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Liner shipping enjoyed its most profitable year ever last year and in good old shipowning fashion, the liner companies and their tonnage suppliers splurged their profits on more than 500 newbuilding orders, thus guaranteeing that the good times will come to an end when 3.5m teu of this delivers by the end of 2023. But that still leaves them in a party mood for 2022 as any lingering disruption from the pandemic will manifest itself as firmness in the freight market. The Freightos / Baltic Exchange Global Containerised Freight Index stood at $9,750 per feu on February 18, up from a low of $9,170 on January 7. Eastbound transpacific prices were $15,600 on February 18 compared to $13,600 on January 7. Rates from the Far East to Europe peaked in late January at around $15,000 per feu and subsequently declined to $14,250 over the next three weeks. Transatlantic westbound rates remain around $7,000 per day compared to an average of around $2,000 per day in 2021. As we reported last month, liner companies are taking on more tonnage at stratospheric time charter rates, so they have all the motivation they need to keep freight rates at these levels for as long as possible. The global bottlenecking situation continues to underpin the freight market. Ports on both the east and west coasts of the US are still struggling with high levels of congestion, with research outfit Linerlytica reporting that 10% of global container shipping capacity – around 2.5m teu – is bottlenecked as of mid-February. Bud Darr, head of sustainability at the biggest carrier MSC, in a Poseidon Principles webinar in February, pointed out that congestion does more than raise freight rates – it also damages liner companies’ emissions performance. He gave the example that there is little point in ships slowing down on the eastbound transpacific route to avoid waiting off Long Beach / Los Angeles if they then have to sail fast back to East Asia to reload. The congestion crisis is not limited to North America. Several terminals in China are running below capacity and are forcing exporters to hold back cargoes due to the pandemic. In Europe, ship operator Unifeeder says that congestion at main hubs like Rotterdam and Hamburg is causing “operational chaos”. The Kuehne+Nagel Global Disruption Indicator, launched in January, recorded its first rise this month from 11.56m teu waiting days on January 20 to 12.32m on February 12. Shippers are peering into a future of costlier, riskier and less competitive ocean shipping offered by a dwindling number of suppliers who are using their recent profits to vertically integrate and control more than the ocean element of the supply chain. For some shippers this has become too much to bear. The European Association for Forwarding, Transport, Logistics and Customs Services (CLECAT) has alleged unfair practices in liner shipping in a letter it has sent to the European Union. Presumably CLECAT has forgotten about the previous decade of low and falling ocean transport costs; presumably also they expect not to be hammered with Bunker Adjustment Factors when shipping enters the EU’s emission trading scheme from January 2023. Others are taking matters into their own hands. Shippers are taking to owning their own shipping containers, reversing the trend of the last two decades by which owning boxes was outsourced to lessors. It remains to be seen whether this improves the cycle times for getting their boxes back to the loading bays of their factories. Loctek, a Chinese office furniture manufacturer, is so fed up with high container shipping rates that it has ordered its own 1,800 teu containership from a Chinese shipyard. The ship is reported to have cost about $32m and will deliver next year, along with maybe 300 other container ships which will surely tilt the freight market in charterers' favour. Is it a good idea to own your supply chain? This is not the business model most manufacturers were brought up to believe in; it goes against all of the principles of the manufacturers’ bible, the Toyota Production System, in which inventory and supply chain costs are ruthlessly reduced through outsourcing. This may not worry Chinese businesses who can feel confident having conquered global manufacturing in the 21st century. Maybe Loctek has worked out that if they ship 900 feu a month, and if freight costs were to average $10,000 per feu for the next three years, they will pay $9m a month in freight. It could make sense to own a ship and to negotiate and pay for their own fuel, port dues, agency fees and loan interest. They would at least have an asset worth something and the optionality that brings. Back in the present day, shippers face the ongoing challenge of high and steady freight prices – music to the liner companies’ ears.

Cross shippers brace for another brutal year

Complaining clients will do nothing to diminish 2022’s bumper liner profits.

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