A surge in Chinese imports, driven by a surge in US consumer buying and exacerbated by Covid-19, is causing bottlenecks at California container ports
Driven by a surge in US consumer spending, a flood of imports from China is causing severe bottlenecks at the Port of Los Angeles, which despite the best efforts of the port, will not be disappearing anytime soon.
In an interview with Bloomberg on 9 February, Port of Los Angeles executive director Gene Seroka said 20 vessels were being worked on in the port, well above the port’s typical workload of 10 to 12 ships. “We have 50 ships at anchor awaiting berthing rights at the Port of Los Angeles,” said Mr Seroka, “…about 20 of which are destined for the Port of Los Angeles, with the balance to our neighbor at the Port of Long Beach.”
As a result of the surge of imports, the average number of days at anchor at the Port of Los Angeles have grown from 2.5 days in November to 7.3 days in January.
In January, the Port of Los Angeles processed 835,516 TEU, an increase of 3.6% compared to January 2020. It was the sixth consecutive month of year-on-year increases as US consumer spending continues to drive demand for goods.
“All indications point towards a strong flow of imports over the next few months as consumers continue an unprecedented buying surge which began last summer,” observed Mr Seroka.
“However, US exports continue to lag, down 25 of the last 27 months. What we’re experiencing is one-way trade, which has created challenges for the entire supply chain.”
Port data shows in January 2021, loaded imports reached 437,609 TEU. Loaded exports decreased 19.5% to 119,327 TEU. Empty containers, heavily in demand in Asia, increased 14.5% compared to January 2020 reaching 278,580 TEU.
Container port traffic at the Port of Los Angeles reached 9.2M TEU in 2020 – the fourth highest on record, all of which have been achieved since 2017.
Mr Seroka attributed the bottlenecks at the port to several factors that have been brewing over the last few years. “This really has been three years in the making,” Mr Seroka told Bloomberg. “From the trade tensions with China, to the fiscal policy and the strength of the US dollar, and the pandemic buying surge we have witnessed since the beginning of Covid-19. These are levels of shipments we haven’t seen in our 113-year history.”
Calling it “one-way trade,” Mr Seroka noted that 24 of the last 26 months have shown falls in exports. Loaded exports in January were 119,327 TEU, down year-on-year from 148,206 TEU – a fall of 19.49%.
January data showed another trend – the surge in shipping empty containers from the Port of Los Angeles back to ports in China and Asia for repositioning close to manufacturers.
“The movement of empty containers from the port is 2 to 2.5 times,” said Mr Seroka. “It’s quicker to get those empties back and prepositioned at the manufacturer’s door in Asia, and specifically China, to rotate them back for American imports.”
The Port of LA’s neighbour, the Port of Long Beach, continued the torrid pace it set in 2020 into the new year, recording its busiest January on record.
The port moved 764,006 TEU in January – a 21.9% jump year-on-year. It was the first time the Port of Long Beach handled more than 700,000 TEU in January, surpassing the previous record set in January 2018 by 106,176 TEU.
Imports grew 17.5% to 364,255 TEU, while exports climbed 7% to 116,254 TEU. Empty containers headed back overseas increased 34.6% to 270,221 TEU.
Hoping to see some economic recovery in 2021, and noting the challenging conditions imposed by the pandemic, Port of Long Beach executive director Mario Cordero says, “We remain focused on the health and safety of our dockworkers as they continue to unload a record-breaking amount of cargo from a surge of container vessels calling at the port.”
The strong start to 2021 follows a record-breaking year for the Port of Long Beach with 8,113,315 TEU moved in 2020.
Record volumes at Shanghai
There could be some relief in volumes based on data from the Drewry Container Port Throughout Index, which tracks over 235 ports worldwide. Drewry notes that after reaching an all-time high of 139.6, its container port throughput index contracted by 2.4% to 136.1 points in November 2020, representing a year-on-year rise of 4.7%.
The largest region in the index, China saw a monthly decline for the first time since February 2020, falling by 2.9% to 147.6 points in November 2020. Among the top Chinese ports, Ningbo and Tianjin reported monthly declines of over 10%, with the world’s busiest container port Shanghai posting a 4.7% reduction in throughput.
This reduction was against a backdrop of a record-breaking October for Shanghai in which it reported a container throughput of 4.2M TEU – the first time it exceeded 4M TEU in a single month. This monthly record exceeded the previous container throughput record set in July 2020 by 297,000 TEU.
Drewry notes “While in a normal year we would be expecting to see a seasonal slowdown in demand, in Q4 2020 the continued growth in freight rates indicates there are supply-side factors in play – and the shortfall of empty containers in China is therefore seen to have been a key factor in dampening growth in port volumes. Notwithstanding these challenges, the China index was 7.5% higher than in November 2019.”
Other Asian ports
Not including China, the port throughput index for Asia posted a decline of 1.1% on both a monthly and annual basis in November 2020. Volumes at Singapore were 3.2% down month-on-month, and Malaysia’s Port Klang saw a 6.2% monthly decline in November. Drewry says Singapore and Port Klang contribute close to 40% to the total throughput of the region.
In January, the Port of Singapore reported container throughput of 3.16M TEU, slipping 0.8% year-on-year. Container throughput for 2020 was 36.9M, down from 37.2M in 2019.
Handling 36.6M of that throughput was leading port group PSA International in what PSA chief executive Tan Chong Meng characterises as “an extraordinary year” shaped by the challenges and changes from Covid-19. “As a group, PSA has demonstrated agility and performed credibly against the backdrop of a global pandemic and resulting recession, playing our part alongside as an essential business to keep supply chains open safely,” says Mr Tan.
Strong freight, time charters continue
In its February report on the container shipping market, Maritime Strategies International (MSI) notes that port congestion may begin easing in H2 2021. “Halfway through Q1 2021, a pull-back in spot freight rates on east-west trades has provided tentative evidence that airborne container ship markets will now commence their descent,” writes MSI senior analysts Dan Richards. “However, with carrier booking volumes reportedly still strong, several months of further port congestion to contend with, and uncertainty over the scale of pent-up demand post-Lunar New Year, nothing is yet set in stone and strong freight and time charter markets by historical standards are expected to endure at least into H2 2021.”
MSI reports its time charter rate index has reached its highest level in 14 years. Unseasonal strength in container volumes and port congestion have buoyed freight rates, notes MSI, while in the time charter markets, demand for vessels has outstripped wider growth in the container trade. Only about 1% of the container ship fleet sat idle.
As of 18 February, the SCFI Comprehensive Index sits at US$2,826/TEU, up 2% since end-2020 and 210% higher year-on-year. The broader CCFI Comprehensive Index is up 24% since end-2020 and 120% higher year-on-year.
US consumer demand for goods from Asia continues to be the root cause of wider market dislocations and shortages of equipment and vessels. Asia-US volumes reached over 5M TEU in Q4 20, the highest level on record.
“This colossal volume of goods has been imported into ports that are generally less productive than major European or Chinese counterparts, and over distances that favour the use of midsize vessels for which there is a liquid time charter market,” says MSI. “It is possible that a comparable surge on the Asia-Europe trade would have led to similar outcomes in terms of equipment shortages and mid-size vessel demand, but it is the US that has led the wider market, and the pace at which transpacific volumes cool and port congestion is reduced will do most to determine the timing of a market correction.”
MSI expects the US demand surge to continue into Q2 2021, underpinned by back-orders accumulated during the holiday Lunar New Year.
With US port executives expecting port congestion to continue into Q2 2021, MSI says, “We believe the transpacific market will absorb an abnormal volume of tonnage for the next three to four months at least. While market balances on other major trades will likely loosen sooner, and carriers will face less urgent needs to inject capacity, similar time charter market dynamics can be expected until Q3 2021.”
Based on its assessment, MSI expects time charter rates to fall, with asset values retaining some of the bounce they gained during the surge, until falling in H1 2021. MSI expects the container ship fleet will add over 620,000 TEU in H1 2021, compared to less than 50,000 TEU of deletions. It also expects further newbuilding activity, following a surge of new ship construction orders for 1.7M TEU capacity since the start of Q4 2020.
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