At the start of 2020, the biggest concerns facing the global ocean freight market included the US-China trade war, cyber-attacks, and the unpredictable impact of the retail shift to e-Commerce. This all seems fairly insignificant these days. Since then, the well documented events surrounding the Covid-19 global pandemic have thrown the freight market into absolute chaos. Read on to see what happened, how shippers are being impacted, and what we are doing to try and limit any negative supply chain outcomes…

Capacity, capacity, capacity

When the scale of the pandemic became apparent towards the beginning of the year, ocean freight carriers removed significant levels of capacity from their routes. The problem is, demand for ocean freight space re-materialized far quicker than expected, resulting in a severe imbalance between demand and supply, which skyrocketed rates and created serious constraints in trying to secure space. You see, it’s very difficult to increase ocean supply in a short space of time, and so the current situation is likely to persist for some time. In a recent webinar with the International Chamber of Shipping, major carrier One Network Express (ONE) CEO, Jeremy Nixon, boldly stated that they are effectively, “sold out”. He added that with all their equipment deployed, ports are getting jammed up, and resource levels are further constrained because of Covid-19 regulations. Fewer truckers are available and fewer trains and train workers are available, which creates further bottlenecks in the container supply chain. This issue is even more prolific for routes which are less profitable for the shipping lines (like most routes servicing South Africa), where vessels are being re-routed to more profitable lanes on the transpacific, especially those vessels that had been idling during most of the global lockdown.

Rates volatility

The inevitable impact of this capacity imbalance is severe rates volatility. Considering the scramble for space, carriers are effectively in a position to charge what they wish – knowing that companies are so desperate to keep their supply chains running and get their goods to market. Some carriers introduced a ‘space guarantee’ surcharge of hundreds of dollars per container, and most other carriers introduced significant General Rates Increases (GRIs). As an example, the Asia to South Africa spot rates for container freight have increased by 155% on a weighted average scale! This is likely to increase even more in comings weeks and months. The damage is not limited to spot rates. Some carriers have even announced that contracted rates in place cannot be honoured and that all shippers and LSPs will have to revert to spot rates and instant bookings to try and secure space.

Impact and what BIL is doing about it

This situation calls for 2020’s most overused cliché – unprecedented circumstances.

The causes are complex, but the implications are fairly simple, and fairly bleak: rollings are rife, and costs are high. If you get an estimate, you are not guaranteed to secure the booking at that rate, and even if you do, there’s still a chance your box doesn’t make it onto the ship.

As your logistics partner, BIL uses its consolidated buying power with the shipping lines to negotiate agreements, commitments, and rates that you are highly unlikely to obtain when negotiating with only your own volumes. We have established strategic relationships with the major shipping lines, guarding us at least to some degree against the worst of the negative effects. We are also closely aligned to the lines, meaning that any changes in rates and capacity can immediately be communicated so that alternative arrangements can be made. The reality however is that even through our relationships and negotiating power, we are far from immune to the chaos currently in the market. However, rest assured, we are committed to remaining as flexible and transparent as possible with our clients to help you minimize the negative impact of the situation. Your BIL team is available if you have any questions, just give us a call.