Oh, what a difference a year can make. As the holidays approached about this time in 2021, container ships stretched beyond the horizon from San Pedro Bay and shippers were wringing their hands about the location of their long-awaited goods.
Fortunately, with the Christmas rush nearly upon us, things are looking brighter this time around—so much so that the ship backlog at the Ports of Los Angeles and Long Beach was recently declared to be over.
Although various factors played a role in that declaration, one that’s creating a growing concern for carriers is a reduction in demand. Here, we’ll take a look at ocean shipping dynamics this year compared to historical trends—and what experts predict for the weeks and months ahead.
Better Schedule Reliability
One of the big issues last year was that even if shippers were able to find a spot for their goods, they couldn’t be sure when they’d arrive.
However, as The Maritime Executive noted at the end of September, schedule reliability for containerships has definitely improved.
“After more than a year and a half when only a third of containerships were reliably on schedule, the industry is showing strong improvements reaching schedule reliability levels not seen in 20 months,” the publication said. “Nearly half of containerships were reliably on schedule in August 2022 and the average delay also continues to dramatically improve as the industry reports declines in volumes and a retreat from the surge experienced in 2021.”
Quoted in the article, Alan Murphy, CEO of Sea-Intelligence provided an overview of that month’s data: “Global schedule reliability continues to trend upwards, recording the largest month-over-month increase in 2022. The average delay for late vessel arrivals has been dropping sharply so far this year.”
Specific data points from the Sea-Intelligence press release reflect the positive shift:
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Global schedule reliability recorded “the largest M/M increase in 2022 of 5.8 percentage points…reaching 46.2% in August.”
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In August 2022, average delay dropped “by -0.57 days M/M to 5.86 days.”
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“This is now the first time that average delay has dropped below the 6-day mark since April 2021.”
Although, September data from Sea-Intelligence revealed a slight decline in reliability, things are still much better than this time last year:
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“Global schedule reliability declined by -0.7 percentage points M/M in September 2022 and reached 45.5%.”
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“In September 2022, average delay improved once again, dropping by another -0.10 days M/M to 5.81 days.”
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“This is the second consecutive month that the average delay figure has dropped below the 6-day mark since April 2021.”
A Delicate Capacity Dance
There are a variety of factors influencing the improved schedule reliability—including a reduction in demand. As a result, carriers are ramping up “tactical” blank sailings in an attempt to strike a capacity balance.
A September 22 Sea-Intelligence press release cited by Supply Chain Dive captured the dynamics heading into Golden Week.
“Blank sailings have for long been the carriers’ preferred way of matching supply with demand; this is what we would call tactical blank sailings,” Murphy said in the release. “However, for much of 2020 and 2021, carriers have struggled to maintain capacity in line with the stresses of demand, which meant that vessels were chock full, leading to terminals and ports starting to fill up (as containers could not be moved fast enough), and vessels started to get stuck outside of port. This level of port congestion meant that carriers could not fulfil their weekly departure obligations, resulting in forced or operational blank sailings.”
“In the past few months however, demand growth has stalled, vessels are not fully utilized, and freight rates have been dropping consistently and considerably,” Murphy said. “This is where the carriers would naturally resort to tactical blank sailings, to stem the bleeding in freight rates. With Golden Week coming up (starting October 1st), it presents carriers with the golden opportunity to blank more sailings than they historically would, and likely come under less pressure from cargo owners, for artificially managing freight rates by cutting capacity short.”
Data released on October 12 revealed an ongoing capacity mismatch, despite carriers’ efforts to balance things out.
“In the weeks following Golden Week (weeks 41-43), carriers are taking out significant levels of capacity per week…” Murphy said. “This level of blanked capacity is not only higher than in 2019 but has also increased from what was scheduled 3 weeks ago in the outlook from week 37. However, even with an average (over weeks 41-43) 26%-31% capacity reduction on the Transpacific and 19%-27% capacity reduction on Asia-Europe, freight rates on these trades continue to fall considerably.”
Murphy said the inability to even things out is because “carriers added so much capacity during last year, that even with these levels of capacity reductions, the underlying capacity has still only been brought in line with 2019.”
In the context of such dynamics, he said a “more pertinent question” was whether carriers “can really blank more capacity to try and control the freight rate drop.”
“The peak reductions during the initial Covid impact were 35%-53%, but that lasted for only 1-2 weeks, before capacity reductions dropped to 10%-30% for a few more weeks,” Murphy noted. “Carriers are already within the latter range now, and a 50% reduction in deployed capacity will not only create significantly more supply chain problems, but will also likely have the cargo owners up in arms. There is a very delicate balancing act for the carriers to follow from here on.”
A “New Phase” for the Shipping Industry
In its weekly analysis published on November 25, Drewry provided the following updates related to blank sailings and signaled a “new phase” for the shipping industry.
“Across the major trades: Transpacific, Transatlantic and Asia-North Europe & Med, 105 cancelled sailings have been announced between weeks 48 (28 – 04 Dec) and week 52 (26 Dec – 01 Jan), out of a total of 725 scheduled sailings, representing 14% cancellation rate. During this period, 59% of the blank sailings will be occurring in the Transpacific Eastbound, 26% on Asia-North Europe and Med, and 15% on the Transatlantic Westbound trade.”
“Over the next five weeks, THE Alliance has announced 54.5 cancelations, followed by Ocean Alliance and 2M with 23.5 and 8 cancellations, respectively. During the same period 19 blank sailings have been implemented in non-Alliance services.”
“The shipping industry is moving into a ‘new phase’ as the pressure on spot rates from China has increased in the past few weeks with looming recession and reduced demand, causing rates to plunge close to pre-pandemic levels,” Drewry said. “Meanwhile, carriers continue their active capacity management strategy by announcing yet more blank sailings and suspending services to balance supply with demand.”
In its Ocean Freight Market Update for November 29, Flexport captured similar dynamics, noting that the Transpacific Eastbound (TPEB) market is experiencing “major drops in demand.”
For the U.S., Flexport said “TPEB demand continues to fall for nearly all gateways, substantially below volume levels seen pre-pandemic. Although carrier reliability is showing improvement, the fluctuation of physical vessel counts in the market continues to remain volatile as carriers work to find methods to deal with overcapacity, mainly through blank sailings.”
In the midst of such dynamics, Drewry added a word of caution.
“While declining rates is excellent news for shippers, it remains important to establish and maintain good relationships with carriers to encourage higher service levels,” Drewry said.
