Latest News

13Jan

Shipping hits heavy seas

Piper Amy J | 13 Jan, 2022 | 0 Comments | Return|

The average number of containers shipped every year is a mind-boggling quarter of a billion across the globe, all moving in a carefully choreographed logistical dance of machinery, ships, schedules, and manpower.

Early last year that modern day dance initially tripped when Covid first struck Chinese ports, and since then has taken a staggering crash, to be a ragged imitation of its pre-covid rhythm.

Major ports around the globe are clogged with containers, while dozens of container ships await at anchor to be unloaded. Latest estimates are that Long Beach California alone has 160 ships awaiting unloading, at a port where typically ships never anchor and berth bang on time.

The current chaos around shipping has its roots back in Covid’s early days, but as is often the case, Covid can’t be held responsible for all the issues being experienced here in New Zealand.

When the epidemic struck in China, supply chain problems initially arose as factories and ports were forced to idle or scale back manpower, creating initial issues, including the slump in log sales from New Zealand as demand wound back and shipping supply slumped.

But the crisis quickly moved from the land to the sea as China re-opened for business, but much of the Western world went into assorted lockdowns.

Americans in particular were starved of services to spend on as hospitality and entertainment services shut their doors. With income support helping, if not completely replacing lost earnings, populations sought out stuff – stuff to buy to help ease the passage of long lockdowns, whether it was X-Boxes, exercycles, home cooking kits or Lego sets. 

Online ordering has made “one-click” shopping almost painless and deceivingly simple, and Americans in particular exercised it with a vengeance.

American’s online shopping spend had already lifted 32% in 2020 year on year and is estimated to be up a further 40% post-Covid. That surge put unprecedented demand upon supply chains, which have been finely tuned to “just in time” delivery,  from the manufacturer to the final courier delivery company.

Reliable shipping schedules had until then meant that orders for parts and components could be easily met, under normal circumstances.

But things rapidly became far from normal as the world’s finely balanced supply chain fell into disarray.

Huge container jams started quickly emerging in key European and United States ports like Long Beach California and Hamburg in Germany among the many mega-ports jammed up, with long time shipping agents and managers reporting never seen before delays and cancellations.  Port capacity was often already severely curtailed by the very disease causing the surge in demand, with staff either off sick or in isolation.

This has come when simply adding more ships to ease demand is not an option.

Until early last year global shipping companies were barely profitable with combined losses for 2020 prior to Covid on target to exceed US$15 billion, and to rival losses experienced over the GFC.

Global shipping trade has become highly concentrated after a decade of low returns, leaving two major alliances, Maersk-MSC and Ocean Alliance accounting for 70% of global container trade.

The surge in demand for goods came as ships were retired, leaving companies ill-equipped to cope with the ensuing demand for freight space, and now charging accordingly.

Here at the bottom of the world on a route to nowhere else, New Zealand’s vulnerability as an exporting country of perishable food has become severely clear with both exporters and importers now paying dearly for freight space to and from distant markets.

These companies are now finding significant profit opportunities to recoup past losses exist on high volume routes like Europe-Asia, and United States-Asia.

Maersk the world’s biggest shipping liner and provider to New Zealand ports has had its profit forecast revised up for 2021, from US$4.5 billion to $14.5 billion, and has made more in the first six months of 2021 than in the past decade.

Collectively, the shipping sector is likely to earn $100 billion in profits, almost rivalling tech giant Apple in an average year.

New Zealand freight rates are now far from immune.

Container rates on routes like Tauranga to Shanghai have almost tripled, while bulk imported products like fertiliser are experiencing similar surges in price. For many in the primary sector the challenge is not to sell product, but the difficulty and cost in accessing shipping to get product to market.

Scheduling reliability here at the bottom of the world has also dropped to an all-time low, with ports reporting reliability dropping to single figure percentages, from their business as usual 80-90% levels.

The head of the country’s largest export port, Port of Tauranga, has cautioned exporters are likely to continue to experience shipping issues.

CEO Leonard Sampson quantified the decline in scheduled services to New Zealand by taking the 63-day rotation being experienced by most ships and comparing that to their usual 49-day rotation. 

He said this equates to about nine less sailings a year, and over three shipping companies this is 24 fewer a year.

Tauranga had already had 106 fewer container vessels dock between October last year and July this year, due to delays and schedule changes.

Problems here in New Zealand have been hampered even further by Ports of Auckland having to abandon its automation commissioning and return to human driven straddle cranes and operations. Those challenges were expected to last until at least the middle of next year.

“I do not see the shipping issue being resolved until more ship assets were commissioned or until a point where more money was being spent on services, such as tourism, rather than goods,” he says.

Some of the world’s largest ship builders hit their 12-month order targets by June this year, but new ships resulting from those orders are not expected for another two years.

Kiwi primary sector exporters have reported major headaches in getting products to market.

Jon Sadler, founder of Mountain River Venison said exporting to the East Coast of United States has become near impossible due to shipping issues.

His company also had a container of frozen venison that took over 80 days to reach Long Beach California port, having spent 35 of those days on the wharf at Tauranga.

“Costs are going up throughout the entire supply line, including 50% on sea freight alone.”

Simon Limmer, CEO for Silver Fern Farms told shareholders and farmers recently he expected the problems to remain for “at least” next season.

“We are having to plan back upstream in terms of how we configure our products, our cool storage capacity to adapt, and leave some value on the table.”

He said the frustrations at landing product at ports like Long Beach California and Dalian, China were worsened by shipping costs that had risen 50%.

Ken Harris, Managing Director of New Zealand’s largest container company ContainerCo said problems for New Zealand were compounded by this country requiring a high standard of container for shipment, often refrigerated.

These have to be relocated in and out of the country every year, matching New Zealand’s seasonal export patterns.

“New Zealand container processing facilities are overloaded with containers that are not suitable for exporters or require a lot of work to upgrade.”

His company’s usual 21-day stock of export grade containers has shrunk alarmingly to only five days.

“Shortage and surplus problems continue to affect the supply chain and seem set to stay for another two years when delivery of new shipping builds is expected to alleviate capacity shortfalls.”  

About the Author

Related

Dress well this summer

Dress well this summer

Nitrogen side-dressings encourage a good, strong canopy on summer crops and improve yields.

Read More >
New Lincoln University research initiative seeks better use of land

New Lincoln University research initiative seeks better use of land

A new Lincoln University initiative is looking to come up with new creative, innovative, integrative...

Read More >
Community partnership keeps on giving

Community partnership keeps on giving

The true success of the Ruralco Longbeach Coastal Challenge is the community partnership between org...

Read More >
Mitigating mud this winter

Mitigating mud this winter

At one time or another most of us have lost a gumboot in the mud.

Read More >
The importance of starch

The importance of starch

One of the New Zealand dairy industry’s strengths is its ability to grow relatively cheap grass, wh...

Read More >
Necessity of N

Necessity of N

As an essential nutrient for plant growth and development, nitrogen (N) is critical for increasing c...

Read More >
Account Selector