Current State of Play
In the last few months, we’ve seen spot rates from North Europe to China rise 45% to a four-year high, but what’s causing this sudden, rapid increase in shipping rates?
Is it the emergence of the new container alliances which will take effect from April? A lack of capacity and equipment? The Brexit effect? Or is it simply a perfect storm of unprecedented circumstances?
We’ve taken a close look at the current state of play in the UK export market to try to bring some clarity to the situation…
Over the past 30 years or so, the sheer number of available shipping operators has worked well to keep competition high and prices low. While service consortiums are nothing new, the recent announcement of several operators joining together to form new container alliances has put this healthy competition under threat.
In the last two years, three major alliances have come together, with one – 2M – already in operation and the other two – Ocean Alliance and THE Alliance – set to begin operations inbound from April, with export services kicking off in May.
There is concern among many industry professionals that these new alliances are driving up prices, with competition decreasing even further as other operators either attempt to band together, join existing alliances, or simply sink under the pressure.
That being said, the U.S. Maritime watchdog has given assurances that injunctions could be raised to break up alliances if evidence arises of unfair price hikes or reductions in service.
However, it’s not just diminished competition that’s causing these new alliances to have such a marked impact on the current market. The huge amounts of reorganisation and changes in infrastructure required to get the alliances in working order is leading to cancelled sailings and port calls, and therefore backlogs caused by vessel roll overs, which all cause major disruption to exports.
A Lack of Capacity
On top of this, we saw an uncommonly high rate of sailing cancellations this Chinese New Year (when everything effectively stops for 2 weeks), which is causing a massive backlog, resulting in some carriers already being fully booked until end April / early May.
The collapse of Korean shipping line, Hanjin, has also contributed to this, taking away a large amount of capacity that has yet to have been redistributed.
Higher Rates in Europe
The fact is there’s a shortage of available equipment in the UK at present, which is leading to service uncertainties. In some cases, people are having to wait weeks to ship one container.
Despite high demand, anecdotal evidence suggests that 60% of containers are being shipped out of the UK empty as they can achieve much higher rates elsewhere in Europe.
While shipping lines can secure higher rates from the continent the UK’s container allocation will continue to be cut, which means the space that is available will be charged at premium prices, with peak season surcharges.
Some may view this as the shipping lines taking full advantage of the current situation, but in fairness, the low rates we were enjoying before Christmas simply could not continue.
The Brexit Effect?
With the triggering of Article 50 this week, it’s impossible not to speculate on how this may be affecting the UK export market. The good news is that most UK industry players are feeling optimistic about a post-Brexit market – especially when you consider the fact that it currently costs more to import than it does to export.
Still, as with everything Brexit-related, the forecast is as unclear as ever. Until we know what trade deals have been struck and what tariffs will and won’t be enforced, it’s hard to tell what impact the UK leaving the EU will have.
Reducing Delays in Your Supply Chain
It seems then, that what we’re facing is an unprecedented situation in which several factors have come together to leave the export market in the state we’re currently experiencing.
Based on the most recent predictions of backlogs and booking stops, this situation is likely to continue into the summer, although we expect things to settle down somewhat by June, with rates finding a level somewhere between what we were paying at the end of 2016 and the current levels.
In the meantime, we’ll always strive to secure the most competitive rates for our customers, but do recommend you book as early as possible to help us secure haulage and vessel space before capacity becomes further limited.
Shipping rates will always reflect the market situation and are currently changing daily, and in some cases, hourly.
If you’re in any doubt, we’d advise you to speak to us as soon as possible so we can create a logistics solution that meets your specific needs.