Troubled waters

Shipping containers

The current international shipping market is in conflict with the NZ domestic market.

There are a number of contributing factors:

We are all very aware its tough times in the NZ economy, but not so in other areas of the globe. Major trade lanes such as China to South America, to Europe, to the Mideast, to Africa, to the Indian subcontinent are booming.

The South America route for example has achieved double-digit growth for three consecutive weeks. Consequently, ocean freight rates on these trade lanes are rising quickly and significantly – today the market rate China to South America sits around USD 10,000.00 per 40’ FCL, similarly a direct service China to Europe – USD 7,000.00 per 40’ FCL. Need it be said these examples are a lot higher than current levels we are paying in NZ. Consequently, “Yield Management” by the ship lines is a very real threat to the NZ market. Why serve NZ when much better returns can be achieved by supplying more voluminous and higher yielding trade lanes elsewhere?

I haven’t included China to USA trade lane above. It’s not that it isn’t strong but because its real impact may yet be played out. If Mr Trump succeeds gaining a 2nd Presidency his declared intent is to increase duties on Chinese manufactured products (by as much as 60%). If things start looking favourable for Trump, US importers will only increase their orders hoping to beat the introduction of the new taxes. Should this happen, it would have notable impact on the international market – albeit short term.

We are starting to experience sporadic short supply of empty containers (40’HC’s in particular) ex Asia (notably China). This is not only because of above mentioned high demand but also because of increased transit times being experienced between Europe and Asia due to the Houthi Rebel armed conflict in the Red Sea. Whilst this event is far away from New Zealand, do not underestimate its impact. Longer transits translates to more containers being needed to carry the same amount of cargoes. This trade lane is currently experiencing an increase in trade demand, which in turn is placing increased pressure on already tight empty container availability. If we circle back to yield management by the ship lines – the short supply of available empty containers only exacerbates the potential difficulty for the NZ market. It is anticipated the global shipping industry will experience a capacity loss of 15-20% supplying the Europe, Mediterranean markets.

I could be accused of cynicism but I for one suspect shipping lines (behind closed doors) were comfortable with this event (Red Sea). Not the event itself but the ramifications thereof. It wasn’t that long ago when rates were arguably at pre COVID levels coupled to a poor global economic outlook coupled to a large number of new vessels being introduced to market that things looked very glum indeed if you were a shipping line. However, this event has allowed excess vessel capacity to be absorbed due to longer transits being required sailing around Africa. Consequently, we are seeing increased congestion on the African routes which is only further impeding progress.

Due to the rapid rise in freight rates shippers are understandably attempting to achieve savings by using deferred (Trans-Shipment) services. In NZ we often have little choice, but other markets do have more options. For example, China to Europe direct is approximately USD 7,000.00 per 40’. However, if a deferred service is used approx. USD 5,000.00 / 40’ can be achieved. Because of this an increased number of shippers are opting for deferred services which in turn is causing congestion in key S.E Asia Trans-Shipment ports – worst present-day is Singapore. We are already seeing regular 2–3-week delays through this port. Its not because of NZ volumes, it is the other trade lanes causing this congestion. I suggest Singapore will not improve for some time yet, and will probably deteriorate.

My intent in conveying the above, is not to be negative or scare . . . but to inform. What a lot of us are facing in the domestic market, is not necessarily what is happening in the international shipping market. I understand why many of you are looking for lower cost options. I fear however many a decision is being made solely based on price rather than any service considerations. Although nothing is guaranteed there are often better, safer options to choose particularly if the cargo is urgent or required by a certain date. Some lines are very aggressive in pricing and have thus become over-booked, add port blanking, increased delays at transhipment ports and transits times can blow out.

I further advise that pre-booking of space and sharing forecast information is of particular importance right now.

Considering the above I encourage you to consult with your regular Stellar representative or our pricing team and share as much information as possible to ensure best decision is made at time of booking.
I am available at any time for further advice and comment.

Murray: +64 21 758 845