UK shippers forced to soaring spot market amid port chaos

Shippers are being forced on to the explosive spot market, which on Asia-North Europe routes this we…

Shippers are being forced on to the explosive spot market, which on Asia-North Europe routes this week soared to its highest level since 2010.

The China-North Europe spot rate rose 13.5 percent over last week, adding $283 to reach $2,374 per TEU, according to the latest reading of the Shanghai Containerized Freight Index (SCFI) Friday, as displayed on the JOC Shipping and Logistics Pricing Hub. Since the beginning of November, the rate has increased by an incredible $1,234 per TEU and is up almost 200 percent year over year. China-Mediterranean rates increased 7.4 percent to $2,384 per TEU, a 210 percent increase compared with the same week last year.

To place this in context, the average SCFI rate from China to North Europe in 2019 was $764 per TEU, and from January through November 2020, the average spot price was $979 per TEU.

“The carriers are not honoring contracts, so almost everything we are shipping is not under contract rates and is on the spot market,” Rana Harvey, managing director of UK-based retailer Monster Group, told JOC.com. “We have had contracts for years with some carriers.”

Diversions cause their own challenges

Several carriers have diverted ships from heavily congested UK ports to Bremerhaven, Antwerp, and Rotterdam, creating additional delays in relaying the cargo back to the UK, and increasing transport costs.

Harvey said rerouting UK-bound containers via Europe added about $500 per FEU, which was enough to make many of the products unprofitable.

“We have not even bothered with some products,” she said. “It is not even worth passing on some of that cost to the customer because it would simply not sell at the price we would need. A lot of our products are large and bulky, so when you can only fit so much into a container, it adds way too much to the price.”

DHL’s risk management product Resilence360 noted in an update Thursday that the UK’s worsening port congestion was expected to last into early 2021.

“The most severe congestion has been reported at the port of Felixstowe, the UK’s largest container gateway, but also at London Gateway and the port of Southampton,” said Neža Kričaj, supply chain risk analyst at Resilience360.

This has sparked a series of congestion surcharges from mid-November to cover additional operating costs for shipments into the UK. But Kričaj noted that at the same time, export shipments out of the UK have been suspended by several carriers, and were increasingly only available upon payment of a premium fee from other North European ports. This was likely a strategy to reposition empty containers as quickly as possible to Asia to serve the booming China export trades.

A severe shortage of empty containers has developed in Asian origin ports over the past few months, and freight rate marketplace Freightos said carriers have been prioritizing rapid empty container returns over those containing exports from the US and Europe.

‘Not our fault,’ say carriers

Stung by shipper criticism of plunging service levels and soaring rate and profitability levels, carriers have been at pains to point out that the blame does not all rest at their feet.

Danny Smolders, managing director of global sales at Hapag-Lloyd, told the JOC Container Trade Europe webinar this week that the huge import demand from Europe had taken the industry by surprise. Even with every ship deployed, he said the carriers still battled to handle the volume.

“Everything is slower, the warehouses, the depots, the truckers and rail, and everything is saturated with the high volume, which was very difficult to predict,” he said.

A Europe-based forwarder told JOC.com there was a total disconnect between current rates and service levels. “This is absolutely not acceptable, but when talking to the carriers I think some understand very well that this cannot be sustained,” Smolders said.

For UK shippers, there is no end in sight to their supply chain disruption. “It is an absolute mess,” said Harvey. “In all my time in business I have never known anything like this. We have promised containers that are being canceled, sometimes the containers for the UK land up in a completely different port in a different country. It is chaotic.”