For exporters, container shipping still far from pre-COVID ‘normal’

Container rates for U.S. imports have normalized. Rates for America’s exports have not. Both spot and contract rates for U.S. exports are still up double digits from pre-COVID levels.

And rates are not the biggest cost issue exporters face, according to Peter Friedmann, executive director of the Agriculture Transportation Coalition.

He told FreightWaves that sailing schedules are now more irregular than before the pandemic, while ocean carrier communications to exporters are as bad as ever.

Consequently, exporters are paying more in detention and demurrage and spending more on storage and trucking due to insufficient communications on erratic sailing schedules than they did prior to 2020.

“Higher rates have not been the primary issue because the rate issue is being overwhelmed by the additional costs imposed on exporters by the carriers’ inability or unwillingness to provide timely and accurate data on things like ERD [earliest return date], when the ship is coming in, and which terminal exporters should send the cargo to,” said Friedmann.

Spot and contract rates still elevated

Import rates collapsed back to pre-pandemic levels following the end of the supply chain crisis (in some lanes, to below those levels). The indexes do not show the same reversion for export rates, at least, not yet.

For the week ending Thursday, the World Container Index (WCI) of U.K.-based Drewry assessed spot rates in the Los Angeles-to-Shanghai lane at $838 per forty-foot equivalent unit. The WCI New York-Rotterdam rate was at $734 per FEU. These rates are well below pandemic peaks, but still up 66% and 27%, respectively, versus rates five years ago.

In contrast, on the import side, WCI’s Shanghai-Los Angeles spot index was down 9% from September 2018, and its Shanghai-New York index was down 16%.

Norway’s Xeneta tracks long-term contract rates, which show the same pattern: down from highs but up versus pre-pandemic.

According to Xeneta data, long-term rates in the West Coast-Far East trade for dry cargo containers averaged $1,171 per FEU as of Sunday, up 39% from mid-September 2019. Long-term rates for 20-foot refrigerated containers were assessed at $3,732, up 32% from four years ago.

In the trans-Atlantic eastbound trade, Xeneta assessed average long-term rates from the U.S. East Coast to North Europe at $909 per FEU (for dry containers, non-reefer) on Sunday, up 13% from mid-September 2019.

‘The biggest challenge right now’

Friedmann explained how carrier service strategy on the import side, combined with a lack of timely data, has translated into higher costs for exporters compared to the pre-pandemic era, above and beyond the rate issue.

“What determines the carriers’ placement of ships and services is the inbound cargo,” he said. “Export volumes and revenues are not their primary concerns when making that determination. And as import volumes have dropped, carriers have adjusted — and they’re still adjusting. The erratic schedules remain an issue and the question is how long it will last.

“The decision to blank [cancel] a sailing is not made three days before the ship is supposed to call at the terminal. Why aren’t carriers providing that information immediately upon making a decision?” he asked.

“When you go to the airport, your phone is blowing up with text messages saying the flight is delayed three minutes or the gate of departure is now E31, not E26. These are flights that are only a few hours long. Exporters ask: Why can’t ocean carriers tell them the date, time and terminal of arrival for a two-week voyage?

“I can’t tell you how many hours our agriculture exporters spend on the phone trying to find out which terminal they should send their exports to. The ocean carrier people will tell them: ‘We don’t know for sure. You’d better call the terminal.’

“I’m not saying people like paying higher freight rates, but you can kind of budget for freight rates. What’s impossible to budget for is when a carrier blanks a sailing or skips a port and doesn’t tell you soon enough — or a terminal is closed — and you’ve got storage costs and production costs and all sorts of additional trucking costs, and detention and demurrage charges that dwarf the freight rates. That’s the biggest challenge right now.”

Exports trending better than imports

U.S. export demand has held up much better than import demand over the past year, so it makes sense that export rates have not fallen as steeply as import rates.

According to Friedmann, “Part of that is because some goods imports are more discretionary to the ultimate consumer. On the export side, there isn’t any discretion. [Some of] the ultimate consumers are animals that need to eat. You’ve got the hogs in China that need our soybeans and the cattle herds in Japan that need our hay and the construction industry that needs our lumber.”

Independent analyst John McCown tracks imports and exports from the top 10 U.S. ports. During the 12 months through July, exports from the top 10 ports increased 1.2% compared to the prior 12 months. Imports were down 16.7%.

McCown also tracks the three-month trailing average of the change in imports and exports. “During most of the pandemic period imports outperformed by a wide margin. However, those trend lines crossed at the end of last summer and export volume growth has outperformed import growth since,” he wrote.

What’s shipped in US export containers?

While the U.S. fronthaul (imports) is largely driven by consumer goods, equipment and components, the backhaul (exports) is largely driven by empty containers, refuse and scrap, and containerized agricultural products.

Data from the main West Coast ports — Los Angeles, Long Beach and Oakland in California and Seattle and Tacoma in Washington — shows that only 39% of containers leaving the ports in January-July were loaded with exports. The rest were empty.

This is up from a low of just 31% in the first seven months of 2022, when the supply chain crisis constricted export capacity by favoring returns of empties to Asia.

The current level is still below the 46% share of laden export containers from these ports in January-July 2019, pre-COVID.

The U.S. Census Bureau compiles data on containerized exports by Harmonized System code, measured in kilograms. The top 10 categories accounted for 70% of the total in January 2019 through this July.

The top category, with an 19% share, was wood pulp and paper, including scrap and waste. There was more refuse in the second-place category: plastics including waste and scrap, at 12%. An agricultural category came in third — oil seeds, grain, fruit and nuts — with 10%.

In fourth place, more garbage: food industry refuse and waste, at 6%. Wood was in fifth, at 5%. This was followed by iron and steel, including more refuse — scrap metal (5%); mineral oils and mineral wax (4%); then another agricultural product, meat (4%); followed by cotton and yarn (3%) and salt, cement and plaster (2%).
Source: Freight Waves by Greg Miller, https://www.freightwaves.com/news/for-exporters-container-shipping-still-far-from-pre-covid-normal/amp