2021: a year of the variants of the Covid and of milking the cash cow of the freight rate

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Never given © Björn Wylezich

Starting the year locked out and ending the year locked out, it all sounds like a scene from the classic Bill Murray movie groundhog day, but in the meantime we have managed valuable face-to-face networks. So let’s hope that we can finally put this nasty virus in touch in 2022!

Meanwhile, 2021 has proven to be a very difficult year for shippers, but exceptionally profitable for ocean carriers and container ship owners.

Soaring freight rates – both short-term and contractual – along with a dysfunctional and, at times, broken supply chain, have compounded the misery of the shipping community over the past year.

After the Chinese New Year in mid-February, there was a brief glimmer of hope that fares had peaked and carriers were starting to regain some semblance of schedule reliability – but then came the unfortunate Never given, attempting a three-point turn in the Suez Canal and blocked the waterway for a week in March.

Pent-up demand from the stranded Asia-Europe supply chain has overwhelmed container ports in northern Europe, and the effects of chronic ship delays and equipment shortages have reverberated around the world.

Nothing more than the southern California ports of Los Angeles and Long Beach, where disrupted schedules, container shortages and increased consumer demand have contributed to rescue ships waiting for berths and handover. – working for weeks, reaching peaks of over 80 immobilized. ships.

And even when the ships reached an unloading dock, city-side delays and a shortage of truck drivers in the US and Europe resulted in the arrival of Halloween costumes in mid-December!

Already on the ropes to take blow after blow carrier rate increases and de rigueur premium charges (essential to secure equipment and prevent container rolling), shippers have been hit below the belt with exorbitant demurrage and detention (D&D) charges.

Carriers have continued to vomit D&D invoices to shippers, often unable to pick up containers from chronically crowded terminals, or return boxes when empty.

And, while a significant portion of D&D fees are pure profit, shipping lines were under no commercial pressure to negotiate reductions, and all protests took place on rocky ground with regulatory warnings largely dismissed. .

The carriers didn’t really need the money – their record quarterly profits even surpassed their best annual returns, with the 2021 cumulative result for the industry now expected to exceed $ 150 billion!

With only about a third of their income spent on ordering new ships, the carriers still had a lot of money to spend. appearing on the M&A radar screen was fair game.

With around 20% of the cell fleet unused in ports around the world, it was the turn of besieged container ship owners, many of whom had been on the verge of insolvency for years, to turn the tables for their customers. carriers and skyrocket daily. rental rates for chartered tonnage.

Indeed, some 4,000 to 5,000 TEU Panamax ships that were destined for scrapping only a few years ago have fetched mind-blowing rates of $ 100,000 per day or more, long term fixed rate agreements very high. becoming the norm.

Reflecting the hold they had over shippers, the lines, fearing to be ransomed by the shipowners, embarked on a tonnage buying frenzy, thus driving up the value of assets in all sectors, which in some cases have exceeded the original construction price.

It is therefore not surprising that the demolition market, which a few years ago exceeded 750,000 teu of ship cancellations per year, has shrunk to almost zero, with “everything that floats” was brought into service.

As a result of much higher freight rates, for the first time in many years, the economic barrier for new entrants to trade has lowered, with several new services emerging from the old-fashioned disruptors of line operators who included again the interest of looking after their shippers as customers.

Unfortunately, the outlook for shippers in 2022 is more or less the same, at least until the second half of the year. They are faced with a difficult choice between “the devil and the big blue” to try their luck in the “casino” of the cash market or to sign busy multi-year contracts.

But for the carriers, it looks like they will still be milking the very high freight rate cash cow for a while yet.

Merry Christmas to everyone !

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