Congestion, Freight Costs Unlikely to Ease Anytime Soon: Lars Jensen
Concluding the Future of Logistics conference, moderator and industry expert Lars Jensen provided some profound food for thought on the current state of play in the shipping and logistics industry when he began by saying, “We are in a jam right now.”
“Congestion is widespread and it is only going to get worse,” said Mr Jensen.
Outlining the reasons for his statement Mr Jensen said the one of biggest risks to the global supply chain today was the way China was responding to corona virus outbreaks with complete lock downs. “We are only one or two sick port workers away from Shanghai Port shutting down.”
Another factor stressing ports and airports was the recent boom in demand which, according to Mr Jensen is showing “no signs of abating.”
The other “massive unknown” was the amount of cargo stuck at ports and factories because there are no vessels to move the cargo or empty containers for the factories to put their cargo into. Furthermore, many big buyers were putting off purchases and waiting for cargo rates to cool.
According to Mr Jensen the return to normality is going to be a gradual process but one that is filled with massive ups and downs. To highlight the point Mr Jensen gave the example of the congestion that had built up at the port of Long Beach in the beginning of 2015. Even after all issues with the port workers were cleared and return to full operations, it took more than six months to clear the congestion. And this was under normal, more predictable conditions.
In the current uncertain environment, congestions have become a global problem plaguing ports across the world. Clearing this congestion and returning to some semblance of normalcy will take much longer than six months.
On the present high sea freight rates Mr Jensen was of the opinion that they will take at least 18 months to come back down and stabilize. A number of factors were in play here, primary among them being the recent consolidation of shipping lines, uncertainty of port closures, and the continuously rising demand for cargo space.
For beneficiary cargo owners (BCOs), Mr Jensen advised that they should not be planning their supply chain strategy for 2022 based on getting the best freight rates because if they waited for that they were at risk of not being able to move their cargo at all if the markets tightened further. Mr Jensen was of the opinion that in the current situation risk management should take precedence over cost reduction in order to keep supply chains moving.
Mr Jensen differentiated further between BCOs based on their size and the value of their cargo. Large BCOs today have much better contract rates than the smaller ones and the latter were at risk of getting squeezed out of the market as their cargo costs would become commercially unviable.
Mr Jensen then concluded his remarks by thanking the conference speakers and audience for their participation and TLME Publisher & CEO, Mr Sam Khan for organising the event.