Demand for freight container transport has been soaring for about six months — despite or because of the pandemic. The same can be said of cargo rates and the profits made by shipowners.
"Since the third quarter, we've seen an unparalleled rise in demand for container transport," Nils Haupt of container shipping company Hapag Lloyd told DW. It's an unexpected but gratifying development following 12 years of a business slump and the onset of the pandemic.
Haupt said shipping was hit hard in January and February 2020 as Chinese production ground to a halt, and so did exports to Asia. "But then things took a turn, and demand took a dive in the US, Europe and South America," he recalled. "Chinese production was restarted, but there wasn't a lot of transport activities — our industry thought it would stay this way for weeks or even months."
Lockdown causes boom
Things took a turn again in August when demand for container transportation picked up considerably, exceeding supply capacities. This boom has also been caused by lockdowns, seeing a lot more people work from home and spend less on travel or services. As a result, many have invested in new furniture, consumer electronics, sports equipment and bicycles rather than saving their money. In addition, big businesses and traders have been stocking up their warehouses again.
Fleets could not grow fast enough to keep abreast of increased demand for container shipping. "Many shipowners have decommissioned many old vessels in the past few years," Burkhard Lemper from the Institute for Shipping Economics and Logistics (ISL) told DW. He added that shipowners had also been hesitant to order new vessels, and after the beginning of the coronavirus crisis some orders had been postponed.
"Our biggest worry at the moment is that we don't have any spare ships on the market," Hapag Lloyd's Nils Haupt said, adding that it was impossible right now to charter ships. "All ships that are able to carry containers and that are not at shipyards for repair work are in use, and there are no spare containers either," Ralf Nagel from the German Shipowners' Association (VDR) confirmed vis-a-vis DW.
Transport delays add to shortage
The lack of ships is not the only issue. The huge demand and the pandemic have caused massive disturbances at the ports and during inland-bound transport. In Los Angeles for instance, ships have to wait for about 10 days before being allowed to enter the port. Lack of staff because of lockdown measures and sick leaves exacerbate the situation, with the pandemic sometimes isolating whole crews in quarantine.
"There are still some 400,000 seamen out there who cannot be replaced according to schedule," said VDR President Alfred Hartmann.
Empty containers are a real bottleneck as they tend to be at sea much longer than usual due to delays at ports, on canals and during inland transport. In January alone, Hapag Lloyd ships were 170 hours late on average on the most frequented Far East routes. On trans-Pacific routes, delays added up to 250 hours on average.
Moreover, containers tend to stay with customers longer until they can be handled. "Last year and at the beginning of this year, we bought 300,000 new containers, but even those weren't enough, Haupt remarked. To buy even more was no alternative either, he added, as producers were already working at full capacity and prices had skyrocketed.
High cargo rates, high profits
High demand has resulted in soaring cargo rates, putting those with long-term contracts at an advantage — contracts struck before the boom kicked in. But whoever needs more transport capacities at short notice is forced to shell out a lot of money and can consider themselves lucky if their wares get shipped at all. "Right now, it's next to impossible to book shipping capacity at short notice," Haupt confirmed.
According to Haupt, cargo rates are now up to four times as high as they were a year ago, particularly concerning transports from China. Average cargo rates at Hapag Lloyd rose by 4% in 2019, Haupt said.
As Germany's largest container shipping company, Hapag Lloyd had a good year in 2020. This year, the company expects another jump in profits. It may finish the first quarter with earnings before interest and tax (Ebit) of at least €1.25 billion ($1,25 billion), compared with just €160 million in the same period a year earlier.
The world's biggest container shipping company, Maersk, logged an adjusted operating profit of $2.71 billion in the fourth quarter of last year. The Danish firm also expects earnings to increase further in 2021.
The end of the line?
"Right now, we have full ships coming from China, bound for the US and Europe," Haupt said. He thinks demand will not let up in March and April. He warned, though, that this development might not last the whole year. "Ours is a very volatile industry — we've seen a lot of ups and downs in the past years and decades."
"The size of the shipping fleet will remain at the current level," VDR's Alfred Hartmann said. As a matter of fact, a quick expansion of shipping capacities is not in sight. In 2019, orders for new ships dropped by 10%, while last year orders decreased by half.
Hapag Lloyd ordered six new container ships shortly before Christmas, but the purchases won't help them to profit from the current boom as these vessels will only be delivered in 2023.