LONDON (ICIS)–Chemicals container shipping
costs have jumped drastically along some routes
as the coronavirus pandemic remaps traditional
trading patterns and issues at European ports
add to delays in the region.
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The recovery of multiple key Asian markets from
the pandemic relative to the ongoing struggles
faced in the west has led to a surge in exports
from the region to the rest of the world, with
less product going back the other way.
The shift in demand patterns has led to
containers returning empty to Asia as demand
for exports from the region significantly
outstripped demand for imports, increasing
costs and lead times for orders.
Shipping lines cut capacity drastically during
the first wave of pandemic-related lockdowns,
and have failed to boost it sufficiently as
demand bounced back.
According to Truong Mellor, senior analyst,
specialised products at shipping services group
Clarksons: “By June you saw around 12% of
global container capacity offline. Following
that, they couldn’t restore capacity quickly
enough to meet the unexpected Q3 and Q4
recovery, especially out of China where
manufacturing activity and containerisable
exports have held up pretty well.”
According to Mellor, container availability has
been disrupted by too many full containers
being stuck in distribution chains west of Suez
or in congested ports of entry, with logistics
slowed down because of manpower shortages
related to coronavirus lockdowns.
CHEMICAL MARKET
IMPACT
“Everything is going to
China, prices in China are crazy. Also freight
costs. Normally freight costs are around $1,500
for a 20ft container. Now you talk about
$5,000. It changes every week,”
a Europe-based isocyanates producer said:
The extent of demand has led to shortages in
Asia, with shipping firms going so far as to
send additional empty containers to the region
just to alleviate some of the pressure.
“There’s a shortage in Asia,” said another
source. “There are extremely high sea freight
rates out of Asia. For the time being it’s
mainly containers.”
“We had this phenomenon in past years too,
where you have shipping companies shipping
empty containers to Asia simply to have
enough,” it added.
Sources spoke of shipping freight rates for dry
cargo rising three- or four-fold, and lead
times dragging from six weeks to eight, at a
point where demand patterns are extremely
difficult to determine due to the trading
volatility seen in the market outlook.
BASF CEO Martin Brudermuller noted recently
that the company has new order visibility of
around two months and almost no indication
beyond that.
Lockdown measures in many European countries
are creating additional headaches for the
shipping sector, Some sources report the use of
smaller vessels to cut down on mooring fees but
resulting in reduced vessel space, and shipper
terms changing fast.
“All the Asian countries are producing and
exporting and not importing, because of Covid
etcetera. People [in Asia] aren’t importing,”
said an Italian trader.
“Shipping lines are saying they can’t respect
their contracts. They say pay or we won’t
ship,” it added.
DISRUPTION TO PERSIST INTO
2021
Some Asia sources have
expressed expectations that freight container
tightness in the region is likely to persist
until the next Lunar New Year in February 2021.
“The Chinese say it will last until March or
April 2021, then the cycle of containers should
go back to normal,” said a German trader.
“It looks like it will last at least until the
end of February,” said a Spanish trader.
The pandemic has meant product like recycled
low density polyethylene (R-LDPE) remaining in
storage longer due to additional healthy/safety
checks. This adds cost and, more recently, with
longer lead times there is demand because
people are trying to ship to Asia ahead of the
Lunar New Year.
The tightness of the situation has also
resulted in some order cancellations, according
to a titanium dioxide trader based in Europe
that imports from China.
““Vessel space is very tight, prices are
increasing extremely [significantly]… we have
one container load and the containers were
cancelled from the logistics/shipping
supplier,“ it said.
PORT CONGESTION
Chemicals supply chains have largely held up
during the disruption caused by the pandemic,
and distributors have learned lessons from the
first spate of European lockdowns to navigate
the disruptions seen this time around,
according to Peter Newport, CEO of UK-based
trade group the Chemical Business Association
(CBA).
“The UK chemical supply chain has learned from
the first lockdown and is better-positioned and
experienced to deal with the second,” he told
ICIS recently.
Trade disruptions, bulk orders of medical
equipment by governments and geopolitical
issues such as the UK’s imminent expected
departure from the EU customs union, is also
causing congestion at ports and storage issues.
UK chemicals distributors report 90-97.5% of
storage capacity currently taken, while the UK
Warehouse Association estimates that around 97%
of total storage space in the country is taken.
“At [key UK port] Felixstowe… the British
government bought a lot of PPE [personal
protective equipment], but they didn’t have
warehouses so the containers were piled at the
ports,” said a trader.
Other key European ports have also had issues,
with Rotterdam suffering from delays to
arrivals and discharges of shipments due to
issues with a new IT system, according to a
source.
“There are some problems at the ports,” said an
epoxy trader that imports from Asia. “We
normally bring our product to Felixstowe and
had to move to London Gateway.”
“I spoke to colleagues in Europe, there doesn’t
seem to be any space [at] Rotterdam/Antwerp,”
it added.
The practicalities of operating during the
pandemic are also exacerbating delays at
European ports, with additional health and
safety checks, furloughing, and social
distancing also slowing the speed that product
moves through the ports.
“There are still some international shipping
delays at port of loading or at UK port of
discharge which can lead to significant
short-notice storage demand volatility,”
Newport added.
Lockdowns are expected to ease in most European
countries but, with the virus still circulating
at high rates and restrictions expected to be
temporarily eased for a spell over the
Christmas break, controls on contact and the
potential for staff shortages from illness
remain high.
The issues mean that, while supply chains are
largely continuing to hold and orders continue
to be met, logistics issues are likely to
continue exacerbating demand opacity, economic
volatility and shifts among buyers to more hand
to mouth purchasing habits, making for a
treacherous landscape for firms through to the
new year.
CONTAINER SHIPPING
ALLIANCES
Although shipping
cartels were outlawed in 2004, shippers are
permitted to operate in alliances to optimise
use of shipping space.
The OECD’s International Transport Forum
claims that links between these consortia
mean a large majority of trade routes to and
from Europe are operated by one conglomeration
of these groups.
It is concerned that too much information may
be shared on volumes, costs and pricing.
“The container sector is a lot less fragmented
compared to a few years ago. Now you see the
top five owners controlling close to 65% of
capacity,” added Clarksons’ Mellor.
Front page picture: Qingdao port in
Shandong province, China
Source: Sipa Asia/Shutterstock
Insight by Tom Brown
Additional reporting by Will Beacham, Heidi
Finch, Fergus Jensen, Caroline Murray, Linda
Naylor, Helena Strathearn, Sylvia Traganida,
and Mark Victory
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