Light at the end of the Suez Canal but challenges for the automobile | New
The disruption of global shipping has been a real chain reaction, according to Philip Damas, managing director and head of supply chain advisers at Drewry Shipping Consultants, and the ripples are unlikely to smooth out completely before the end of the season. the year.
Even then, the relationship between the automotive industry and shipping companies will likely never return to the way it was before the pandemic, he warned during a session of Automotive Logistics & Supply Chain Europe Live this week. week.
When China halted production in the first part of 2020, shipping companies responded by canceling hundreds of crossings to protect themselves from massive overcapacity. However, volumes rebounded much faster than expected and there was not enough capacity to meet demand.
“And that’s where the system got completely disoriented and disrupted because of a big rebound in traffic volume that nobody expected,” Damascus explained.
During the second half of the year, the global industry made a big effort to replenish volumes, causing high volatility and leading to crippling port congestion. From the third quarter of 2020, port efficiency dropped dramatically and ships were spending far too much time in port, lengthening supply chains. Shipping companies have responded by sending fewer ships, further compounding the problem.
On top of all this, there was a severe shortage of containers, which tended to get stuck in ports due to rollovers and the shortage of truckers. Damascus said that in December 2020, containers could take up to 100 days to travel from their origin in Japan to Europe and return, which is twice as long as normal.
All of this conspires to create skyrocketing delays and costs for logistics service providers, importers and exporters, both at sea and in emergency freight. Damascus illustrated: “One of our clients in the auto parts industry… had to spend over $ 100 million on air freight because the shipping industry was not doing it.”
At the same time, container spot rates have jumped to five digits, while contract rates have risen by more than 50% of the year through April, according to data from Drury.
There is light at the end of the tunnel but Damascus has seen market volatility during the pandemic causing a permanent change in the way shipping companies operate.
In terms of light, as business patterns continue to normalize, Covid restrictions disappear and the workforce returns to normal work, the backlog will begin to clear. At the same time, almost all of the ships that were put on hold were reactivated, restoring much of the capacity. As a result, Damascus sees shipping difficulties lasting another six to eight months, with substantial improvements starting in the third quarter. Shipbuilders’ order books are also exploding, especially for more environmentally friendly ships, although long delivery times mean most capacity shortages will be gone before they are delivered.
However, as the real capacity crunch eventually comes to an end, the auto industry and allure will look different than it did before the pandemic. Damascus said carriers would no longer be willing to tolerate operation with a lot of overcapacity, as they have for a long time. They will have a little spare capacity for flexibility, but will manage it with canceled crossings and capacity management.
“This is why we say that in 2022 we will see less disruption and a better balance between supply and demand, but we will not see a return to chronic overcapacity,” Damascus said. “We think there has been a structural change.”
The result is that the unusually high spot rates seen in 2020 and 2021 will come down, but contract rates are not expected to return to their pre-pandemic levels. Instead, Drury expects a 40% difference in contractual rates for containers between 2019 and the forecast for 2022.
In this changing market, the automotive industry will not be able to count on preferential treatment either.
“I think [the automotive industry] loses priority, ”Damascus warned. “Typically, for example in transatlantic trade, automakers were one of the main providers of stable core freight, but in today’s market, where it’s actually a seller’s market, we don’t let’s not see OEMs getting that much power in the relationship and that much of a priority.
According to Damascus, auto shippers will have to pay more and find ways to convince shipping companies that their cargo is important, which is a complete reversal of the previous relationship.
The full session will soon be available on demand and offers additional insight into the impact of the Suez Canal blockade and how the industry is expected to cope with future disruptions.