Shippers facing nightmarish ‘game of chicken’ on the ocean

It is the annual contract season on the ocean. Usually the market sees a seasonal drop-off in demand around Chinese New Year and the market enters into contract season closer to a balanced market. Not so this year. Spot rates from China to the North American West Coast are currently up 278% y/y (not a typo) to $4,922 per twenty-foot equivalent unit (TEU). This leaves shippers in a precarious position regarding procurement of capacity as we discuss within.

Stop us if you have heard this one before, but there are at least 30 ships at anchor in the San Pedro Bay (and many more at this moment). This has been the case for months, and it does not appear that it will change anytime soon. And the congestion in Los Angeles has spilled over into many other U.S. ports in order to handle overflow.

Those inside (or outside) the transportation industry who think the tight capacity ranging from the ocean to the ports to the trucks and rails won’t affect them are sadly mistaken. We foresee numerous knock-on effects, including: continued delayed shipments and goods shortages, inflation in consumer goods prices, a disruption to normal seasonal patterns, imbalances in container flows and trade lanes, and a beneficial mix shift for air from a modal standpoint as shippers scurry to procure capacity at a time of no other options.

Most container shipping companies and executives think the current status quo will last at least through the first half of 2021, if not until 2022.