As if the global economic downturn weren’t bad enough, U.S. exporters are confronted by a raft of vessel cancellations that hinder their ability to fulfill what overseas sales they’re still able to make.
Since the coronavirus pandemic began early this year, ocean carriers have cancelled hundreds of sailings, sometimes with little or no notice to shippers. Their reason: too little cargo to justify making the voyages.
There’s ample precedent for carriers to frustrate shippers’ expectations of available capacity. Over the years, they have regularly withdrawn entire ships from service and placed them in temporary lay up in order to boost freight rates. During peak shipping seasons in the trade from Asia to U.S., they have “rolled” cargo from one sailing to the next when a ship was full, despite the losing shipper having a committed booking.
But the current economic crisis has heightened uncertainties about ocean-carrier service to an unprecedented degree. “Blank sailings” are making it extremely difficult for U.S. exporters to commit to the sales they need to stay afloat in a perilous economy.
The Port Authority of New York and New Jersey alone saw at least a dozen blank sailings in March and April of this year, according to marine director Sam Ruda. That number shot up to 21 in May, is expected to reach 25 in June, and might drop back to 12 in July, he said at the recent virtual annual meeting of the Agriculture Transportation Coalition (AgTC).
The first wave of cancellations came in sailings from Asia, Ruda said, but subsequent ones were more global in nature, affecting services from Europe, the Mideast and Mediterranean.
Following Chinese New Year, demand for cargo out of China and other parts of Asia was down by as much as 20%, said Jeremy Nixon, chief executive officer of Ocean Network Express (ONE), a joint venture of three Japanese container carriers.
The shortfall of traditional demand is expected to continue into June, Nixon told AgTC, adding that “after July is difficult to predict.”
While ONE is striving to maintain schedule continuity, the actual number of ships in service depends on economic conditions, Nixon said. “We’re trying to avoid an ad hoc structure so that customers can see six to eight weeks out which services are being curtailed.”
For some exporters, that’s not good enough. Dan Miller, global container lead with food and agriculture giant Cargill, criticized carriers for poor communications with shippers, especially from vessel-sharing alliances. “Carrier A announces that a vessel is no longer coming, but that doesn’t necessarily correlate to the next carrier,” he said.
“Getting visibility to how this all links together on an alliance level would be a significant improvement for us,” Miller added. “We’re trying to make bookings six to eight weeks in advance, only to then find out that you’ve got a blank sailing.”
For shippers, he said, the situation creates “a moving target that you’re trying to work with on a daily basis.”
Bill Rooney, vice president of strategic development with freight forwarder and global logistics provider Kuehne & Nagel, wondered whether blank sailings are becoming “a new carrier skill — something they’ve now learned to do.”
Carriers have never done a particularly good job of matching supply and demand, Rooney said, noting the many years of overcapacity in major trades due to the steady introduction of ever-larger containerships, and its depressing effect on freight rates.
Blank sailings have had a “clear impact” on import spot rates in the trade, while causing “collateral damage” in the form of severe equipment imbalances between Asia and North America, Rooney said. Rather than a temporary annoyance, he added, blank sailings could signal the beginning of much higher rates in the trade over the long term — “something we all have to watch for.”
Somewhat ironically, shippers are demanding the right to exercise a similar level of flexibility regarding their commitments to carriers. Alison Leavitt, managing director of the Wine and Spirits Shippers Association, said her group has struggled to get carriers to commit to fixed rates for as few as three months. Now, with export markets in a state of extreme flux, “we need carriers to be similarly flexible. The [service] contracts we signed a few months ago cannot be static. We need to respond to the various pressures of the marketplace.”
For their part, carriers note the difficulty of keeping pace with shippers’ changing circumstances. Juergen Pump, president of North America with the German containerline Hamburg Süd, said booking cancellations by exporters are currently ranging from 50% to as high as 80%. While acknowledging that such actions are often beyond exporters’ control, he said they should be expected to inform carriers of shipment delays as soon as they learn of them — echoing shippers’ remarks about carriers’ lack of timely notification.
Shippers might be preparing to take their dissatisfaction with recent carrier behavior to a higher level. Members of the American Cotton Shippers Association (ACSA) have talked of asking the Federal Maritime Commission to enforce the aims of the Shipping Act of 1984, said Michael Symonanis, director of global container logistics with Louis Dreyfus Commodities.
Symonanis urged both sides to take “a more mature” approach to the dispute, toward crafting an industry-based solution “without regulation or legislation.”
Next: The never-ending chassis debate.
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