Oceania Market Update and 2022 / 2023 Planning 05/08/21

Market conditions unfortunately continue to deteriorate and are impacting import ocean freight levels and the resultant shipping line landscape (rate and space management). It is expected that this will continue well past Chinese New Year 2022.

There will be another FAK GRI from the shipping lines, effective from Sunday 15^th August. From Wednesday 1^st September, there will be further GRI increases (and / or PSS) applied by the shipping lines into the Oceania markets. We will send further updates on this as and when announcements are made.

Space Guarantee Premiums are being charged by the shipping lines, which is an additional cost on top of FAK. It is worth noting that these bookings are made using shipping line online platforms and are subject to acceptance confirmations, with “no show” penalty fees and prepayment deposits necessary before the shipping orders are released from carriers. It is an option to consider in the case of no NAC / FAK space and for critically urgent cargo shipments.

Shipping lines have also announced that, from Sunday 15^th August, a PSS will be applied on all NAC VIP contracts.

Following conversations with all shipping line Oceania trade lane principals in Hong Kong, Shanghai and Singapore, we are also anticipating that carriers will announce they will be implementing PSS on all BCO VIP contracts.

Global and regional drivers impacting ANZ destinations

• Deteriorating space availability on north to south trade lanes, which has been caused by carriers shifting vessels from intra-Asia and north to south schedule services onto more financially lucrative east to west services
• Significant BCO and NAC contract space allocation reductions from all shipping lines (in favour of high yielding FAK / SPOT rates being accepted by the market to move cargoes)
• Equipment imbalances spanning key Tier 1 and Tier 2 POLs right across the Asia and ISC theatre
• Significant ongoing port congestion through relay hubs into ANZ (Singapore, Port Kelang and the majority of AU and NZ destination ports)
• Ongoing blank sailings, which will continue for the rest of 2021 and into 2022
• Ongoing industrial action (AU and NZ PODs)
• Short-notice port bypassing to overcome congested ports and maintain overall schedules
• Ongoing upstream pandemic effects across the trade theatre
• Large vessels moved from Oceania trades to more lucrative trade lanes, specifically China to the US, where shipping lines can earn up to USD 20,000 per 40’ container. Oceania is then served by smaller vessels, driving rates upward
• Global vessel utilisation is at 97%, the highest ever recorded in history
• Due to 10 years of historically low rates (pre-COVID), shipping lines have rationalised and consolidated. Now, 90% of all containers shipped globally are serviced by only 10 shipping lines – as recently as mid-2010s, there were 28+ shipping lines to choose from in the north to southbound market)
• Average container dwell times have doubled, further contributing to the equipment shortage at core loading ports / source markets (with imbalances sitting in burgeoning empty parks at destination consumption markets awaiting relocation by the shipping lines)

The above disruptors and conditions are likely to result in:

• Rapidly increasing ocean freight costs, which we must navigate together
  • Updated rate cards will be forthcoming, passing above conditions through from 15^th August onboard date for the PSS surcharges (valid / applicable until until further notice)
• A pressing need to immediately consider using FAK and / or Premium rate options to clear backlogged bookings
  • As cautionary guidance and due to the many market disruptors, if you are unable to accept FAK / Premium rate levels, it will be extremely difficult in the short term to guarantee full uplift of cargo volumes past due or becoming due for shipment pre-Golden Week and leading into the final pre-Christmas / New Year peak. Please consider this in your freight and shipment planning decisions
  • Updated rate cards will be forthcoming, inclusive of above conditions from 15^th August onboard date (valid until 31^st August – thereafter it is unfortunately expected there will be further shipping line GRIs on market SPOT / FAK implemented by carriers 1^st September)
• A need to continue using FAK options through until at least Chinese New Year 2022 in order to ship your important cargoes into ANZ destinations
  • Importantly, even at FAK levels, this does not guarantee space nor equipment availability – only the Premium surcharge payment to shipping lines will provide this guarantee
• The continuation of advance booking practice and purchase order (POs) monitoring with your suppliers, alongside Ligentia monitoring your POs with your suppliers. Please continue to impress upon suppliers the need for 4-6 weeks’ advance CRD notification to origin Ligentia teams. This will provide us with the visibility needed to continue with our advance planning and allocation procurement with the shipping lines to ANZ destinations
  • If you are not already CCing your POs to your Ligentia CS team, please do consider doing so as it is the only viable way we are able to have foresight of your orders and can accordingly forecast for the same

2022 and 2023 planning

Moving forward, 2022 / 2023 will see new vessels being delivered, which will increase the existing global capacity by up to 15%. However, with global growth tracking at +6%, that volume will likely be absorbed quickly if the market growth continues in the ensuing period of time.

Early rate indications for 2022 suggest that we will see average TEU rates 6 times higher than freight rates in 2019.

We recommend planning early for the 2022 and 2023 seasons, securing contracts at rate levels where carriers will sustainably provide uplift and supply chain continuity.

Here at Ligentia, we completely empathise with the obvious challenges these extraordinary events and notices will have on import operations and planning. Please be assured we are doing everything possible to minimise disruption. Your ongoing support is greatly appreciated.

Should you have any queries relating to specific bookings, please contact our Customer teams. We’re here to help!