Logistics firms all along the supply chain are waiting to see what happens to the infection rate in the United States and what the Covid-19 prognosis means for the expected container surge and the carrier negotiations with customers.
Over the next two weeks could be crucial for how the remainder of this virus hit year plays out according to shipper sources in the US.
Questions remain about how retailers will operate when they reopen, but first, there needs to be a clear sign of when the US consumer will take to the shops and start to return to their old ways, if, indeed, that is what consumers will do.
In China’s viral epicentre, Wuhan, the lockdown lasted 11 weeks and suggestions are that the US could be isolated for a similar period, at least. Now factories in Wuhan are operating at full capacity, “trying to make up for lost time,” according to local reports.
“Never before have we seen a closure of retailers the likes of which we are witnessing today. Stores announced temporary closures for two weeks in mid-March. More than 150 retailers closed their stores temporarily expecting to reopen the first week of April. It never happened. It is not clear when stores will reopen,” said one shipper source.
US forwarder sources are also saying that when retailers are closing their stores they are also closing their distribution centres, making life even harder for small and medium sized importers to make deliveries.
FIATA, the international association for freight forwarders has called on the lines to consider demurrage charges.
“FIATA encourages shipping lines to review their demurrage and detention charges to ensure that they are reasonable under the Covid-19 circumstances. Such a review should consider the possibility of waiving charges based on the second purpose of acting as an incentive,” said FIATA.
According to US TV station CNBC, President Donald Trump will allow certain businesses to defer some tariff payments by three months. FIATA added, “It was not immediately clear which payments would be included in the deferral. Sources said that the relief will likely be applied to ‘most favoured nation’ tariffs under the World Trade Organization.”
Meanwhile, China’s Ministry of Transport and Ministry of Finance has reportedly issued a notice of a reduction in port construction fees and payments to the ships’ oil pollution damage compensation fund for a period of six months.
According to the notice, China will reduce charges by 50% for the oil pollution damage compensation fund and will not charge port construction fees for the movement of cargo during the period from 1 March to 30 June.
Even so, shippers will “Have a hard time developing a strategy without a clear understanding of their customer’s demand. Demand for consumer products is almost non- existent. Many BCO’s [beneficial cargo owners] will have a hard time committing volumes to carriers and NVOCC’s [non-vessel operating common carrier] and they will most certainly not commit similar volumes to last year,” said a forwarder source.
As the contract season is already under way, with a significant number of the larger BCO’s having already concluded their 2020 contract negotiations, smaller shippers remain in discussions with the lines. However, shipping line sources say that shippers are looking for longer free time periods as a result of the Covid-19 crisis.
NVOCC’s are also at the start of their negotiations and the standard minimum quantity commitments (MQC) is unlikely to hold in their negotiations with the lines, but such commitments may be difficult to fulfil in the throws of a global pandemic, with such uncertainty on when the shackles may finally be shaken off.
In this scenario the spot market will have a more pronounced role to play.
“The issue that most NVOCC’s face will be payment terms from clients and possible abandonment of containers,” said one source, further advising forwarders to stay close to their customers.
With distribution centres closed and consumers locked away, volume commitments are at best uncertain, because demand is uncertain.
That uncertainty will be the same for ocean carriers who, as a result, will be keen to finalise NVOCC contracts by the end of this month.
Carriers will, in addition, be trying to maintain freight rates at least at the levels that they are currently at, and what is clear is that the lines will attempt to shore up rates through the careful management of capacity.
Swingeing cuts to service strings mean that cargo is fighting to board the vessels on the main leg of the trades. Capacity cuts to airfreight have also meant that cargo normally carried as belly-hold cargo is now fighting to board express ocean services.
Using the Freightos/Baltic FBX freight rate index rates on the 3 April this year were just US$50/FEU below last year’s rate. More vessel cancellations are expected, with Sea-Intelligence reporting this week that blanked sailings had increased by more than 400% in a week, mainly from strings on the Asia-Europe trades, but the expectation is that the Pacific will suffer a similar fate in the coming weeks.
“Currently, airfreight demand exceeds supply and most space is taken up in charters for FEMA and large forwarders,” a forwarder source said. “Services like APL’s EXX service and Matson’s express service are in high demand as shippers cannot get space with airfreight companies.”
Just who will ride out this viral crisis and who will succumb remains a lottery with businesses battling to maintain stability amid unprecedented falls in demand.
Current Status of Key Carrier Negotiations
- COSCO/ZIM – Still under BCO negotiation, only small part of BCO signed. NVO’s not yet really start – only at initial offer stage.
- APL – NVO negotiation starts from this week
- HPL – Already offered first round base port fix rates. Since HPL doesn’t sign with lots of BCO, they may start negotiating with NVOs in the following days
- ONE – First round NVO negotiation has started this week. ONE wants all NVOs to send the proposal of general fix NAC, MQC and ratio by 4/15. After 4/15, NVO still can change or add some of fix NAC. The sign is ONE want to speed up the fixed contract negotiation and they may need more fixed biz from NVO.
- OOCL – Only finished less than 50% of BCO. NVO not yet started. They will review the NVO policy after BCOs basically done, how many space/MQC budget left for NVO and rate levels.
Nick Savvides
Managing Editor
