Container capacity shortage set to last until fourth quarter

There is little chance of congestion in the supply chain being resolved before the fourth quarter of the year, although some signs of improvement may begin to appear in time for the traditional peak season.

“We still see an enormous surge in demand that is overwhelming the shipping industry,” said Hapag-Lloyd chief executive Rolf Habben Jansen. “This has had a huge impact on spot rates, and there are still operational challenges and capacity bottlenecks.

“I don’t think we’re going to see an easing of that before the fourth quarter. It looks as if it will be a busy year.”

Congested ports remained at the heart of the problem, not only in the US but in Europe and Asia too, where a combination of surging demand, unexpected volumes and pandemic-related restrictions were causing difficulties.

“Terminals cannot run at full capacity, yet they have to deal with record volumes,” Mr Habben Jansen said during a presentation to customers. “As a consequence, ships are delayed.”

Hapag-Lloyd’s own average delay has gone up 160% to 3.9 days. This had a related impact on container availability as it took longer to get equipment back. Average usage time for containers had risen from 49 days to 58 days.

“That means we need 20% more containers to transport the same amount of goods,” he said.

The equipment shortage should normalise when schedule reliability picks up again. But realistically, schedule reliability would not get back on track until at least the third quarter, he added.

“If boxes move the way they should, there are enough containers in the world.”

The traditional slow season had failed to materialise this year with volumes staying consistently high in the first quarter and into the second quarter.

“We have a season that is comparable with what would normally be the peak,” said Mr Habben Jansen. “But the challenges we face on the port side will ease, so I’m cautiously optimistic that by the third-quarter peak seasons we will start seeing a gradual improvement.”

But with demand set to remain high — Hapag-Lloyd expects volumes to be up 5%-6% this year — freight rates will also remain elevated.

That, however, is not necessarily a good thing, according to Mr Habben Jansen, as rates for some shippers and lower cost cargoes have become prohibitive.

“That is one of the reasons we would like rates to go down, because then I think more commodities will move again,” he said. “The spot rates we see today are a temporary thing and we will get back to a more normal situation, allowing these cargo flows to come back.”

Shippers hoping to sign up to contracts in an effort to reduce rates will be disappointed, however.

“The further we get into the year, the amount of space is simply limited,” he said. “We’ve been recommending since late last year to lock in volumes. Many of done that, but that means that the remaining space today is rather limited.”

Moreover, when rates normalise they will land “a bit above” where they were in the past.

“A number of the structural cost factors have gone up, mainly around charter rates and bunkers. I still expect them to be in a double-digit percentage above where they used to be, but that is a very steep decline from where we are today.”

That will come as cold comfort to shippers witnessing yet more spot rate records being broken this week, particularly on routes to Europe.

But there is little a carrier can do to lower rates in periods of such strong demand.

“In the end it is market forces that drive these short-term rates,” Mr Habben Jansen said. “The way to get out of it is to either close longer-term contracts or otherwise wait until the craziness is out of the market.

“The prices that people offer for containers are still going up. The reality is that we are in an open market and we’ve seen many years when rates were low, when market forces also determined that.”

For now, though, the inflationary pressures that are a consequence of the large stimulus packages would keep rates elevated.