Growing congestion, container shortages, and high spot rates: Suez Canal closure continues to wreak havoc on global shippingEverstream Team
- A month after maritime traffic in the Suez Canal was suspended unexpectedly for almost a week, its effects continue to ripple through global supply chains in multiple forms.
- Growing congestion levels have started to affect container gateways in Europe and Southeast Asia, such as Rotterdam and Singapore, due to simultaneous vessel arrivals.
- As empty containers have been held for longer than usual at European ports, Asian export gateways such as Shanghai and Busan will experience scarcity of container equipment in the coming weeks.
- Spot rates on the Asia-Europe ocean cargo trade lane have been rising due to a lack of capacity following the Suez Canal closure, simultaneously pushing up rates in the air cargo market as shippers convert ocean cargo to air freight shipments.
- While port congestion is expected to remain a concern until at least mid-May, carrier schedules are unlikely to return to near-normal operations before mid-June, in particular on the Asia-Europe route.
- The availability of containers at Asian export hubs is likely to improve towards the end of May, especially when the long queue of vessels outside U.S. west coast ports carrying hundreds of thousands of containers start to clear.
- However, no significant decrease in ocean cargo spot rates should be expected until the fourth quarter of 2021 as carriers continue to be in the driver’s seat, meticulously managing the supply and demand balance with a clear focus on maximizing profits.
Four weeks after maritime traffic in the Suez Canal, one of the world’s busiest waterways, resumed following the grounding of the Ever Given, an ultra-large container vessel operated by shipping line Evergreen, its effects continue to ripple through global supply chains. Growing port congestions, a shortage of containers, and high spot rates in both air and ocean freight markets have all materialized in the aftermath of the Suez Canal closure.
On April 3, the last of the 360 ships stuck in the Suez Canal at the end of March finally transited the crucial waterway, normalizing operations that were disrupted for almost a week and held up trade valued at over USD 9 billion (EUR 7.46 billion) per day. Since then, container gateways in Europe and Southeast Asia have started to experience congestion due to the large number of simultaneously arriving vessels following the blockage. At the same time, empty containers have been held for longer than usual at European ports, exacerbating the scarcity of containers at Asian export gateways and prompting ocean carriers to cut short port stays in Europe to reposition equipment faster back to Asia. Due to the reduced cargo capacity on the Asia-Europe shipping lane in the aftermath of the Suez Canal obstruction, spot rates have not only been rising in the ocean freight market, but also in the air cargo market as shippers opt to convert critical shipments from ocean to air by any means possible.
This report examines how these issues will affect global supply chains, evaluates how long the situation may persist, and outlines a range of recommendations for shippers to help mitigate some of its most disruptive impacts amid the current turmoil.
Which ports are at high risk of congestion?
Despite the normalization of canal operations, shippers have been bracing for knock-on effects from the Suez Canal closure that include growing congestion at container gateways in Europe and Southeast Asia as vessels were expected to arrive in short succession from mid-April onwards.
Since last week, the first vessels stuck in the Suez Canal have been calling at European and Southeast-Asian container ports, which have been quieter than usual in the first half of April due to the canal blockage. In Europe, the Port of Rotterdam was expected to have the greatest number of vessel calls from ships arriving from the Suez Canal. Although contingency measures, such as emptying yards to make space for new containers, have helped terminal operators initially to keep operations running, berth line-ups of vessels have quickly started to become congested, with operational delays now averaging 5-7 days, according to carriers. Berthing line-ups are expected to remain congested until mid-May as more vessels continue to call at the port.
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Terminals in Rotterdam are likely to remain under the greatest pressure with the highest risk of congestion as ocean carriers are considering a strategy that involves offloading cargo at major hub ports, skipping subsequent port calls, and turning ships around early to return to Asian export hubs. This allows container lines to reposition empty containers faster which have been held at European ports since the Ever Given’s grounding and are, therefore, unavailable in Asia. In this way, carriers are likely to benefit from spot rates which are almost four times higher on the fronthaul from China to Europe than on the backhaul.
Should congestion issues in Rotterdam worsen, carriers could also opt to unload cargo at nearby ports such as Antwerp, Felixstowe, or Le Havre. This may cause spill-over congestion at these gateways due to ad-hoc vessel arrivals and leave shippers with cargo at the wrong ports until ships arrive a week later to carry the cargo to their destination ports. Container terminals in Antwerp have already faced congestion issues prior to the Ever Given’s grounding, prompting container lines to push more volumes to terminals in Le Havre in recent months.
In Asia, the Port of Singapore, which is expected to receive the largest number of vessel calls on eastbound services, has also faced an uptick in vessel berthing times over the past 18 days — with vessels now spending 60 hours on average outside the port, compared to 42 hours on April 8. Should congestion issues worsen in Singapore, carriers could opt to discharge cargo at alternative hubs nearby, increasing the risk of congestion at Port Klang or Tanjung Pelepas. The latter has already been facing average berthing delays of more than 2 days in the past weeks.
Will there be enough containers available in Europe and Asia?
Besides the increased risk of delays for import cargo into Europe and Asia, the Suez Canal closure will also have an impact on the availability of container equipment at export hubs in China and Korea, which is expected to decline from mid-April and well into the month of May. This will apply mostly to 40-foot containers, which account for around 75 percent of containers on the major east-west trade.
Among the ports most likely to be affected by the shortage are Shanghai, Ningbo, Qingdao, and Busan, with the biggest impact to be expected between April 19 and early May due to delayed vessel arrivals. According to the Container Availability Index (CAx), equipment availability at the Port of Shanghai has been decreasing every week since the beginning of April and will likely fall further for a period of 2-3 weeks until mid-May, pushing back the recovery across Chinese ports and potentially leading to further spot rate increases.
To remedy the situation, several carriers have opted to turn ships around faster than anticipated from Europe to Asia instead of waiting at potentially congested terminals, making an earlier recovery of shipping schedules as well as the rebalancing of container equipment increasingly likely. While capacity and equipment issues at Asian export hubs could improve by the end of May, the cut-and-run decisions by carriers at European ports will, however, cause significant delays for both importers and exporters in Europe. On the import side, cargo may be offloaded at the wrong ports, causing additional delays and costs for the final leg; meanwhile, on the export side, this will likely result in an increase in rolled export cargo as carriers prioritize moving empty over full containers back to Asia.
Will rate levels in the ocean and air freight markets go up?
With Maersk Line, one of the largest container lines in the world, announcing capacity cuts of up to 30 percent in the second quarter of 2021 on the Asia-North Europe route due to the Suez Canal blockage, spot rates have started to climb upwards in recent weeks for the first time since January 2021. According to the Shanghai Shipping Exchange, spot rates from Shanghai to Rotterdam have increased by 14 percent in the last two weeks and are expected to further rise in the coming weeks due to the ongoing capacity limitations and container equipment shortages. Some carriers indicated that the impact on capacity and equipment are unlikely to be resolved before the third quarter of 2021. In total, rates per TEU have increased by more 360 percent on the Asia-North Europe route since August 2020.
Meanwhile, no significant impact has been recorded on spot rates from East Asia to North America in the aftermath of the Suez Canal closure, although rates remain at elevated levels amid strong ongoing demand. However, the change in shipping schedules has further increased the capacity crunch on the westbound transatlantic lane from Europe to North America as carriers prioritized reallocating capacity to more lucrative routes in recent months, causing a sharp increase of spot rates by 87 percent since January 2021.
At the same time, air cargo rates have been pushed up throughout the month of April following the Ever Given’s grounding as shippers looked to convert critical shipments from ocean to air by any means possible. In particular on the Hong Kong to North America lane, figures from the Baltic Exchange Air Freight Index (BAI) showed that average prices in mid-April were higher than at any point during 2020’s demand surge amid the export boom of personal protective equipment between March and June. The spike in air cargo rates was also fueled by stricter quarantine rules for aircrews in Hong Kong that resulted in reduced cargo capacity due to flight cancellations, such as those from Qantas Airways beginning February 2021.
How long will the repercussions last and what can my organization do about it?
While congestion at ports in Europe and Southeast Asia caused by the Suez Canal closure is expected to remain a concern until at least the middle of May as more vessels continue to arrive, carrier schedules are unlikely to return to near-normal operations before mid-June, in particular on the most affected Asia-Europe route.
In addition, the availability of containers at Asian export hubs is likely to improve towards the end of May, especially if the long queue of vessels outside U.S. west coast ports carrying hundreds of thousands of containers start to clear as well. However, no significant decrease in ocean cargo spot rates should be expected until the fourth quarter of 2021 as carriers continue to be in the driver’s seat, meticulously managing the supply and demand balance with a clear focus on maximizing profits and little interest in honoring long-term agreements with forwarders.
Despite the volatility in the global logistics market, organizations with global supply chains looking to reduce their risk exposure amid the current turmoil can adopt certain measures to improve supply chain agility:
- Keep abreast of the latest developments regarding congestion at ports and airports around the world. By regularly monitoring which critical locations in its network may be at risk of growing congestion, companies can anticipate delays by activating contingency plans with their logistics providers, i.e. by offloading cargo at less congested ports or using alternative air cargo gateways. Using supply chain intelligence & monitoring solutions to track developments can aid this process.
- Strengthen relationships with key logistics service providers, which can prove valuable in times of global market disruption. Logistics partners can give companies a head start in preparing for impact by providing on-the-ground market intelligence and prime access to additional capacity in the form of charter flights or charter vessels.
- Explore new service offerings in a rapidly evolving logistics environment. Due to the turmoil in the logistics market, there is an abundance of new service offerings that provide alternative solutions. In the ocean freight market, forwarders have chartered their own vessels from Asia to Europe, and Europe to North America to ease the capacity crunch. Meanwhile, ocean carriers continue to offer more non-stop, expedited vessel services for new destinations such as between Taiwan and Oakland, while also adding capacity on alternative modes of transport such as sea-rail services from China to the Baltic Sea via Russia. Transport planning capabilities, powered by AI models, can facilitate this exercise.
- Anticipate higher logistics costs and set clear priorities. In the current “seller’s market” in which carriers increasingly disregard long-term agreements and only the highest paying cargo is being shipped from its origin, organizations should set clear priorities as to which shipments should be expedited at higher costs and which shipments can be held at the origin for longer, without jeopardizing production schedules or customer commitments.