Chairman’s Message (Annual Report 2021)
Mercurial, uncertain and volatile : Taking what we learned from 2021 and hope for better cooperation ahead
Looking back on the 2021 editions of my quarterly “Chairman’s Message”, I am reminded of how mercurial the shipping industry had become amid a global pandemic and the resulting global lockdowns.
In January of last year, the industry was log jammed by port congestions. Not only exports from Asia were impacted, carriers were unable to export cargo from Europe to Asia, and as a result freight rates for this route soared five folds to US$5,000 per container.
The situation was equally dire in the US, which was still reeling from the bankruptcies and closures of major retail outlets.
New charges like booking guarantee fees, booking cancellation penalties, container retention fees, and container detention fees did little to improve supply chain reliability. Instead, it added additional financial burdens onto shippers who were already struggling amidst soaring airfreight costs.
By April, my message erred on the side of caution amongst the shippers’ community. Whilst the behaviours of consumers — with regards to ecommerce — precipitated a trade boom, I cautioned against riding this wave for too long. It was likely that consumer behaviours would quickly shift as vaccination rates rose.
Concerns over the concentration of manufacturing and sourcing in China, coupled with US President Joe Biden’s hardliner stance against China only added to the palpable uncertainty that hung in the air. And in 2022, China’s growing maritime dominance appears to have contributed to dwindling Sino-US relations.
I therefore encouraged cooperation between shipping lines by jointly providing better services, especially in reliability and predictability, as well as carbon emissions, rather than attempting to strike out each other.
However, shipping lines continued to justify their astronomical charges because of the high costs of leasing rates, which had nearly trebled from 2020.
In July, I was shocked to learn that it cost well over US$15,000 to ship a 40 feet container from Hong Kong to Europe, whilst Drewry’s Hong Kong-Los Angeles Rate Benchmark went up to US$7,000 for the same sized container.
And since major corporations like Walmart had begun asking their sellers to revise their buy-and-sale terms as a way of shifting costs and liability to sellers, I quickly advised Hong Kong sellers against accepting these charges as this would only cause more upset to an already shaky industry.
And innumerable containers continued to sit at terminals awaiting loading or collection, whilst free storage periods for import and export containers were downgraded due to these congestions.
Closures of warehouses and logistics centres, alongside disrupted truck operations and extended dwell times of inbound containers negatively impacted container turnarounds. Resultingly, this meant more containers were “locked up” for transit. Unsurprisingly, an acute shipping container shortage occurred.
Sadly, some shipping lines decided to capitalise on the chaos by introducing bogus fees such as the “Empty Container Reservation Fee” and the “Container Guarantee Fee” to take advantage of panicked shippers scrambling for empty containers at cargo origins.
And due to constantly revised (i.e., unreliable) shipping schedules, blank sailings rose in mid-2021 and have continued to plague the industry in 2022. And as expected, the current crisis in Ukraine has reignited liners’ concerns for increased blank sailings into Europe.
In October, I wrote about the “perfect storm” brewing within our industry that was born out of not just the pandemic, but numerous geopolitical tensions. Brexit certainly contributed to this storm, as the autumn of 2021 in Britain was marred by severe HGV driver shortages. These shortages encouraged fearmongering, as families expressed worries over not being able to purchase pumpkins for Halloween or turkeys for Christmas Day.
Port congestions across the globe had still not improved. And even with freight rates climbing in the final two quarters of 2021, ship scheduling and cargo operations had decreased.
Exporters in Hong Kong were namely concerned with credit risks, so I advised exporters to obtain insurance protection. I also advised the Hong Kong Export Credit Insurance Corporation (HKECIC) to broaden the terms of its pre-shipment insurance and for the government to extend the 100 per cent loan guarantee for up to a year.
I also encouraged stakeholders to work together in finding weaknesses within their supply chain. Even with the advent of newer and larger shippers being brought into service in 2023, there is still a pressing need to address these bottlenecks.
And now we are coming out of the first quarter of 2022, I feel it is pertinent to revise my previous predictions that forecasted cautiously optimistic growth in a post-pandemic world.
The Ukraine conflict, which began in late February, has sent shockwaves across the world, and it has undoubtedly spelt uncertainty for global economic recovery.
The suspension of Black Sea ports, stranded seafarers, and reports of sea mines in the Black Sea are just a few of the events that have caused major disruption to the shipping industry.
With the plethora of international sanctions made against Russia, fuel prices have skyrocketed and many nations have turned to other economies for their fuel needs.
We must also consider that both Ukraine and Russia are among the world’s largest exporters of raw agricultural materials such as corn and wheat.
Although the Ukraine crisis is only a month in, its effects are already being felt across the globe; and there is no telling how long this crisis will continue and when it will end.
Whatever the case, any chance of recovery in 2022 has now been halted indefinitely.
Going forward, I can only hope that my next quarterly message will be a touch more hopeful. It has been an uncertain two years for us shippers — nay, the entire world — so I can only advise that we remain sanguine and continue to cooperate with one another during these trying times.