Port congestion and a mismatch of export and import needs have raised box rates dramatically, while ordering levels pre-2021 were low. Now shipyards, devastated by a previous downturn in demand, have consolidated and begun to apply upward pressure on newbuilding values.

The total world commercial fleet value of $1.2trn compares with a level of $700bn in early 2010 and is up 25% this calendar year. Clarksons Research figures also show secondhand vessel values in the company’s in-house price index reaching 163 points. This means that secondhand ships cost 75% more now than they did at the start of the year and are at the highest level since the tail end of the 2008 boom that ended with the financial crash. The past 10 years have seen the value of the world fleet remain steady, so these current conditions are unusual. It is certainly a good time to be a shipbroker, with an estimated $22bn-worth of secondhand ship transactions in the first half of the year. So, it was unsurprising to see Clarksons’ own six-monthly profits up 30% at £27.3m ($37.8m). The real daddy in the asset upturn has been the container sector, where the total fleet value has almost doubled to $247bn since 1 January. Clarksons noted that a 10-year-old classic panamax ship of 4,500 teu that would until relatively recently have been valued at $19m could now sell for $60m.

Big containership operators have been scurrying for both new and used tonnage to meet expected demand. Shipowners have been putting in bids for chartered vessels to fill slots next year, fearing looming shortages of vessels. My colleague Ian Lewis noted that tonnage being prepared for the scrap market is now heading for new charter work in what Hamburg-based shipbroker Harper Petersen rightly calls a “crazy market”. The containership fleet values recorded by Clarksons also includes newbuildings, such as Mediterranean Shipping Co’s huge $1.6bn order for 13 neo-panamax ships from China. Newbuilding prices are at their highest level across the board since 2009. The price of a 15,500-teu containership has increased by 28% to $143m, while a 180,000-dwt capesize is up by a similar percentage at just under $60m.

Simpson Spence & Young now expects to see the brakes being put on capesize bulker scrapping as owners see the market rise. Capesizes have been late to a wider bulker boom and despairing owners have scrapped 34 ships of more than 20 years vintage in the past 12 months. The tanker market, of course, remains much more difficult — as are the offshore and cruise sectors. Container shipping and dry bulk for the moment are driving the huge value in the world fleet. The question that remains now is can this boom continue? Any big change in sentiment around the global economic outlook would certainly upset the sleigh ride. For once, geopolitics risk has taken a back seat, although the Taliban takeover of Afghanistan has dented US pride, while China’s South Sea expansionism causes jitters in the West.

Beijing’s assault on its tech giants and private education sector did cause Wall Street to dump Chinese bonds and stocks recently. There is also global nervousness around new Covid-19 variants forcing new lockdowns in future. And there is scope for business sentiment being depressed by the US winding down its financial stimulus packages. We all remember those Nantucket tales when the whale dives and drags the hapless harpoonist underwater. But, for the moment, these are exciting times for the maritime world.

Supply chain disruption hitting key markets such as North America and Europe are having trickle down effects in far smaller trades and economies that are also feeling the pinch of vessel delays, port congestion and equipment shortages. Even in New Zealand, which until recently has avoided the worst of the pandemic and its associated supply chain impacts, the fallout from the disruption to container shipping is being felt. The key container ports of Auckland and Tauranga are operating at reduced throughput as they face unreliable schedules from container lines.

“The trouble is the lines get the berth date/time and then miss it as they are trying to reschedule the vessel rotation,” said Mike Holden, logistics manager at New Zealand freight forwarder Export Brokers International. “Ningbo and Long Beach are also having a huge effect on vessel discharge rotations.” Several carriers have announced changes in rotations to calls to New Zealand and Australia, but congestion further back in the voyage can cascade down to these final destinations.

Hapag-Lloyd, for example, had cancelled calls at its southbound service to Australia and New Zealand at Cartagena due to “continuous port congestions that affect the rotation of the service. It is no secret that the global logistics industry is facing an unprecedented strain,” Hapag-Lloyd said. “This situation has led to changes that affect supply chains worldwide. While the industry adapts to the new scenarios, we continue to see unrecoverable vessel delays caused by the current congestion.”

Services from the Pacific northwest to region were also affected, it said. But this has not stopped prices rising for shippers to and from New Zealand. Hapag-Lloyd last week applied a $400 per teu general rates increase on shipments to northern Europe. For importers, the picture is the same. CMA CGM is using a peak season surcharge to increase rates from northern Europe by $1,200 per teu. The actual freight rates being paid are far higher, however. “I’ve just quoted NZ$16,864 ($11,703) for a 40 ft box from China to Wellington,” Mr Holden said.

He pointed out that the cost of new containers out of China was also soaring, with manufacturers quoting $6,800 for 40 ft boxes for those seeking to buy equipment. “Mind you, it pays for itself with first-time usage in the freight rate paid by the clients,” he said. That, however, has not stopped some container lines introducing surcharges for the cost of equipment. Maersk announced a $200 premium quality container surcharge on all exports from New Zealand using specific quality containers capable of food or dairy shipments.

Meanwhile, despite low infection rates in the county, New Zealand shippers have not been immune to the wider effects of coronavirus on seafarers. Maersk’s 5,560 teu Rio De La Plata (IMO:9357951) earlier this month forced to skip a scheduled call at Napier after 11 of the 21 crew were infected after being tested in Tauranga. Not only did this require the isolation and testing of 94 port workers, but also it meant containers were returned to Malaysia undelivered.

Almost 6% of the world’s bulk carrier fleet is at anchor off Chinese ports as rising port congestion underpins bulk carrier rates, now at their highest in 11 years. Some 599 bulk carriers (over 10,000 dwt) totaling 52.6m dwt are tracked at key anchorages along the Chinese coast, according to Lloyd’s List Intelligence data compiled by Lloyd’s List. The massive logistics logjam means that nearly one in every 20 ships from the global fleet of some 11,850 bulk carriers is now waiting at ports in China to either load or discharge cargo.

Coronavirus restrictions that have delayed berthing are responsible for worsening already lengthy queues as ports struggle to deal surging grain, minerals, and iron ore imports. The biggest chokepoint is in northern China, where 238 bulk carriers exceeding 16.3m dwt are tied up and awaiting to berth at grain and coal terminals at Jingjiang, Tianjin, Qinhuangdao and Jinhou. Shanghai and Ningbo — already subject to extensive containership congestion after a box terminal was shut earlier this month after a worker tested positive for coronavirus — is the next most-congested. There are 207 bulk carriers of 14.9m dwt at anchor, Lloyd’s List Intelligence data show.

Congestion has been rising for the past two months and appears to be steadying in the country’s north. Some 565 ships including 270 bulk carriers of 17.4m dwt were tracked in northern China in the Bohai Sea on July 21, some 30 more vessels than seen five weeks later. Cargo operations on ships calling from foreign countries cannot begin and the vessel must await at anchorage until PCR tests have been carried out on all crew, a port operations manual cited by Lloyd’s List shows. At some ports, the tests are carried out when the vessel berths, while at others any ships whose last call was India, or another country where there are high rates of infection, the ship must quarantine at anchor outside the port for between two weeks and 28 days.

Alvaro Baradit Espinoza, operations manager for Chilean handysize vessel owner Nachipa, said that Chinese health authorities on the Yangtze River are asking that boarding agents, terminal laborers and stevedores isolate after attending each vessel, adding to problems. “Due to the new breakout at Nanjing a few weeks ago, the Yangtze River area is now very restricted due to the lack of pilots at CJK pilot stations for upriver navigation,” he said in an email distributed to Lloyd’s List.

Port congestion at this scale has not been seen in China since the halcyon days of the 2000s, when China’s entry into the World Trade Organization triggered the commodities super-cycle that spurred bulk carrier rates into levels beyond $200,000 per day by 2008. London-based Arrow Shipbroker said unwinding of heavy congestion in China would determine future rate directions for bulk carrier charters. “Tonnage supply remains very tight in the Atlantic for September dates,” said analyst Burak Cetinok. “While it [congestion] has stabilized recently, it remains well above the long-term average; as of the end of last week, about 17% of the capesize fleet was tied up in congestion globally. If congestion remains elevated over the next few days, we could expect capesize earnings to push higher this week.”

The global fleet of bulk carriers over 10,000 dwt is estimated at around 11,850 ships, totaling 917.3m dwt, according to shipbrokers Simpson Spence & Young’s most recent monthly report. That included the capesize fleet of nearly 1,900 ships (78m dwt) and more than 2,900 panamax ships.

The capesize market is brimming with activity, reaching the highest levels in more than a decade. The surge can be attributed to an increase in iron ore volumes from Brazil’s mining giant Vale, mostly destined for China, combined with a shortage of tonnage. Port congestion, especially in China, has kept bulkers tied up for longer, leading to the limited vessel availability.

The average weighted spot time charter on the Baltic Exchange closed on Tuesday at $51,427 per day, the highest level since the new assessment which reflects the larger 180,000 dwt vessel began in 2014. The Baltic Capesize Index has risen to 6,206 points, the highest since November 2009. Freight Investor Services said that the market “blew through the psychological $50,000 mark” on Monday, reaching $50,708 per day, despite few reported fixtures in the physical market. “With congestion showing no sign of easing and tonnage still scarce off early dates in the Atlantic, it will not be a surprise to see further gains this week,” the brokerage said in a note, adding that there is talk of rates hitting $60,000 in the short term as Brazilian charterers with prompt cargoes face a tonnage squeeze.

One broker in Singapore said the market was very busy, with widespread sentiment pointing to further rate increases. With capesizes only now starting to ballast towards the Atlantic basin, the next one or two weeks could remain quite firm. Braemar ACM analyst Nick Ristic said that the inefficiencies caused by the coronavirus pandemic seemed to be getting worse, leading to extra wait times. That, combined with higher coal demand, was pushing up rates. A “classic positional squeeze in the Atlantic” has occurred, he said, in which Brazilian output is recovering but the ballasters list has dried up.

With iron ore prices still far higher than miners’ unit costs, the bull run could continue, and “even if the spike comes off dramatically over the next couple of weeks, the encouraging thing is that the market is still trending upwards”, he added. “We are not expecting any of the Covid-related factors to disappear any time soon.” Port congestion has indeed worsened as the coronavirus forces port closures in China. According to Lloyd’s List Intelligence data, congestion at northern Chinese ports, excluding Dalian, has led to an increase in bulk carriers, mostly capesizes, waiting in anchorage, now at 238 (above 15,000 dwt) totaling 16.4m dwt. Outside Dalian, there are now 19 ships, totaling 2.3m dwt, while off Shanghai/Ningbo, 207 bulkers totaling 15m dwt are waiting, the data shows. Off Qingdao and Rizhao, chronic congestion is building, with 129 bulkers of 1.6m dwt.

Demand is “very healthy” for the dry bulk sector, sustained by all the stimulus packages that pushed the global economy out of the Covid-led recession, said Banchero Costa’s analyst Enrico Paglia. On the other hand, the supply of new ships is limited, with just 55 capesize and very large ore carriers delivered so far this year, he said, adding that he expects a further slowdown next year after cutting in half its growth projection for this year versus 2020. China’s iron ore appetite has continued apace, with volumes so far this year at 682m tonnes, according to Ocean Analytics, citing Oceanbolt data. In 2020, imports reached 1.16bn tonnes. Imports from Australia totaled 453m tonnes in the year to date compared with 760 tonnes for full-year 2020, while Brazilian supplies reached 137.4m tonnes compared with 243.2m tonnes, the data showed.

Inventories at Chinese ports also have room for more product, with only a handful at maximum capacity, Tathya Earth data shows. The company’s inventory index, which uses algorithms to work out levels using satellite imagery, shows that China still has appetite for the steel-making raw material, providing further employment opportunities for bulkers. China’s steel production, however, declined in July for the first time this year, according to the latest from the World Steel Association. Output fell 8.4% to 86.8m tonnes versus the same month in 2020, bringing the year-to date figure to 649.3m tonnes, a gain of 8% over the corresponding period last year. Despite the weaker indicators out of China in recent weeks, the dry bulk market continues strong.

Mammoth US institutional investor Fidelity continues to show it is serious about building a portfolio of public dry bulk shipowners. The Boston-based outfit has disclosed a $207m position in shipping’s largest US-listed dry bulk shipowner, Star Bulk Carriers of Greece, in public filings reflecting activity through the end of the second quarter. Fidelity’s enlarged stake is good for a 10% slice of the Petros Pappas-led company, making it the second-largest holder after private equity’s Oaktree Capital Management, which has 26m shares and a 25.4% stake.

TradeWinds reported on 13 July that Fidelity had built up a 12% stake in New York-listed Genco Shipping & Trading, allowing it to move past another private-equity backer, Centerbridge Partners, as the bulker owner’s biggest investor. But because Star Bulk is so much bigger than Genco — its $2.2bn market capitalization nearly triple Genco’s $750m — Fidelity’s piece of Star Bulk is its biggest bet yet on the dry bulk sector. The Boston firm holds just under 5m Genco shares currently valued around $85.5m. That stake was part of a wider build-up in dry bulk stocks over the course of six months.

Just as Fidelity built its Genco stake as top private equity holders retreated from the share in the first half of 2021, the investment firm seems to have done likewise with Star Bulk. Fidelity more than doubled its position of 3.5m shares at the close of the first quarter as Oaktree was reducing its holding of roughly 39m shares to 26m. According to the most recent filings, Fidelity also holds 4.2m shares in Golden Ocean Group worth about $44.5m, 422,000 shares in Eagle Bulk Shipping valued at $19m, 888,000 shares of Safe Bulkers worth $3.3m and 387,000 shares in Diana Shipping valued at $1.9m.

Genco announced a shift towards a low-debt, high-dividend model at the end of the first quarter. The policy is due to take effect in the fourth quarter with payments in the first quarter of 2022. Star Bulk instituted a high payout dividend model in 2019 that fell into hibernation during the lean times of Covid-19 in 2020 but was revived in May amid a strong market. Investment bank Jefferies expects Star Bulk to pay out $1.27 per share in the third quarter, $1.97 in the fourth and $4.30 for all of 2022.

Veteran investment banker David Herman, who once specialized in shipping for Credit Suisse and now heads the finance arm of Connecticut tanker brokerage Charles R Weber, has said Fidelity’s presence in a stock is an important vote of confidence. “An investment from Fidelity is like the Good Housekeeping Seal of Approval. It validates a company or an industry,” Herman told TradeWinds on the Genco investment. However, Herman also pointed out that even a $90m investment is less than the cost of two capesize vessels. “[It] would be tiny in the context of better known, more-liquid stocks like Apple or Tesla,” he said.

Even as public shipowners remained challenged at the size of their market capitalization, Star Bulk is as good as it gets in the dry bulk sector and, therefore, seemingly a natural for the big investor. Star Bulk trades about 2m shares per day, or roughly $40m in share value at the current pricing.

Since 10 August, Capesize spot rates have noted substantial positive gains as the benchmark has risen from USD 35.9k/day to its current quote of USD 51.5k/day. In our view, the most recent strength is partly driven by rising Vale volumes and increased congestion figures, particularly off North Asia.

We calculate that roughly 32% of the dry bulk fleet is currently held up in port operations, up from 26% at the start of 2021 in line with the 2016-2019 average. On a nominal basis, our data depicts roughly 1,420 vessels held up in port operations off North Asia, of which we count 270 Capesizes (or roughly 30% of the Capesize fleet versus the 2016-2019 average of 22%), 500 Panamaxes (44% versus 36%), 490 Supramaxes (30% versus 30%) and 160 Handysizes (14% versus 15%).

Most notably, North Asia has recently seen a spike in congestion figures for both Capesizes and Handysizes, whilst Panamaxes have seen an elevated congestion level throughout 2021. In sum, our AIS data shows roughly 1,400 dry bulk vessels currently held up in port operations off North Asia or 13% of the total dry bulk fleet which compares to the 2016-2019 average of 9%. Since the end of July, we count c70 incremental Capesize vessels, 55 Panamaxes, 14 fewer Supramaxes and 30 additional Handysizes currently held up in port operations off North Asia.

In conclusion, we therefore see the most recent spike in Capesize spot rates as partly driven by increased North Asian congestion, which in turn has amplified a sub-optimal fleet positioning ahead of rising Vale volumes. However, we note that dry bulk congestion has been focused on the larger vessel classes, while this year’s upcycle in the dry bulk space has been led by the smaller vessel classes, underlining strong and broader demand fundamentals in our view.

While competition authorities and shipper bodies allege collusion among carriers in today’s record, sky high freight rate environment, new analysis from Sea-Intelligence shows the fierce competition for market share between the world’s three global east-west alliances. Since the start of 2020, 2M, the Maersk, MSC grouping, has lost capacity market share to the Ocean Alliance on Asia-North Europe and to both the Ocean Alliance and THE Alliance on Asia-Mediterranean. The Ocean Alliance is made up of CMA CGM, Cosco and Evergreen while THE Alliance features Hapag-Lloyd, HMM, Ocean Network Express (ONE) and Yang Ming.

It is on the transpacific where the greatest changes in market shares have taken place recently. All three carrier alliances have lost capacity market share to non-alliance services with a host of new names entering the red-hot trade lane, deploying whatever sized tonnage they can muster. Remarkably, the capacity market share of non-alliance services is now higher than both THE Alliance and 2M and is now equal to roughly 30% of all transpacific deployed capacity, according to Sea-Intelligence data. “Contrary to complaints of a market understanding between carrier alliances, our analysis shows that the carrier alliances are indeed fighting for capacity market share on the Transpacific and Asia-Europe trades. This is even evident during the turbulent pandemic-hit one and a half years,” Sea-Intelligence stated in its most weekly report. Regardless of this new analysis, many are deeply frustrated with the state of liner shipping and the power the three alliances have.

At the start of this month an American furniture shipper filed a $600,000 lawsuit with the Federal Maritime Commission (FMC) against a couple of global container lines, which it claims have repeatedly contravened terms of the US Shipping Act. Pennsylvania-based MCS Industries, whose clients include Target, Walmart, Home Depot and Lowe’s, filed the suit, mentioning both Cosco and Mediterranean Shipping Co (MSC). MCS said carriers had “unjustly and unreasonably” exploited customers and had colluded to manipulate the market. “Global ocean carriers began taking parallel and strikingly similar actions to prop up ocean carriage pricing and improve their profitability at the expense of shippers and the public,” MCS maintained, suggesting this collusion was made possible by the fact that there are now just three alliances that dominate more than 90% of the main east-west trade lanes. “These collusive ocean alliances give Respondent’s venue and opportunity to co-ordinate discriminatory practices such as those alleged herein to violate contracts with shippers like MCS in favor of exploiting profit opportunities on the spot market,” the suit alleges.

On August 10, a bipartisan pair of lawmakers, pressed by agricultural exporters, introduced the Ocean Shipping Reform Act into Congress, a bill which would put in place new minimum requirements for service contracts and give the Federal Maritime Commission (FMC) greater powers. California Democrat John Gerimundi, a co-author of the bill, hit out at what he sees as an oligopoly in container shipping. “The problem was severe, the control of the shipping by a handful or two handfuls of ocean carriers, really eliminated the competition that had been in place for many, many years prior to the increased consolidation,” Gerimundi said.

The Covid-19 pandemic defined 2020 for both ports and terminals, as well as their container line customers. Yet while 2020 will go down in history as difficult for everyone, arguably carriers have been having a very good crisis ― particularly in comparison to the terminals that provide their inland interface. That was not always guaranteed, however. At the beginning of 2020, when Chinese factories were slow to reopen after an extended Chinese New Year closure, there were fears that supply issues would lead to a weak quarter for lines that had only just come out of a mediocre 2019. However, as what was initially thought to be a little local trouble in Asia began to spread around the world, even worse scenarios started to emerge. By the beginning of the second quarter, it was apparent that the impact of lockdowns in the major consumption markets of Europe and the US threatened massive economic disruption.

Casting back for similar events, comparisons were made to the global financial crisis of 2008-2009. By extrapolating what happened to box carriers following that downturn, some analysts warned of the risk of a collective $20bn loss for container lines. The black swan of the pandemic was followed by a bevy of black cygnets that threw most ― if not all ― forecasts into disarray. No-one foresaw that by the third quarter, demand for containerized freight would be on the rise again. And no-one could have predicted that container lines would have their most successful financial year on record. That this should happen in the middle of a pandemic that left most major economies limping and global GDP decreasing by 3.5% says much about the changed nature of container shipping since the last major crisis.

During the second quarter of 2020, when it became apparent that volumes were falling off a cliff, carriers were quick to take capacity out of the market. There was no point sailing empty ships, and previous experience warned of the dangers of offering cut-throat rates to secure volumes. Reducing capacity had become easier for carriers, thanks to their congregation into three major alliances. If a carrier operating on its own had three services on a particular trade lane and wanted to cut capacity, it could pull out one-third, two-thirds, or all its capacity. If the fall in demand was 15%, another 15% was left on the table for rivals. A carrier in an alliance with a combined 10 services had a much finer knife with which to cut. Capacity could be removed from the market in 10% slices, making it easier to reach an equilibrium with demand. Yet these voluntary reductions in capacity were not in place for long, largely due to another surprise to emerge from the pandemic.

With lockdowns in place, virtually everyone was confined to their homes to some degree. For those who could work from home ― which turned out to be far more than ever considered possible ― dining rooms doubled as workspaces. Imprisoned in their homes, consumers who could no longer spend on services such as holidays, eating out or entertainment, started renovating their prison cells. This demand for containerized goods was boosted further by government economic support packages, which in some cases saw cheques going straight to retailers, then on through the supply chain, with the container lines taking their skim for the ocean carriage. By year-end, carriers had shifted only 2.2% fewer containers during 2020 than they had during 2019. The problem was that most of this volume had been moved during the second half of the year ― and a larger part of it than before was going to the US. Towards the end of the year, ports ― where the nature of the job precludes working from home ― were struggling to service the unexpected surge in volumes at a time when they were having to implement rigorous social distancing and cleaning regimes to protect their workers and were also losing workers affected by the pandemic.

Moreover, similar situations in rail, trucking, warehousing, and distribution were further snarling up the usually free flow of containers through the system, meaning boxes were not clearing the ports fast enough. As those who could tucked into their Christmas dinners at the end of December, there were close to 40 containerships at anchor in San Pedro Bay, waiting to unload at Los Angeles or Long Beach alone. That slowdown in the movement of containers led to a shortage of boxes. The period when a container was in use increased by four or five days. For a large carrier, one additional day in the average time containers are used can mean a shortfall of 35,000 containers. So, while there was no actual shortage of containers, there was a container shortage. The slowdowns at ports also meant a return to blank sailings. A ship stuck in Long Beach for a week would be late back to Asia and, rather than run with ever-later ships, it made more sense to just blank the next sailing.

Again, there was no shortage of ships; every available vessel that could be begged, borrowed, or chartered was deployed ― at increasingly great expense, much to the delight of tonnage providers. The logjams were not a matter of container equipment or vessel capacity; nor were they really a matter of port capacity. They were the result of a sudden, unexpected, and unforecastable surge of volumes into the US. Globally, volume growth from April 2019-April 2021 was a mere 2%. However, the shortage of containers, along with bottlenecks in terminals and inland operations, has now spread all around the world, showing quite how interdependent the supply chain is. Demand now far exceeds the constrained supply. And any market trader will know that when demand is greater than supply, prices rise ― which is exactly what happened to container freight rates. In late August 2020, the Shanghai Containerized Freight Index was reporting Asia-Northern Europe rates of less than $1,000 per teu. By year-end, that figure had hit $4,000 per teu. It is now more than $6,000 per teu.

The disruption at ports and congestion in the supply chain has been hugely profitable for container lines. Yet many would be prepared to give up a few dollars of profit for a return to some semblance of normalcy. Carriers, too, would like to see their products being available and reliable. Rates, inevitably, will come back down, but it may be some time before they do. Shippers will have to adapt to a new reality where container lines are able to maintain rates at levels that are profitable, which was not the case for most years in the decade leading up to the pandemic. How long it will take to get the backlog of demand through the system remains to be seen. It is unlikely to be before next year’s Chinese New Year Holiday, which will mark a two-year anniversary of the pandemic starting to have an impact on container shipping. Ports will have a role to play in that recovery to the new normal. Success in achieving that will have a role to play in how well those ports perform in the future.

Chinese steel exports, excluding scrap, totaled 24.6 MMT in the first 7 months of 2021, an increase of 76% YoY. Exporters have already loaded 1.8 MMT of steel in August for exports. This works out to 3.3 MMT for the month, a 130% increase YoY. China’s steel output was quick to recover following the impact of the pandemic, with mills taking advantage of high prices due to a slow restart amongst other major producers. Foreign importers may be forced to look to other suppliers for steel products as output has begun to approach pre-pandemic levels elsewhere. The BDI has surpassed the 4,000 mark for the first time since 2010, hitting 4,147 on Monday. The index has increased by 202% YTD, fueled by soaring commodity demand, as well as pandemic-related supply chain disruptions. The pandemic is causing significant delays in ports around the world, namely in China, which have tied up the fleet for extended periods. The Capesize 5TC benchmark has also reached fresh highs since it was introduced in 2014, reaching $50,708 per day today, an increase of 177% YoY. Capes have been some of the worst affected by Covid-19 delays with the 180k dwt vessels calling at Chinese ports in most of their voyages. The recent boost has also been aided by a positional squeeze in Brazil, which has seen C3 (Tubarao-Brazil) voyage rates push as high as $36 per tonne for the first time since 2009. Record grain imports to China and a mild resurgence in coal trade has lifted the Panamaxes also, with the P5TC average rising by 179% YTD despite being 11% below 2021’s peak so far.  Strong minor bulk trade has helped prop up rates for the geared vessels, with a monthly record of 106 MMT of cargo moved on Supras in July. Negative soybean crush margins in China have forced hog breeders to substitute traditionally used soymeal for wheat in recent months as soybean prices rise on supply issues. Chinese wheat imports totaled 4.3 MMT in the first 7 months of the year, increasing by 117% YoY and the highest level for this period on record.