Post Date : July 27, 2022
With demand wearing out, an increasing number of surplus containers are piling up at warehouses, resulting in increasing demurrage and detention (D&D) charges and contributing substantially to the operational costs for shippers. These were a few inferences that were discussed during a recent webinar hosted by Container xChange, world’s leading technology platform and infrastructure provider for container movement.
A powerful panel of speakers from Drewry, S&P Global, and Container xChange discussed the impact of the fluctuating global demand and supply for containers, and the charges levied on shippers. Forecasts shared by the panelists indicated that the demand may flatten even more as we progress into the peak season. However, it also was emphasised that the impact of the disruptions will take time to wither, irrespective of containers moving at a greater or slower pace into the coming holiday season.
The shipping industry is going to see the freight rates stay flat for the rest of the year; however, it could see a little variance but might not fall off the cliff to the extent that we saw it rise when it did in 2020 and 2021.”George Griffiths – Editor, Global Container Freight, S&P Global Commodity Insights
Falling Demand behind 2022’s unconventional peak season
Explaining on why the peak season is going to be unconventional, Chantal McRoberts, Head of Advisory, Drewry Supply Chain Advisors said, “There is massive inventory levels that have been building up. If you speak to shippers, they’ve got a lot in their warehouse that they need to move, and demand is falling. I firmly believe if nobody wants to ship anything on a container in the next six months, we still wouldn’t fix the issues that we’ve got in the market at this point. The market is really snarled up, and it’s going to take a lot of effort to fix it.”
Emphasising on the uphill task of easing the supply chain disruption, Christian Roeloffs, Co-founder and CEO, Container xChange, added, “We’ve always compared the flow of containers situation to a traffic jam. If there’s an accident and a traffic jam, even if the accident is cleared up it still takes a very, very long time for traffic to flow again… it’s not the case that you just resolve the blockage and then everything flows.”
Pandemic-induced container imbalance adds to soaring D&D charges & freight rates; D&D charges remain at a 12% high despite a fall in 2022
Insights from the annual Demurrage and Detention benchmark report showed that there was a major spike in D&D charges in 2021, the global average increase was 39% for standard containers, whereas the charges for 20 distribution centres doubled in 2021.
The trend in 2022 has been decreasing slightly for some outlier ports like Long Beach, Los Angeles, and Shanghai, where the charges increased so much that it ended up with the value in 2022 still being 12% higher than pre-pandemic value.
Further explaining the root of rising D&D charges, McRoberts said, “It’s clear that supply chain disruptions are driving an increase in detention and demurrage charges. If there’s a shortage of drivers, a shortage of physical people and vehicles to get the containers into the ports and out of the ports, it consequently increases the D&D charges. These physical blockages had pushed up charges for shippers, and while the situation was easing, a full clearance of backlogs on the discharge front would not come until next year.”
Shippers may get respite from the soaring charges only if congestion is alleviated
It was discussed that there is some latent capacity coming in next year which should help equalise the supply/demand balance, and if the industry can get the pedal easing off the accelerator of port congestion, then hopefully that will positive ramifications on the cost side.