Oceania August Market Update 30/07/24

Port congestion and equipment shortages

Singapore, Port Kelang & TPP main arterial transhipment hubs, with particular emphasis on Singapore, remain stubbornly challenged with container cargo congestion (“hyper-congested” and “brought to a standstill” are comments being made by industry press commentators about the situation in Singapore).

The impact has become more widespread, with many shipping lines now choosing alternative actions rather than risking onboarding containers destined for transhipment through Singapore to worldwide destinations. Some of the situations being encountered by the market today include:

• Rolling over gated in containers at 1st leg loading ports (holding back onboarding and storing containers at 1st load port container yards before assigning to future sailings to Singapore)
• Cancelling bookings from 1st leg ports (to destinations such as Fremantle and Adelaide)
• Bypassing Singapore & offloading cargoes at other ports (to await relay solution to final destinations)

40’HC equipment supply remains an issue for shipping lines, particularly in the larger tier 1 main loading ports of China, Taiwan, South Korea, Vietnam and Malaysia. Whilst equipment is available, we are seeing “just in time” supply, and once allocated an access pin to an S/O. This is leaving factories with minimal time to collect the empty, complete export customs and gate in the packed containers for booked vessel schedules.

Red Sea situation and market impact – Q3 & Q4 for Oceania

With the increased hostilities occurring in Palestine and deepening threats of escalation by Israel against Lebanon (and Iran), and the resulting air and sea terrorist campaign being undertaken by the Houthis against commercial (and military) vessels spanning the Red Sea and nearby bodies of ocean, cargo owners should not be surprised about the “ripple effects” this latest “black swan event” has had on international trade by sea.

The initial expectation of re-routing vessels via the Cape of Good Hope in order to avoid heightened risk of sailing into the Red Sea for Suez transits to and/or through the Mediterranean from Asia to Europe (and Middle East) was that it would add another 10-12 days of sailing time for the single one-way voyage, “a few more” vessels could be dropped in to support the extended voyages, and the world would adjust in no time at all.

As we witnessed in the ensuing years since we all faced down the global Covid crisis, all is not as is seems when these “black swan” events occur.

Further complexities with geo-politics are having ripple effects on international trade, with “spooked” buyers bringing forward inventory demand on their major Asia-based suppliers in order to re-build safety stock at their destination home market warehouses (which has significantly increased overall market demand for shipping space on the major trade lanes of Asia to North America and Asia to Europe).

Concurrently, shipping lines had insufficient empty equipment banked up at their major export gateways (China, Vietnam, India, Taiwan, Japan, South Korea and Malaysia) prior to the Red Sea crisis unfolding. The impact of the crisis has enabled shipping lines to take advantage financially, with frequent GRI increase forced upon the industry globally. The shipping lines have also seconded needed capacity out of the smaller Oceania and Middle East trades, removing larger vessels allocated in those smaller trades and sending them to the high demand (and high revenue) trades to “mop up” extra cargoes from increased demand (and the ensuing profits from inflated container freight rates caused by the extra sustained demands).

Smaller capacity vessels are being used to service the smaller trades as they enter their traditional peak volume months, causing overnight capacity loss and rapidly driving upwards the SPOT / FAK container prices into destination markets such as Oceania and the Middle East.

Furthermore, there are still more examples and impacts unmentioned, caused primarily by the Red Sea situation and the negative effects this is having on all global trades and supply chains – and eventually end consumers.

The cyclical effect of equipment shortages, port congestion, low trade capacity (space shortage to meet the demands of cargo owners), longer transit (and also production) lead times and schedule disruption has led us all to the current moment where we are having to pay “above market” freight prices in order to onboard containerised cargoes.

When will this end?

If this can be relied upon as the first signs of overall market improvement (space and price) – SPOT rates and cargo demand in the Asia to North America and Asia to Europe trades have reportedly stabilised, or even marginally contracted, over the past 2-3 weeks and space is “freeing up” (somewhat). The suggestion by industry media is that this is the first sign of improvement (easing) of market conditions, and the expectation is that this is likely to continue over the coming weeks and months.

Even if that is the case and we do see space (and container cost) easing back steadily in those largest trade sectors, it will unfortunately be several more months yet at a minimum, before we see those positive signs from those trades having similar positive effects (more space and an easing of container freight cost) for the Oceania trades.

Why? It takes time for shipping lines to adjust and bring back vessels into other affected trades like Oceania and we are now in our peak trade months to ANZ. Christmas stock is in production and moving out from source origins, Black Friday sales stock build up is in full swing for the November event, Golden Week is this side of the horizon now too and we are seeing heightened cargo bookings forecast for August and September months. All this at a time when there is insufficient capacity on the trades to AU EC and AU WC destinations, and we still have Singapore’s hyper-congestion issues to overcome.

We remain optimistic that Oceania will begin to see some easing of pressures forced upon it post the Golden Week holiday break, but we do have short term challenges to navigate during August and September months.

Our guidance in the short term (the next two months)

• Time critical bookings to AU WC destinations – do consider FAK options for the space starved AU WC destinations ex NEA, SEA and ISC origins – shipping lines who are releasing space, particularly to FRE destination, are preferencing higher yielding FAK/Spot/SPG bookings above BCO & NAC contracts.
• Time critical bookings to AU EC destinations – do consider SPG (or even FAK) options: same as AU WC, shipping lines are preferencing higher yielding bookings above BCO and FAK contracts (most of those VIP deals with long term validities have had weekly capacity halved since July commencement, by the shipping lines).
• Encourage suppliers to be as accurate and transparent as possible in relation to advance forecasts and production plans – being able to have a solid degree of confidence of predicted cargo ready date some 4-6wks in advance of CRD assists greatly with forward space planning for you.
• Encourage suppliers to place their cargo booking requirements 3-4wks in advance with our origin offices; and update weekly for any changes.
• Continue to highlight priority/promotional/new season stock orders with us,  so we are able to hyper-monitor the same with our origin services teams, and with your suppliers.
• Importantly, be mindful of transit delays caused by offshore and onshore port congestion: whilst shipping schedules and transit time KPI’s are slowly improving again now, we are still quite some way off having confidence in carrier website information and date integrity. We do recommend continuance of maintaining an extra 2-3weeks of safety calculation within your transit time calendars; to minimise your internal risk with front end sales arms complaining about “where is our promised inventory replenishment”.
• Continue to lean on your Ligentia CSM and BDM contacts – we are an extended feature and component of your supply chain, here to tackle challenges and overcome supply chain disruptions for and with you.

2025 planning

We will begin sharing our 2025 forward planning insights in next month’s Market Update. If you would like to start earlier,  please reach out directly to Dean Neville.