The present scenario in the sea freight shipping industry has posed a major problem for shippers. To begin with, the freight rates are high, and then there are the added problems of container shortage, port congestion, and high demand for space. As per a report by CNBC, “Shipping costs have skyrocketed as desperate companies wait weeks for containers and pay premium rates to get them, according to industry watchers.” Keep reading today’s blog to find out about the reasons behind the crisis in the ocean freight shipping industry and a glimpse into the future scenario.
Reasons behind the current crisis in the ocean freight shipping industry
Presently, one of the biggest problems of the container shipping industry is the escalated shipping price. The shipping cost is now over 4 times the usual price. This has threatened the stability of the manufacturers who are now scrambling for ways to ship their products. The cost of 40-foot boxes from Asia to the North of Europe has gone up from $2000 to a whopping $9000. On the other hand, the shipping price of cargoes from the Asian countries to the West Coast of the USA has raised by 145%.
There are several factors that contributed to this unprecedented storm in the ocean freight shipping industry. The crux of the problem lies in the fact that there is an imbalance in the international trading pattern. This imbalance was further heightened by the lockdown following the pandemic. The e-commerce boom has resulted in an increased demand for commodities. However, the shortage of containers and the ever-increasing shipping rate is preventing the shippers from moving the cargo. Additionally, we have the problem of port congestion in so many parts of the world. This created unwanted bottlenecks, blank sailings, and ultimately enormous delays. Furthermore, the ocean freight industry is also having to deal with crew shortages, equipment shortages, environmental regulation, and several other operational challenges.
Approximately we have over 170 million shipping containers all over the globe. They are used for moving over 80% of the global commodity. Still the pandemic has left the shipping lines with delays and backlogs because of the above-mentioned reasons. The obvious implication is that even China doesn’t have the required number of containers to meet the rising demand. Therefore, finished goods are accumulating in the Chinese manufacturing centres. As per a statement by Reuters, the “average container turnaround times have ballooned to 100 days from 60 days previously.”
The reliability of sea freight carriers is down by 35 points
The crisis in the sea freight shipping industry has taken its toll on the global schedule reliability, which is 35 points below the mark. Ships are finding it hard to keep schedules. The average delay for vessels that were lagging was 5.86 days in May 2021. This figure is frightening, although the situation is better than in February when there was average delays of 6.96 days. In the words of Rolf Jansen, the CEO of Hapag Lloyd, “If we look at the situation around the market, then the theme remains congestion…Unfortunately, we still see significant congestion in many places around the world.”
Consumer demand continues to be at its peak. Nevertheless, there is still a shortage of shipping capacity, equipment, and labour. Therefore the increasing consumer demand is not being met easily and the challenges are most likely to last till December. Putting it simply, sea freight shipping is becoming increasingly costly for shipping companies because of the rising demand. Bjørn Vang Jensen, VP of advisory services for Sea-Intelligence thinks that if there is no change in the capacity and demand pattern then the shrinking shipping capacity could last up to three years. Additionally, the industry is expecting a higher demand for goods prior to the holiday season. For this reason, the companies will start their shipping processes earlier than usual.
Predictions about the future scenario of the ocean freight shipping industry
Freight rates are not going to stabilize immediately
Although the freight rates have reached a record high, the shipping cost will go down once the situation stabilizes. However, for the shipping prices to lower we would need more freight capacity, more workforce, more containers, and a balance in consumer demand. There is not much chance of the rates going below the pre-Covid times. Shipping companies need to go for shared containers to help get out of this crisis. Going for one TEU per order by sea freight forwarders will lead to a further shortage of containers.
Blockchain will have a greater impact on the ocean freight shipping industry
In all probability, the current crisis will push this industry to embrace digitization. The container shipping giants are already making use of blockchain-enabled platforms for data visibility and increased collaboration among all the stakeholders in the ocean cargo shipping sector. For example, Maersk’s TradeLens platform is helping to eliminate paper-based manual documentation processes that lead to slow handling and processing. It has connected the shipment owners, inland and sea carriers, logistics service providers, port and terminal authorities, customs authorities, freight forwarders, etc for a more cohesive shipping process. This industry will henceforth be more open to the digitization and make use of smart contracts for increased efficiency and cost-saving.
Shipping companies might start investing in new container ships
By now it is quite clear that the container crisis isn’t going to be over till there is a decrease in demand or increase in capacity. Since there is not much chance of the demand going down any time soon, the only way for container shipping companies to avoid the crisis is to invest in the production of new container ships.
Digitization will help to tackle the problem of port congestion
Heavy port congestion is a major problem that has plagued the shipping industry due to port backlogs, especially after the first lockdown. Nevertheless, the use of technology like ocean-faring data collection is being used to mitigate this problem. Moreover, the use of blockchain is also allowing the maritime shipping industry to streamline its journeys. Blockchain is allowing the vessels and the seafarers to easily and quickly access and leave the ports. It is also helping to reduce the total duration of the voyage. This translates to lower costs, less shipping time, and easy management of accessible data.
The Covid-19 pandemic has plunged the international sea freight shipping industry into an unforeseen crisis. Nevertheless, this industry is embracing smart technologies that are helping to cope with the threat of shipping disruptions. Presently, the maritime shipping sector is experiencing a surge in demand and their primary occupation is to find ways to fulfill it. The industry needs to rethink its practices, invest in new technologies, in order to cope with the challenges.