Delivery

Major ports in Europe are grappling with warehousing and storage capacity crises due to Russia and Ukraine cargo pile-up, a situation that has disrupted container shipping operations and thrown global value chains into disarray, the UN Conference on Trade and Development (UNCTAD) has said. UNCTAD, in an assessment of the war in Ukraine and its effects on maritime trade logistics, reports that cargo destined for Russia and Ukraine is piling up at ports like Hamburg, Rotterdam, Constanta, and Istanbul. The disruption has left shippers facing delays and an increase in detention and demurrage charges at ports. The ripple effects have had significant pressure on warehousing and storage capacity, leading to an increase in supply chain costs, an increase in consumer prices, and an unrelenting surge of inflation across the globe. With the high container freight costs being passed on, consumer prices have increased by 1.6 percent. Global import price levels are expected to increase on average by 12 percent as a result of sustained freight rate increases. “Global trade depends on a complex system of ports and ships that connect the world. If global trade is to flow more smoothly, it must be ensured that Ukrainian ports are open to international shipping and that collaboration among transport stakeholders continues to provide services,” states UNCTAD. The report finds that the war in Ukraine is stifling trade and logistics of the country and the Black Sea region, increasing global vessel demand and the cost of shipping around the world. In effect, Ukraine’s trading partners now have to turn to other countries for the commodities they import due to disruptions in regional logistics, halting of port operations, destruction of important infrastructure, trade restrictions, increased insurance costs, and higher fuel prices. Many countries are now being forced to look further afield for suppliers of oil, gas, and grain, the consequence of which has been an increase in shipping distances along with transit times and costs. “Grains are of particular concern given the leading role of the Russian Federation and Ukraine in agrifood markets, and its nexus to food security and poverty reduction,” says the report. Russia and Ukraine account for 53 percent of global trade in sunflower oil and seeds and 27 percent of wheat. A total of 36 countries import more than 50 percent of their wheat from the two warring nations. Ukraine, which exported around 50 million tonnes of grain in 2021 and had projected a growth of three percent in global exports this year, has been forced to revise projections downward and expects exports to shrink by 3.2 percent. About 90 percent of Ukraine’s grain export capacity has been cut off by the Russian blockade of Odesa and other Black Sea ports. In addition, over the four-month period from February to May, the Baltic Dry Index increased by 59 percent, which is expected to lead to an additional increase of 3.7 percent in consumer food prices globally. Almost half of the increase is due to higher transport costs, resulting from higher freight rates and longer distances. Middle-income nations are expected to be the hardest hit. Apart from commodities, the conflict is having adverse impacts on energy with higher prices exacerbating the challenges faced by shippers. With trade restrictions and shifts in trading patterns leading to a surge in ton-mile demand, daily rates for smaller-size tankers that are key for regional oil trading in the Black Sea, Baltic Sea, and Mediterranean Sea regions, have dramatically increased. The higher energy costs have also led to higher bunker prices, raising shipping costs for all maritime transport sectors. By the end of May 2022, the global average price for very low sulfur fuel oil (VLSFO) reached over $1,000 per tonne, a 64 percent increase compared to the beginning of the year and the average fuel surcharges charged by container shipping lines have risen close to 50 percent since the beginning of the war.

MPC Container Ships is working with the North Sea Container Line to launch the first green corridor along the North Sea with the deployment of Norway’s first methanol-powered containerships. The companies plan to launch the vessels in the second half of 2024 and expect that they can cut net CO2 emissions by 45 percent and increase it up to 100 percent through the use of green methanol derived from renewable electricity and captured CO2 when the e-fuel becomes readily available. The order for the two new containerships was placed by Germany-based MPCC which will own 90 percent of a newly created holding company. Topeka MPC Maritime, a partnership between MPC Capital and Wilhelmsen Group focused on decarbonized shipping, will hold the remainder. The two containerships, which will each have a capacity of 1,300 TEU, will be built at China’s Taizhou Sanfu Ship Engineering. Each of the vessels will be outfitted with dual-fuel engines designed to operate on methanol as well as conventional MGO. Each will cost $39 million to build, and upon completion, they will be chartered for 15 years to the North Sea Container Line. The Norwegian short-sea operator plans to use the vessels to phase out the operation of three of its older diesel-powered vessels, which provide regular service between various ports in Norway, Rotterdam, and Hamburg. It is part of the company’s plan to complete its transition to decarbonize its operations. NCL acknowledges that methanol will have a higher operating cost, but says it will become the default choice for its operations, and customers will have to explicitly request diesel-fueled ships if they want to go the slightly cheaper route.

Despite all the reports that congestion is declining in many ports around the world as demand has softened, the major carriers have not been able to make significant gains in overall schedule reliability. The overall performance remains behind 2021 in spite of a decline in average delays. Analysts are beginning to believe that the industry has fallen into an ongoing range near its historic lows. “Global schedule reliability seems to continue to follow the trend seen in 2021, fluctuating within a small range but at a slightly lower base,” said Alan Murphy, CEO of Sea-Intelligence. “The 2022 score has been slightly below the 2021 level in each of the first five months.” Based on Sea-Intelligences’ analysis of reliability across 34 different trade lanes and more than 60 carriers, they reported a slightly better than two percent improvement in average month-over-month on-time figures for the carriers. In four out of the five first months of the year, the carriers have seen an improvement in reliability coming up from an all-time low of 30 percent in January 2022 to 36.4 percent in May. However, in 2021 the industry averaged better than 36 percent reliability in the first five months and nearly 70 percent in 2020. The declines in backlogs, however, appear to be showing up in the average delay. Declining from an all-time high of nearly eight days in January 2022, it has been down each month this year reaching an average of 6.17 days in May. “The average delay for late vessel arrivals decreased once again,” says Murphy. “The delay figure is now firmly below the 7-day mark, but it still continues to be the highest across each month when compared historically, albeit with the margin decreasing sharply.” Another factor that may be contributing to the recent improvements could be the declines in demand that many of the major shipping companies have begun to report. With inflation rampant in most parts of the world and fears over a potential recession, consumer demand began to level off and decline after the Russian invasion of Ukraine. With many consumers worried about the near term, carriers have begun to pull back on their operations after nearly two years when every ship was pressed into service. “Vessel nominal TEU capacity data shows there’s more tonnage available, but carriers appear to be putting the brakes on softening spot rates by tightening up supply on certain routes while switching tonnage to the most profitable trade lanes,” said Josh Brazil, VP of supply chain insights at industry platform Project44. Brazil points to a rise in the number of blanked sailings in recent weeks, but with skyrocketing fuel costs he also believes that some carriers may be electing to save fuel by slow-steaming vessels. It is unclear how Shanghai’s lockdowns which persisted through May impacted carriers’ performance. Sea Intelligence reflects that half of the 14 largest carriers saw a decline in their schedule reliability year-over-year in May.  A third of the carriers also saw a month-to-month decline between April and May 2022. Despite that, Maersk, which has been leading the pack, was the first to reach 50 percent reliability in May 2022, achieving a better than four percent improvement year-over-year. Similarly, although starting from a lower point, both Evergreen and ONE achieve significant improvements to approach the overall average of the largest carriers. Among the group, MSC, Hapag-Lloyd, and Zim, however, had significant year-over-year declines in their schedule reliability. Analysts point out that shippers historically increased volumes in the third calendar quarter as they prepare for peak selling seasons and are expected to possibly start shippers earlier this year to avoid the delays they experienced in 2021. Carriers are believed to be preparing for increased volumes meaning that the gains seen in schedule reliability and reduction in average delays may level off if volumes do increase in the coming weeks and months.