Date: Tuesday, March 30th, 2021
The mega-container ship Ever Given is finally free. The Suez Canal is unblocked. Problem solved? Not even close. The problems for container lines and shippers have just begun. In the U.S. market, East Coast cargo flows will bear the brunt of the fallout, although consequences will be felt nationwide.
Most of the boxes transiting the Suez Canal move from Asia to Europe. But the waterway also handles very significant volumes from Southeast Asia and India to the East Coast.
Asian containers head to the East Coast along one of three competing ocean routes: via the Panama Canal, the Suez Canal or to the West Coast (with cross-country transport by truck or rail). The Panama Canal Authority (ACP) tracks the market share of each route.
The ACP data reveals why the Ever Given accident is so important to U.S. import markets. It shows that almost one in three containers from Asia transits the Suez Canal en route to the East Coast.
East Coast in crosshairs
In the near term, the Ever Given accident will cause a drop in East Coast imports due to delays from ships tied up in anchorage in the Red Sea or detouring around the Cape of Good Hope. This initial lull will be followed by a surge at the ports as delayed ships arrive.
Simon Sundboell, founder of Copenhagen-based maritime intelligence company eeSea.com, foresees major disruptions ahead. “The carriers have just lost two weeks of capacity,” he said in an interview with American Shipper immediately following the Ever Given refloating. To get back on track, he predicted that liners will have to skip ports and cancel sailings.
If there’s a silver lining, he said, it’s that looming Suez fallout will not have a direct effect in already beleaguered Los Angeles/Long Beach, where San Pedro Bay is still full of container ships stuck at anchorage.
According to Sundboell, “It’s not like the East Coast ports have had an easy time but they haven’t been hit [by COVID-induced volume surges] as badly as Los Angeles/Long Beach. And what is happening with the Suez — the impact will be on Asia-Europe and Asia-East Coast. At least it doesn’t impact the West Coast as much.”
Ships delayed for major services
To gauge East Coast exposure, American Shipper cross-referenced Asia-Suez-East Coast services against announcements on ships at anchor (prior to Monday’s reopening) or rerouted around the Cape of Good Hope. The list implies extensive schedule disruptions:
Services: EC4, EC5 (THE Alliance) — Rotation: Taiwan, China, Singapore, Vietnam, NY/NJ, Norfolk, Charleston, Savannah. Average vessel capacity: 13,929 twenty-foot equivalent units (TEUs). YM Mandate at anchor in Red Sea. MOL Maestro at anchor off Port Said, Egypt. ONE Munchen, YM Wellhead, ONE Marvel rerouted around cape.
TP17 (2M) — China, Hong Kong, Vietnam, Singapore, NY/NJ, Charleston, Savannah, Miami, Freeport (Texas). Average vessel capacity: 9,093 TEUs. Adrian Maersk at anchor off Port Said. Axel Maersk at anchorage in Red Sea. Maersk Algol and Arnold Maersk rerouted around cape.
TP11 (2M) — Vietnam, Singapore, NY/NJ, Norfolk, Savannah, Freeport (Bahamas). GSL Grania at anchor off Port Said. Maersk Skarstind, Maersk Santana, Maersk Kowloon rerouted around cape.
India America Express/IEX (CMA CGM, Hapag-Lloyd, ONE, OOCL) — India, Egypt, NY/NJ, Norfolk, Charleston, Savannah. Average vessel capacity: 9,513 TEUs. Athenian at anchor off Port Said.
Columbus Jax (Ocean Alliance) — multiple loops, including China, Vietnam, India, Halifax (Nova Scotia), NY/NJ, Norfolk, Charleston, Savannah. Average vessel capacity: 12,456 TEUs. CMA CGM Lyra at anchor off Port Said. CMA CGM Leo rerouted eastbound around cape.
Indus Express (MSC) — India, Saudi Arabia, Israel, Italy, Spain, NY/NJ, Norfolk, Charleston, Freeport (Bahamas), Houston. Average vessel size: 8,546 TEUs. MSC Giulia at anchor off Port Said. Northern Javelin rerouted eastbound around cape.
MECL (Maersk, Sealand) — India, Dubai, Oman, Djibouti, Egypt, Spain, NY/NJ, Norfolk, Charleston, Savannah, Houston. Average vessel size: 6,363 TEUs. Maersk Denver at anchorage in Red Sea. Maersk Seletar at anchor off Port Said.
Managing port congestion
A key risk to ports in the weeks and months ahead is “vessel bunching,” when ships go off schedule and arrive too close together, filling up anchorages. This will occur at box ports in the wake of the Suez crisis as the canal queue unwinds — first at European ports, then at East Coast ports.
According to Sundboell, “We’re definitely going to see bunching. But there will be time [the lull before ships start arriving] to clear backlogs. And then, I think we will see a lot of [port] omissions.”
Carriers will unload cargoes for multiple European ports at one port in order to get ships back to Asia quicker, then use feeders or other means to get the boxes to the right port. (This strategy is much easier in Europe than on the East Coast, where there are no intra-U.S. ocean feeder services.)
How carriers manage Asia-Europe port fallout is very important to U.S. shippers because the world’s box equipment is limited. “Not only do you have full cargoes arriving in Europe, there are empty containers that won’t arrive in Asia,” Sundboell said.
For U.S. importers, trans-Pacific container availability has recently improved compared to extreme shortages earlier this year. But new network disruptions could erase that progress. Future trans-Pacific equipment availability will hinge, in part, on how carriers handle the backlog of Europe-bound cargo.
More blank sailings ahead
When an event severely disrupts a liner service, the carrier can get back on schedule by “blanking” (canceling) entire sailings, omitting port calls or deploying “extra loaders” (ships not in the regular service).
The charter market for container ships is largely sold out, meaning that extra loaders can’t cure canal disruptions. “There is no way to find two weeks’ worth of lost capacity now,” noted Sundboell.
What carriers need to do, he believes, is remove sailings. “There will be announced blank sailings or they will remove capacity but will not communicate that as blank sailings, which I would call ‘lost’ sailings,” he explained.
When congestion peaked in Los Angeles/Long Beach, carriers announced a large number of blank sailings in February — despite high demand — to give ships stuck at anchor off California time to catch up. “In terms of what has happened to capacity, this [the canal disruption] is exactly the same thing as the Los Angeles/Long Beach situation,” said Sundboell.
He wonders whether carriers will use the latest disruption to “reset” their services. “This might be what causes them to reset a lot of their services that are perpetually late. As we say in Denmark, ‘The drop that makes the glass go over.’ The question is whether carriers will get to a point where they can reliably say, ‘The vessel we’re telling you is going to leave in the beginning of July is actually going to leave in the beginning of July.’ As it is now, it’s like a bus network that’s constantly two weeks behind. It makes no sense.
“Schedule reliability could go one of two ways. The carriers could use this as an excuse and say, ‘This is why we are so behind schedule,’ or they could use it to reset schedules, blank sailings and get back on track.”
Freight rates higher for longer?
Ships far behind schedule, port congestion, container equipment pulled out of position … it all sounds like a recipe for high spot rates.
As of Friday, Asia-West Coast rates (SONAR: FBXD.CNAW) and Asia-East Coast (SONAR: FBXD.CNAE) were at $5,151 per forty-foot equivalent unit (FEU) and $5,778 per FEU, respectively, according to the Freightos Baltic Daily Index. The former was an all-time high; the latter close to one.
Analysts expect rates to fall in the second half. But as a result of the Suez accident, some now believe rates could stay high. “We think the anticipated normalization of the container market and freight rates will now take longer to materialize,” said Jefferies analyst David Kerstens.
Sundboell made the same point. “This could prolong the high freight rates. The impression was that Q3 and Q4 might see a weakening. But maybe that’s not going to be the case,” he said.
The Suez accident might also “be used by carriers as an excuse to extend surcharges for another few months or increase them. And when I say ‘excuse,’ is it an excuse? It’s for real,” he said.
But he noted that carriers are wary of increased attention from government regulators. “Carriers are mindful right now that freight rates have been incredibly good to them. They’ve now filed incredibly good annual results. They are mindful that they can’t press this too much.”