Chaos in the container shipping industry is still going on. Two main issues have hearted the industry: container shortage and uncontrol freight rate rise.
The container shortage has become a global container shipping issue. Though it is debatable, this issue has been blamed as the main trigger of the uncontrol freight rate rise. These problems in shipping have disturbed the supply chain, the logistics activities, including in Indonesia.
The logistics and transportation business have been hit by some serious problems of container shortage and unavailable slot/ space as most of the containerships were fully booked. And, not to mention our old problem of poor data ecosystem among stakeholders of transporters, cargo owners, forwarders, and related institutions.
The global trade decline, including American export performance that is much lower than its imports, has resulted from the ex-import containers are held back, which in turn affects the global shortage of containers. Thus, the global shipping industry rationalizes costs up to pending shipments or omissions.
This condition also has an impact on trade activities to and from Indonesia because Indonesia import tends to use 20- feet containers, while exports using 40-feet ones. This condition makes Indonesia’s export-import activity is getting worse, resulting in a very extreme increase in freight rate on many international shipping routes.
As reported, during 2008 – 2019, the world economic turmoil came from the financial, energy, and trade sectors. But, these crises did not put pressure on the supply and demand sides.
The Covid-19, which originates from the health sector, has paralyzed the economy because it suppressed the performance of the supply and demand sides. This condition was getting worse because the world economy had no experience in dealing with COVID-19 at that time and it is still having an impact until now.
The lockdown in the world’s major ports, causing chaos on the shipping schedule which in the end, in the difficulty of getting a space. However, international operators (Main Line Operators/MLOs) are making efforts regarding the provision of new vessels and containers. It can meet the demand gradually.
In early August, for example, congestion at some terminals in China and Vietnam following the closure of some terminals, significantly reduce container availability and drive-up prices at key shipping hubs in the weeks after, data analysis by Container xChange, the world’s leading online platform for the leasing and trading of shipping containers, says.
“We saw a real and measurable spike in container prices and a major drop in container availability as measured by our Container Availability Index (CAx) when terminals at Yantian saw operations disrupted through most of June,” said Christian Roeloffs, co-founder of Container xChange. “Early indicators suggest we are likely to see the same impact in Vietnam and at Ningbo.”
According to the CAx, average container prices (defined as the average price of the transactions on the Container xChange platform covering all container sizes including 20 ft. and 40 ft. dry containers) at the port of Yantian increased from $5,515 in June to $15,336 in August.
Impact on Indonesia’s Trade
Indonesia Logistics and Forwarders’ Association (ALFI) knows and understands that these problems are absolutely bottlenecks of export-import activities.
“Evidence has said, container shortage and unavailable slot/space significantly halted our export-import activities and our industry productivity as well. Many export commodities were blocked at some factories, forcing them (factories) to stop production,” commends Yukki Nugrahawan Hanafi, ALFI Chairman.
Based on the ALFI’s study, there are at least seven key facts that have significant relation with the issues (container shortage and its impact on Indonesia’s export/import performance); first, container shipping is required for export-import of finished products. Export activities of Indonesian natural resource commodities such as coal and CPO do not use containers but use dry bulk or liquid bulk shipping.
Second, the availability of containers in a country depends on the frequency of imports. Containers tend to move a lot to America along with high imports, while in Indonesia is less.
Third, during the COVID-19 pandemic, there was a decline in Indonesian imports which resulted in fewer containers entering Indonesia. As a result, Indonesia’s export-import faced container shortage, the 40 feet/40 feet high cube, in particular. Further, the pressure of rising transportation costs cannot compensate for the added value of the exported commodities.
Fourth, shipping lines give clients a free time window at the port to maintain business relationships.
Fifth, shipping lines reduce the free time window in the United States and charge additional costs for unloading containers, in a bid to push containers back to Asia as quickly as possible for the next shipment. However, US importers were unable to find sufficient truck capacity to empty the containers.
Sixth, Asian exporters suppress prices by pre-ordering containers, reserving space on ships, and negotiating tariffs using index-linked container contracts and risk management tools.
Seventh, the Chinese government intervened in the price and asked COSCO (a Chinese-owned container company with a world market share of 35%) to hold its price, which is expected to curb the increase in container prices.
High Freight Rate Until Next Year
The Indonesian National Shipowners’ Association (INSA) assesses that the solution to the problem of container shortage is difficult to predict because the world’s main ports are still undergoing rotational lockdowns. This is the impact of the ongoing Covid-19 pandemic.
The lockdown in the world’s major ports, causing chaos on the shipping schedule which in the end, in the difficulty of getting a space. However, international operators (Main Line Operators/MLOs) are making efforts regarding the provision of new vessels and containers. It can meet the demand gradually.
INSA Chairwoman Carmelita Hartoto said the freight will still be high until next year. “We expect the level of freight will start to return to normal by the end of the Q1/ 2022, not only due to an increase in supply (tonnage and containers) but also the most basic thing is the impact of the pandemic will begin to decrease along with the increasing number of vaccinations not only in Indonesia but also globally,” Carmelita said.
“We are suffering the same as other countries in the world, especially ASEAN countries, which are experiencing container shortage and the increase in freight rates which has reached 300 percent on average. The increase in transportation costs is very hard for Micro-SME exporters. Because it is not balanced with the selling price,” she explained further.
This shortage of containers certainly burdens exporters who use 40-feet containers. On the other hand, imports use 20-foot containers, causing an imbalance in their utilization.
“How long is this? When there is a balance of supply and demand. When is it? Hard to predict. It is as difficult as predicting the end of the Covid-19 pandemic,” said Carmelita.
“This is still happening because the pandemic is still not over. In fact, following the growth in the flow of goods, MLO or international shipping operators have begun to purchase orders for new ships and new containers. However, procurement cannot be instant. Shipyards in China (currently the cheapest), are also busy receiving orders. Likewise with the manufacture of containers,” he explained.
Yukki echoed the view, says the global container shortage will stay no longer than next year (2022). Moreover, Indonesia is one of the countries that is considered to be the most prepared to face this problem as no lockdown policy was taken in overcoming the pandemic.
The current world’s containers shortage is triggered by the global Covid-19 pandemic that has lasted almost the last two years. The impact of this situation has also affected the behavior of the logistics industry. There is a very strong change in the industrial sector in which the international shipment is strongly influenced by trade to and from America, while intra-Asia is considered less profitable with a shallow margin. So, in view of business, routes to/ from America is more attractive, rather than to Europe and intra-Asia.
Solutions
It is undeniable to say that the problem of containers shortage has triggered logistics prices higher. This becomes more serious as, amid the pandemic, there was a decline in Indonesia’s imports which led to a container shortage, especially the 40 feet ones needed for export.
Indonesia’s smaller import volume during the pandemic has led to a low number of containers entering Indonesia, in addition to the imbalance in the flow of export and import containers between Asia America which raises container prices.
Because of those problems mentioned above, ALFI has submitted a proposal to the government to overcome the problem of container shortage, to encourage the smooth flow of Indonesian export and import goods;
First, optimize the utilization of container turnover by seeking to release/ utilize containers with un-clearance status (no clearance) at each port terminal. Then, the shipping lines can also transparently submit an earlier report to the exporter and related agencies if their loading capacity is indeed problematic or has been fully booked by the exporter. The shipping line is expected to prioritizes carrying full containers rather than empty (reposition).
Second, give relaxation/convenience for the transfer of export goods / finished goods from the factory to the logistics warehouse, if the factory has customs facilities (KB or KITE) then it has been supported by BC to facilitate the process of this temporary relocation permit from KB / KITE to the warehouse location PLB, TPS or TLDDP (public warehouse with guarantee). In addition, technical control of container loading facilities and the availability of containers can be monitored and be monitored by relevant agencies and service users.
Third, optimize the involvement of national private logistics players to support government infrastructure projects. In this case, the acceleration and ease of licensing for business activities will help business players without neglecting the larger interests of the state (monopoly practices, export/ import bans/restrictions, and so on).
Fourth, provide subsidies to exporters, especially for high competitiveness commodities (RCA > 1) so that they can change the export payment method from FOB to CIF and have bargained with overseas buyers.
Fifth, provide subsidies to shipping operators so that they are willing to do repositioning (repo) of empty containers that are still stuck in several places.
This article was published in ISG Print Magazine September 2021 Edition.
