MOST READ: Upward pressure on shipping container rates likely to persist into Q4

HOUSTON (ICIS)–Persistent supply chain constraints and surging demand from the US are likely to keep the shipping container market tight and keep upward pressure on freight rates into the fourth quarter, according to global shipping major AP Moller-Maersk.

AP Moller-Maersk, the world’s largest container shipping group, said during an earnings conference call on Wednesday that it expects the current dynamics will contribute to keeping rates elevated into the fourth quarter of the year.

This differs from what Soren Skou, CEO of the Denmark-based shipping giant, saw in February, when he said during a Q4 2020 earnings conference call that shipping tightness could ease in the second quarter.

“We were expecting to see normalization after Q1, but it didn’t happen,” he said, adding that the perspective has changed due to the short-term disruption from the Suez Canal incident and because of the restocking taking place in global supply chains.

Most chemicals are liquids and are moved in chemical tankers.

But container ships move polymers, such as polyethylene (PE) and polypropylene (PP), which are shipped in pellets, and higher rates have translated to higher prices.

Maersk reported that average freight rates in the first quarter increased by 35% (44% adjusted for bunker prices), driven especially by rates out of Asia.

A plastic resin distributor based in Canada said it has not seen a decrease in container rates, and said some shippers have advised that effective 1 May they will only deliver to ports with no further inland delivery coordination.

NEW CONTAINERS
Maersk has increased its capital expenditure (capex) budget for 2021-2022 to $7bn from $4.5-5.5bn, with some of that to be spent on additional containers.

“Right now, we see a shortage,” Skou said. “We see our customers needing to be relieved from those bottlenecks. The container terms are very low. So right now, we need those containers to establish the reliability that we promised to our customers. It is a commercial necessity right now and it is really pulling forward containers we would likely have purchased in 2022 or 2023.”

Executives on the call said that containers can typically be ordered and received within the same quarter.

In a recent interview with ICIS, Nick Powell, president of EMEA & Asia Pacific and global specialty chemicals & ingredients at the US-based distributor Univar said the logistical problem with containers being in the wrong place as the economy started to pick up is beginning to ease, but is still a challenge.

“Demand will probably outstrip supply in many instances. Steel drums, steel containers, IBCs (intermediate bulk containers) – that’s still an issue we’re dealing with, and I think that’s going to play at out least through early Q3,” Powell said.

PORT CONGESTION
According to the Cargo Operations Dashboard at the Port of Los Angeles, vessels have been able to go from arrival to departure in about a week, which could be a sign that the backlog is beginning to wind down.

The current average time at anchorage at the Port of Los Angeles is 6.6 days, which is down from 7.6 days on 20 April.

But as the US economy continues to surge amid the ending of most lockdown measures and the rollout of vaccines, it will still take some time for bottlenecks to ease.

“It will take a little while,” Skou said. “What is going on right now globally – driven by the US market – is very strong demand, because the US economy is doing so well.”

“Our customers are trying to do two things at once – cater to strong basic demand because of stimulus packages and savings, and at the same time replenish too-low inventories,” Skou said.

Focus story by Adam Yanelli

Additional reporting by Joseph Chang