• Congestion levels at ports in mainland China have increased between 30-40% since March
• High rates on shipping routes departing Asia combined with port delays incentivises carriers return with empty containers
• Governments and others looking at ways to discourage ships operating at less than full capacity

Supply chain challenges continue to worsen, exacerbated by higher levels of port congestion and shipping delays at ports in Shanghai and elsewhere in China due to Covid-19 lockdowns. Coupled with ongoing congestion at ports elsewhere in the world and low backhaul rates to Asia, container demand is far exceeding capacity.

Congestion at Chinese ports increased in March and April as Covid-19 lockdown measures were introduced in Shanghai and later extended to other parts of the country. Since the beginning of March, total dry bulk congestion levels at ports in mainland China have increased between 30-40%, according to S&P Global Commodities at Sea. The port congestion at Shanghai has showed signs of easing in May, as traffic has been diverted to alternative ports throughout northern and southern China. However, overall congestion levels remain high and longer vessel queues are being seen at alternative ports such as Tianjin and Zhoushan.

Container shipping rates departing Asia also remain significantly elevated over routes inbound to Asia from the US and elsewhere. This differential in freight rates, along with severe delays at ports, has disincentivised carriers from taking shipments from the US, Europe, or elsewhere to Asia, with disproportionate negative impacts for agricultural exports. The most recent Freightos Baltic Index average price on 6 May for a 40-foot container from ports in China/East Asia to North America West Coast was $14,226. In contrast, the 6 May price from ports in North America West Coast to ports in China/East Asia was $991. The average rate from ports in China/East Asia to ports in North Europe was $10,565, compared with $754 in the other direction. The average rate from ports in China/East Asia to ports in the Mediterranean was $12,538, and only $1,528 in the opposite direction.

In the US, tree nuts, produce, and dairy products in California are struggling to find container capacity, according to the California Farm Bureau Federation. Many carriers are no longer stopping at the Port of Oakland, instead opting to send empty vessels directly from the Ports of Los Angeles and Long Beach to take advantage of high rates from Asia to the US West Coast. There has also been a general shift in container capacity away from the US West Coast towards the US East Coast. Back in January, The Journal of Commerce reported that shipping companies had increased vessel capacity between Asia and the US East Coast by 25% at the beginning of 2022 compared with the previous year. Shippers increasingly moved to the US East Coast to avoid the now-infamous backlog of ships at the ports of Los Angeles-Long Beach in Southern California.

Port congestion and container capacity has been especially bad in China and the US but remains a global issue. Reuters reports that delays in shipments from China to Europe are subsequently causing shortages of containers to take European goods to the US East Coast. In Chile, the National Union of Fruit Producers (Fedefruta) has called for an action plan to prioritise perishable goods. Products including table grapes, blueberries, and apples and kiwis have been significantly affected by port congestion and transport delays. Transport and unloading between Chile and the port of Philadelphia is reportedly taking as much as 45 days, compared with a normal average of 20 days.

Transport delays in 2021 led Chilean exporters to place greater emphasis on the US market over China, where transport and unloading times are comparatively lower. Some exporters, however, have been able to take advantage of the disruption. For example, Peru saw a 43% y/y increase in fruit, vegetable, and grain exports to China in 2021 as Peruvian exporters filled in the gap left by reduced Chilean supplies.

A key driver of delays and capacity constraints is that many ships are operating at less than full capacity. Ships operating at partial capacity means that more ships are required to move the same volume of cargo. More ships at ports leads to loading and unloading delays. Delays encourage ships to make fewer stops and operate at less than full capacity, and the vicious cycle continues.

In the US, farmers have called on the government to enact measures to quell the practice of ships departing US ports with empty containers. The House and Senate have both passed versions of the Ocean Shipping Reform Act, which would strengthen the authority of the Federal Maritime Commission over ocean shipping companies, including the ability to impose new rules barring carriers from "unreasonably" denying shipments of US exports. The bill is opposed by the World Shipping Council. The House and Senate versions of the bill still need to go through the reconciliation process and will require another vote before becoming law.

The Panama Canal Authority has also proposed a new tolling plan which would for the first time include fees for ships carrying empty containers. The current tolling system has been criticised for being overly complex, and the proposed change is part of a broader effort to make the tolling plan "simple and transparent", according to Panama Canal Deputy Administrator Ilya Espino de Marotta. The authority said that the new fee on empty containers "recognises the repositioning value of empty containers".

Posted 30 May 2022 by Lee Bridgett, Analyst, Food Retail and Manufacturing, S&P Global Commodity Insights

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.