2020 was a year of turmoil, and 2021 certainly appears to be the same. However, what caught shippers by surprise was how the cost of such basic functions as loading goods into a box to ship in a timely fashion from Point A to Point B could increase astronomically in the midst of a global pandemic and the world’s largest economies: the US, China, and the EU - in crisis.
Last week, we reported a market high rate of USD 10,500 on Asia - Europe. What?!
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As we are already knee-deep into 2021, let’s take a look at how the box industry may fare in 2021.
US-China Trade Relations
This week Pres-elect Biden becomes President Joseph R. Biden, 46th president of the United States. Will the next four years consist of trade policy pronouncements via twitter, or a return to the more measured years prior to Mr. Trump?
Worth noting is that Mr. Trump’s huge import duty increases on Chinese goods did not do much to stop the flood of Chinese goods into America; on January 7 the Department of Commerce announced the U.S. trade deficit widened to the second-largest on record in November as merchandise imports reached a one-year high. This is evidenced in the Port of Los Angeles reporting an increase of 22.06% in total TEU’s handled November 2020 vs Nov 2019.
Last month, Mr. Biden announced Katherine Tai as his U.S. Trade Negotiator. A skilled negotiator fluent in Mandarin, Ms. Tai has a reputation as a ‘problem-solving pragmatist’ who served the Obama Administration as the Chief Counsel for China Trade Enforcement, and the Trump Administration in the USMCA labor negotiations. Mr. Biden has said he wants to concentrate on such issues as theft of intellectual property, patent infringement, and better access for American companies to the Chinese, instead of the tariff increases-or-not gamesmanship of the last administration.
Effect on box rates: None expected, subject to a political or military dispute.
Covid-19 & the World Economies
It’s difficult to decide what’s worse; the human carnage or the economic. While lost jobs can be reclaimed and debts renegotiated, the current Johns Hopkins Covid map shows 1.93+ million deaths worldwide, led by America’s 376,000+. Despite the vaccines beginning to be available. It seems there will not be a quick ending to the virus. Canada is in crisis, with Quebec discussing adding a curfew to their lockdowns, Britain’s numbers are worsening geometrically, German, Italian, and French numbers are making the news again, while Japan declared a state of emergency in Tokyo, and China just locked-down Shijiazhuang, a city of 11 million.
But in America, the world’s economic engine is sputtering. Last week the U.S. Labor Department announced 140,000 jobs lost in December, as their economy shows signs of buckling amid the escalating deaths and nation-wide hospital crisis.
As in the EU, restaurants and bars remain among the hardest hit, while cash-strapped state and local governments are laying-off thousands of teachers and other public employees.
Trying to halt the economic slowdown, Mr. Biden called on the new Congress for additional federal relief. With 9.8 million fewer Americans working today than before the pandemic; their reduced spending negatively affects GNP.
Effect on box rates: Depends if an additional stimulus package is passed; otherwise increasing American unemployment will cut into all but necessary purchases.
The tsunami of megaships continues; last month Hapag-Lloyd announced six at 24,000 TEU’s, ONE announced with six at 24,000 TEU’s, and a Chinese investment company announced 4 @ 24,000, supposedly for MSC.
Effect on rates: None this year.
Noticeable in the newbuild announcements was the lack of any mention of containers, chassis, and necessary equipment to move these additional boxes. With HMM announcing their interest in moving into logistics, similar to CMA CGM, Maersk, and others, one wonders if insufficient equipment, marooned containers, slipped sailings, contracts breached by carriers, and oft-rolled boxes are the end of supply chain management?
If so, we note Amazon’s recent announcement of purchasing air freighters, instead of leasing. This increases the size of their air wing to 85 Boeing 767 and 737 freighters. Also note their existing all-China forwarding operation, and a fair question would be if an Amazon China-USWC container service might be next? They already operate a hub in San Bernardino, CA which distributes products arriving by air from the UK/EU; goods from China and Asia arriving by sea would be a simple add-on. That would certainly affect container rates, and one wonders if Amazon’s effect on the carriers would be as painful as Amazon’s effect on the traditional brick & mortar retailers.
In the meantime, we must wait and see. We need to get through the TP negotiation period and H1, in general.
But, first things first, ocean freights are insane on the major trade lanes. Are you succeeding to get your cargo on a vessel? How much can you expect to pay? Find out in our monthly ocean freight webinar.