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Shipping: The craziest year since the invention of the container
"This year we all found out that our prognoses had proven to be wrong a few times," says Rolf Habben Jansen. “Almost nothing went as planned.” The CEO of Germany's largest shipping company, Hapag-Lloyd, sits in front of his computer, poorly lit by his ceiling lamp, and speaks to journalists via video conference. It is shortly before Christmas, high season for shipping, actually Habben Jansen now hardly has time for such appointments. But the year, well, was a special one. And explanations are required.
The usual rules hardly seem to apply any more. And nobody saw the chaos coming. “No matter how deep I dig into the data, I can't find a year that was as valid as this,” says Lars Jensen, founder of the analysis and consulting company SeaIntelligence.
Rolf Habben Jansen begins with his explanation of the circumstances for what is probably the craziest year in the history of container shipping in February: the month in which the Chinese government adopted the strictest protective measures against the corona virus around Wuhan and forced the country's economy to pause. As a result, factories around the world reported disruptions in their supply chains. Other regions soon followed, where production also had to shut down due to new outbreaks of the coronavirus.
“Within ten days, the transport volume collapsed by 20 percent,” says the Hapag-Lloyd boss. And 20 percent less transport, that also means 20 percent less income.
The shipowners then did what they could to reduce costs as quickly as possible: They shut down their ships. Throughout the summer, ships with over nine percent of global capacity were without orders - a record high. This is how high the proportion of idle ships was last during the financial crisis.
“We had to assume that the year would be very tough,” says the shipping manager. At that time, no one saw it coming that demand would recover so quickly - and so strongly - again. Consumer spending was already on the rise again at the end of summer, especially in the USA. Instead of concert tickets or massages and pedicures, people invested their money in sports equipment, the new Playstation, or decorations for the house in which they now spent so much time. "Things that are shipped from China," says Habben Jansen.
The current demand is therefore well above what is usual at this time of the year. Hapag-Lloyd normally ships up to 250,000 standard containers at this time of year. The shipping company is now receiving over 400,000 containers per week, says Habben Jansen.
The industry is struggling to cope with this onslaught. The ports are often not working at full capacity today due to corona measures and a lack of staff. Even in front of the port of Los Angeles - the largest container port in the USA - the ships have to wait several days before they can even enter. A large part of the freight is therefore delayed - or cannot be transported at all because there is suddenly a shortage of containers around the world. The ships are fully booked until spring.
All of these problems are associated with additional costs. Like the competition, Hapag-Lloyd has therefore recently issued new surcharges, for example due to port congestion, seasonal surcharges or security allowances due to the corona measures. If you want a guarantee that your cargo will arrive at the port of destination at the promised time, you now have to pay a surcharge, says Simon Heany, an analyst at Drewry. “That used to be a matter of course.” Prices - called rates in shipping - have risen to completely unknown heights. A container from Asia to Europe currently costs over $ 10,000. “The shipowners do a pretty good job of maximizing their profits,” says Heany.
Others say: The shipowners are obsessed with greed. Many blame them for the current bottlenecks: The shipowners have invested too little in containers and built too few ships.
The reasons for the reluctance to invest on the part of shipowners go back a decade, in the financial crisis: when it hit the global economy, the order books for new ships were still full. Shipowners believed that shipping would grow - and that bigger ships would bring financial benefits. Almost every month new ocean liners came from the shipyards, each larger than the other. The shipowners tried to steal market share from each other with ever larger ships and ever lower prices - and so plunged the entire industry into the worst crisis since the invention of the container. The shipping companies made losses over the years. Around half of the providers disappeared from the market.
The times are over. The shipowners have no desire to get back into this spiral. Today the largest providers in the market are organized in alliances. If you book with Hapag-Lloyd, you can therefore also place your container with an alliance partner HMM or Yang Ming. The shipowners have also shown much more reluctance to order ships in recent years. That stopped the drop in prices. And the financial situation of the shipowners has also improved in recent years.
The only question is, will it stay that way?
“Our industry has always been cyclical,” says Habben Jansen. "I've been saying for a year or two that the order books are too empty." After a good decade in crisis, the industry is now at the beginning of an upswing - even if people are not in constant demand for consumer goods as they were during the crisis . Three days later, Hapag-Lloyd issued a new report: The shipping company has just ordered six new ships, mega-ships with a capacity of 23,500 containers. Delivery date: 2023. By then shipping should have fully recovered from the chaos caused by the coronavirus, hopes Habben Jansen.
More on the subject: The fear of the slump in shipping due to the coronavirus has been forgotten. Instead, the ports overflow, as shown by exclusive satellite images.
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