The global shipping industry experienced a year like no other in 2020. The pandemic sent shockwaves around the globe that had severe effects on world trade. Lockdowns and COVID restrictions caused manufacturing to halt in virtually every country, leading to the temporary abandonment of shipping containers and port closures.
Despite the industry recovering to some extent, the repercussions from 2020 are still being felt. The ocean shipping industry is currently facing a shortage of shipping containers, leading to a massive spike in freight rates. Major disruptions to supply chains are further contributing to a trade imbalance.
Although 2020 has proved that it’s impossible to predict what will happen, some clear trends are emerging in 2021. While much of these are related to recovery, other natural progressions continue to develop.
The Progression of the Shipping Container Shortage
At present, shipping containers are gathered at various ports around the world, predominantly inland. During the pandemic, production and trade halted, meaning ocean carriers became static. While imports and exports have resumed, international shipping hasn’t yet returned to normal.
The busiest trade routes are thriving, but port congestion is still a real problem. Many ports struggle to deal with the backlog of containers and ongoing trade means they continue to pile up.
There is currently a race for container manufacturers to produce adequate supplies of new storage carriers. However, a reduction in manufacturing toward the end of 2020 combined with a further decrease during the pandemic means that demands still aren’t being met.
The United Nations Conference on Trade (UNCTAD) is acting alongside the UN and governments to combat the issues caused by the pandemic. However, the shortage looks set to cause problems for the rest of 2021. We may see legislation come into effect to prevent such a crisis from reoccurring.
Freight Rate Instability
The main knock-on effect of the container shortage is a rise in freight rates. China became the quickest country to recover from the pandemic, continuing to manufacture and export in March 2020, when other countries were stepping up restrictions. Uneven recovery rates combined with increased demand among consumers means that containers are now extremely valuable.
In December 2020, spot freight rates were over 260% higher from Asia to North Europe than the previous year. Freight rates per 40 ft. container went from around $1,400 in April 2020 to almost $5,000 in April 2021.
Many shippers have complained that they are operating at a loss to meet the demand for their products internationally. The power currently lies with the carriers as they can prioritize doing business with higher-paying shippers. Major carriers, such as Maersk, have been using the spot market to maximize revenue in the current climate.
The pandemic has caused organizations within the freight industry to invest more in digitization. If this contributes to increasing efficiency and solving the container shortage, we may see freight rates start to settle. However, freight rate instability seems more likely for the rest of 2021.
Popularity of Certain Ports and Trade Routes
Throughout 2021, some ports are measuring record amounts of traffic. This is particularly apparent in ports across the United States. The reason for this is mainly due to the China-North America trade route being so lucrative.
In California, the Long Beach/Los Angeles port experienced a 23% increase in volume in December 2020 compared to the previous year. Despite the pandemic, this is the second busiest December in the history of the port. Although the ports located on the east coast of the U.S. aren’t as busy as those on the west, important locations such as Charleston, SC, and Savannah, GA, are experiencing massive influxes in traffic.
The increased volume is further contributing to port congestion along these busy routes. To combat this congestion, major carriers such as Maersk and MSC have pulled certain carriers from their regular rotations in the short term.
As shippers scramble to find ways to meet consumer demand, carriers continue to exploit freight pricing, and the container shortage remains, popular ports and trade routes will continue to dominate.
The Digital Transformation of the Ocean Freight Industry
Historically, the ocean freight industry has infamously relied on paperwork to operate effectively. Although it operates on a grand scale, the industry is very slow to transition to technology. However, the pandemic has pushed many companies toward technology to solve restriction-related issues.
Led by Maersk, carriers are using technology to streamline freight booking, particularly spot booking. Due to the volatility of freight over the past year, short-term bookings are extremely popular. The growth in this area has made digital spot booking an emerging trend for 2021. Other barriers that have introduced digital freight booking tools include CMA CGM, Yang Ming Marine, and Hapag-Lloyd.
Artificial Intelligence (AI) is growing as a major force in global shipping this year. Although it is a massive investment for carriers, it brings about tremendous benefits. AI-based technology allows logistics companies to manipulate data so they can forecast demand and make more informed decisions.
AI can help shipping companies to provide more flexible and diverse price offerings, reduce man-made errors, and automate tedious manual processes. The primary unknown is whether shippers will opt for third-party transportation management systems (TMS) or specific rate management software.
Increased Cybersecurity
With an increased reliance on technology, there is an increased risk of cyberattacks. From 2017 to the present, almost half of the top 10 freight carriers worldwide were victims of digital security breaches, including a $300 million loss from Maersk due to a ransomware cyberattack.
While most major shipping organizations have a certain level of cybersecurity in place, the more technology is used, the more vulnerable their systems are. This is forcing them to invest further in more comprehensive security throughout 2021.
Increased Focus on Sustainability
Major logistics companies, such as DHL, are committed to neutralizing carbon emissions as part of the “Mission 2020 – Zero Emissions”. The freight shipping industry represents approximately 2.2% of all global greenhouse gas emissions, and these are expected to rise by 50% by 2050 if action isn’t taken.
Carriers are exploring the possibility of switching to more environmentally friendly fuels, such as liquified natural gas (LNG). Around 13% of new vessels ordered in 2021 are LNG fuelled, showing a more sustainable focus.
Experienced Logistics Providers Are Key
As we progress through an increasingly tumultuous year in the global shipping industry, the importance of an experienced third-party logistics provider is clearer than ever. Knowledge, expertise, and strategic industry contacts are the guiding light for shippers fighting to stay competitive.
Asiana USA is a world-class international shipping company that can help you meet your logistics needs throughout 2021. For further information or guidance on our services, contact us today at (855) 500-1808.
