The pandemic impact in 2020 continues to have a severe impact on the container shipping industry. If we take a closer look at the volatility of any aspect of relevance it is going beyond what we see very often. 

That freight rates themselves are shifting sharply and in many cases are setting new records is certainly not news to anyone actively engaged in the trade. For the carriers, this is mainly a positive development, whereas if you are on the buyer side and primarily exposed to the spot market, this is a challenge.

However, the sharp volatility in the pricing market is a consequence of extreme volatility in a range of other measures. Let us take a closer look at some of these and then ascertain what this tells us for the coming months.

The volatility in demand exceeds any seen previously in container shipping. Whereas there was indeed a sharp decline during the financial crisis in 2009, the development both down and up was slower paced and more gradual than what we saw in 2020. In 2020 we experienced a sharp shock in April where for example European container imports declined 20%, North American imports declined 15% and Indian exports dropped a staggering 31% measured year-on-year. However, by July we then saw European imports grow 1%, North American imports grow 7% and also Indian exports grow 7% on a year-on-year basis.

This also led to severe shifts in deployed vessel capacity where multiple trades saw capacity cancellations range from 20-50% in individual weeks during the main impact to the current situation where Transpacific capacity is now up more than 10% compared to 2019 and there is a general shortage of capacity with cargo left behind.

A vital cost component for the shipping lines is the fuel price, and also here we have seen volatility being off the charts. 2020 saw the implementation of the new low-sulphur rules which meant that fuel costs went from a level around 350 USD/ton in December 2019 to a spike of 700 USD/ton in the beginning of January as the new low-sulphur fuel suffered from supply shortages. However, as supply came into place the pandemic further served to undermine crude oil prices, and the low-sulphur fuel price plummeted to 200 USD/ton by the end of April. But the volatility is not over. In September bunker fuel prices fell as much as 10% within a single week.

Fuel cost is a major component of the transportation costs, and the traditional mechanisms for passing on fluctuations are often lagged with a period of 1 to 3 months. This means the very high volatility in fuel pricing generates not only high volatility in freight rates, but also a time-distorted effect where the freight rates are seemingly getting disconnected from the present fuel markets.

In terms of schedule integrity, the cancellation of – literally – hundreds of sailings caused significant volatility in the customers’ supply chains. But on top of that, the vessels that do sail are now suffering from extremely poor schedule reliability. The newest data is that in August only 63% of all deep-sea vessels actually arrived on time – and on time here includes vessels which are up to a full day delayed. The 37% of vessels which arrived late were on average 4.4 days delayed.

Presently there are no indications that the underlying drivers of volatility such as shifts in consumer preferences, rapid swings between deep recession and recovery, ad-hoc sudden implementation of government stimulus packages and shifts between opening countries and shutting them down again are about to change anytime soon.

This in turn also means that the volatility stemming from these factors will continue to impact the container freight markets not only for the remainder of 2020 but also into 2021. As a consequence, that also means that freight rate stability is not something which should be considered as a baseline outlook for the immediate future.

About Lars Jensen, CEO, SeaIntelligence Consulting

Lars is a leading expert and thought leader in analyzing global container shipping markets. Lars has 19 years experience hereof the last 9 within multiple companies he has founded, with the main focus as CEO of Seaintelligence Consulting.