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Chokepoints emerge as ocean supply chains buckle under rising demand

Container shipping networks are now under severe pressure with rising rates, box shortages and mounting port congestion all pointing to a Q3 crunch.
Container shipping networks are now under severe pressure with rising rates, box shortages and mounting port congestion all pointing to a Q3 crunch.
14 June 2024 •

“What do you want first, the good news or the bad news?” goes the old joke. 

Well, shippers could be forgiven for imagining the joke is on them this year as supply chains have been disrupted by events beyond their control, and freight costs have spiraled.

“Despite a record number of new vessel deliveries in 2024, delays at transshipment hubs, port congestion, longer transit times and equipment shortages are all putting strains on effective capacity,” said Niki Frank, CEO, DHL Global Forwarding Asia Pacific.

A glimmer of positivity

Capacity on the Panama Canal has been curtailed for the best part of a year due to drought in the region. But the arrival of the rainy season saw water levels in late May on Gatun and Alajuela Lakes rise above those recorded on the same date in 2023.

Average transits fell month-on-month in May, despite the Panama Canal Authority (Autoridad del Canal de Panamá, ACP) adding seven Panamax slots from 16 May, raising the total daily slots to 31. However, Drewry noted that container ships made 7.3 transits daily, down just 4 percent compared to the full 2023 fiscal year.

Moreover, vessels transiting can now load more cargo. ACP has brought forward a plan to increase the maximum draft capacity vessels transiting the Neopanamax locks to the start of June instead of mid-month.

Southeast Asia port congestion epicenter

Unfortunately, this positive is rather swamped by mounting signs that ocean shipping supply chains are straining in the face of rising demand.

Ports in China saw productivity drop due to high winds and storms in May, impacting cargo flows and causing backups at berths.

With carriers making ever larger divergences to avoid Houthi attacks, shipping analyst Linerlytica said the knock-on impact is surging congestion at ports. It estimates that Southeast Asia is the worst bottleneck, accounting for more than a quarter (26 percent) of congestion, while North-Eastern Asia is close behind at 23 percent.

Singapore, however, is the current epicenter of the backlogs. Linerlytica calculated in late May that there were up to 450,000 TEUs in the queue for shipping at the world’s second-largest container port and ships were waiting up to a week for a berth.

“Vessels coming into the Port of Singapore have to wait up to seven days for their berthing window. Port utilization is currently at about 90 percent, which means port capacity is very taut at the moment,” said Praveen Gregory, Senior Vice President, Ocean Freight, DHL Global Forwarding Asia Pacific.

The additional stresses placed on terminal space at Colombo in Sri Lanka due to Red Sea diversions are now spilling over into India.

Transshipment options via Dubai are also under pressure, while container ports around the western Mediterranean such as Algeciras and Barcelona in Spain and Tangier-Med in Morocco are nearing full capacity due to surges in traffic.

As vessels take longer to enter and exit transshipment hubs, these delays are likely to spread to other key ports, as their connections to other terminals will have to be rescheduled.

However, Gregory added that effective measures are being implemented to alleviate terminal bottlenecks.

“For instance, vessels entering the Singapore port are asked to take away more containers than what they bring in.  In addition, previously idled Keppel Terminal is being reopened to help ease the congestion,” noted Gregory.

Box shortages

Meanwhile, container shortages are mounting in Asia, with box availability in northern China particularly tight.

Container xChange reported that prices for 40-foot-high cube containers in China increased 45 percent from US$2,240 in April to US$3,250 in May, primarily due to Red Sea diversions stretching carrier networks and shippers pulling shipments forward to avoid future disruptions.

DHL’s June Ocean Freight Market Update notes that carriers have announced significant rate hikes on all Asia outbound lanes due to the increased demand and load factors coupled with equipment challenges in ports.

In the first week of June, Drewry’s World Container Index rose 12 percent week-on-week and was up 181 percent compared to a year earlier. Rates on the Shanghai-Rotterdam route jumped 14 percent in the week, soaring to 315 percent higher than a year earlier. Rates on the Shanghai-Los Angeles trade jumped 11 percent in the first week of the month, taking rates up 215 percent year-on-year.

Despite record deliveries, capacity remains taut as container shipping networks are struggling to cope with demand. DHL’s June Ocean Freight Market Update noted that diversions around southern Africa are sucking up fleet additions and capacity is scarce despite the idle container vessel fleet currently standing at just 0.3 percent (58 vessels).

“Container shortages are worsening in many Asian locations with all vessels fully booked until July,” said Frank. “We are expecting ocean shipping capacity shortages to last through the usual peak season until October.”

However, Frank explained that the equipment shortage is not likely to become a long-term challenge, citing the 700,000 new containers ordered over the past four months.

“The industry did foresee the equipment shortage, so every carrier has ordered new empty containers to keep up with the demand here in Asia. Eventually, the situation will likely stabilize as Cape of Good Hope routing will be the new normal, and chances are that there will be sufficient container equipment supply. Carriers will just have to deal with the short-term pain of equipment shortage for the next few months,” said Frank.

Surprisingly buoyant demand

How much cargo is being shipped early in Q2 by shippers to avoid a worsening situation during the traditional Q3 peak season is the great unknown of container shipping in early summer 2024. But what is clear is that demand is surprisingly buoyant. Moreover, there are signs that the underlying economic picture is improving.

The upturn in the global manufacturing sector gathered pace in May, with rates of expansion in output and new orders both strengthening.

Bennett Parrish, Global Economist at J.P. Morgan, explained that the bank’s PMI (Purchasing Managers Index) Output Index readings rose by 1.2 to 52.6 points in May, its highest level since December 2021 and consistent with a solid expansion in production volumes.

Parrish also noted that signs of recovery were broad-based by nation. “Uplifts in the new orders and employment PMIs are also providing positive reinforcement to the strength of the upturn moving ahead,” he added. “The base of the revival is also broadening, with output growth accelerating in the United States, China, and the United Kingdom, while rates of contraction eased in Japan and the euro area."

This bodes good news for manufacturers, but bad news for those weary of coping with disrupted supply chains.