Date: Tuesday, June 15th, 2021
One of America’s largest retailers, Home Depot (NYSE: HD), has just reserved a ship for its sole use. The move underscores just how tight trans-Pacific capacity has become and how worried retailers are about getting goods on shelves at any cost.
In an article published Sunday, CNBC interviewed Home Depot President Ted Decker, who said that the ship will exclusively carry Home Depot cargo, will begin service in July, and was employed because consumer demand caught Home Depot by surprise.
A Home Depot spokesperson confirmed the CNBC report but declined to offer additional details to American Shipper, such as the ship’s name, the duration of its use and whether Home Depot is working with a freight forwarder intermediary.
A company the size of Home Depot has high-volume long-term contracts with ocean carriers at lower rates than smaller shippers. However, carriers have been unable to fully meet contract commitments due to extreme congestion, and simultaneously, retail inventory-to-sales ratios remain historically low. Home Depot’s decision confirms that costly workarounds are now on the table.
“This strikes me as an extreme scenario,” said Simon Sundboell, founder of maritime intelligence platform eeSea. “I cannot imagine it is a larger ship, because there aren’t any available, so you’re not looking to compete on slot costs. You’re just looking very, very short term at getting the boxes you need into your warehouses.”
According to Stefan Verberckmoes, shipping analyst and Europe editor at Alphaliner, “If the shipper has urgent cargo and the carrier doesn’t have a ship, that’s when the shipper looks for ad-hoc solutions. I think these are all emergency ad-hoc sailings to get urgent cargo delivered,” he said of the Home Depot news and recent ship charters by European freight forwarders.
“Right now, it’s really about, ‘OK, we need these goods urgently. Let’s try to fix [charter] something ourselves now because we can’t rely on the big carriers,’” he told American Shipper, adding, “To me, it’s a temporary thing for the Christmas season.”
Going around the liners
The idea of going around ocean carriers and employing a ship for the benefit of specific importers is not new. Amazon (NYSE: AMZN) is a licensed non-vessel-operating common carrier (NVOCC). American Shipper has been told by a source that Amazon filled the majority of slots on several extra loaders during last holiday season. An extra loader is a container ship that is not a part of a regular service.
A source in the container-lessor space confirmed that more inquiries are now coming from freight forwarders. Already, multiple ships have been chartered this year by freight forwarders in the Asia-Europe trade.
“During the last couple of months, we have seen freight forwarders like Panalpina and DSV fixing small multipurpose ships that are built to carry heavy lift but they can take maybe 800-900 TEU [twenty-foot equivalent units] of containers,” noted Verberckmoes. “There was also a freight forwarder in the UK that chartered three ships from the Far East to Liverpool. And we have China United Lines, which began with sailings backed by an organization of supermarkets in Europe that had a problem getting containers, and that service is now fortnightly.”
Just temporary, not long term
Recent events do not imply that importers will seek to cut out the liner middlemen as a long-term strategy.
“If a forwarder is chartering a multipurpose ship, the slot costs of this transport may be affordable when you look at how high spot rates are at the moment, but in the longer term, the spot rates will come down and running an 800-TEU ship yourself when you have professional shipowners running 20,000-TEU ships doesn’t make sense,” said Verberckmoes.
A shipper would also almost certainly need a freight-forwarding partner to circumvent ocean carriers. “It is normally going through a forwarder or an NVOCC,” said Verberckmoes. “You can charter a ship as a shipper, but you need to have a contract with a terminal. It’s not so easy to organize yourself. If you had some shippers organizing their own service — and I don’t think that’s likely — you’d have all the small [chartered] ships coming into ports between the big ships, and that would become a mess.”
According to Sundboell, “If you’re a Home Depot, you’ve never done this [operate a shipping service]. You would clearly have to have a partner such as a freight forwarder.”
And while the Home Depot news highlights the severity of the current market tightness, such non-liner cargo moves remain minimal. “If you compare all these with the mega-alliances, the overall capacity is peanuts,” said Verberckmoes.
Scheduled versus unscheduled
The bigger picture involves the mix between liner services on scheduled rotations and cargo moves that are effectively unscheduled. The latter includes ship charters by freight forwarders as well as extra loaders used by liners. Given more unscheduled voyages and the fact that virtually all scheduled services are well behind schedule, ports and shippers face unprecedented uncertainty on import timing in 2021.
If liners have extra tonnage but it doesn’t match the TEU size of ships in a scheduled “string” (service), it will often be used as an extra loader.
According to Verberckmoes, “If carriers have a ship available of the right size, they will put it in a normal schedule, but what we see is that mostly these extra loaders are much smaller. If you can find a 4,000-TEU Panamax to send from the Far East to Europe or Los Angeles, you will not have it doing the full rotation. It will serve as a ‘cleanup’ vessel to clean up the rollovers.” (A rollover occurs when a shipper’s cargo is not loaded on its scheduled departure.)
Sundboell explained, “We used to call them ‘vacuum cleaners.’ They used to be used to clean up empty containers and take them back to Asia. Now, obviously, it goes both ways.” Another reason a ship would be used as an extra loader and not just added to a string, Sundboell said, is “if you add a ship to a string, there’s an expectation that it will do all the port calls.” In contrast, an extra loader’s port calls “are planned voyage by voyage, almost like a tramp vessel.”
Tramp versus liner service
“Tramp” shipping refers to nonscheduled service, which is the norm in tanker and dry bulk shipping. One of the consequences of the COVID-era capacity crunch is that container shipping is starting to feel more tramp-like. While the specifics on the Home Depot deal have not been revealed, it is clearly more akin to a short-term tramp commodity shipping charter than to traditional container liner shipping.
“It has a kind of tramp feeling,” acknowledged Verberckmoes of the market situation in general. “But extra loaders and ad-hoc shipments by shippers or forwarders are marginal. It’s still 99% liner services.”
He added, “We also see the same kind of tramp feeling in the feeder services [a feeder is a ship that loads cargo transshipped at a hub and delivers it to a regional port]. Feeders now have to be highly flexible, but it’s still liner shipping.”
According to Sundboell, “From the customer point of view, if you have a weekly departure and it is delayed by 21 days, how can you call that liner shipping?
“But it is still fundamentally liner shipping,” Sundboell affirmed. “The terminals, the feeder connections, the rail, the trucking — it all hinges on the fact that you theoretically have a window. Everything is now heavily delayed, but my take is that carriers are attempting to get back to a liner-shipping scenario, where things work closer to clockwork. As a carrier — especially a carrier like Maersk that’s selling vertical integration — if you don’t meet your windows, it all has a domino effect and there’s a significant cost.”