Maersk Asia Pacific market update (November 2021)

Container demand growth is likely to moderate compared to 2021 supported by strong demand from the US. The outlook is more uncertain in Europe where we have seen the demand slowing. We continue to see ocean capacity impacted by port congestion and vessel delays with around 12%-15% of global container ship capacity effectively taken out of the market. But we also see an improvement in equipment availability in Asia.

This month, we share the latest trend before highlighting current challenges, and we also explain Maersk’s latest solutions to help you keep cargo moving.

Market Trend

Trade growth in the spotlight as the global economy faces multiple challenges.
The global GDP outlook remains strong for 2022, led by expectations of a robust capex cycle, strong demand, rising wages, and cheap capital. Moreover, inventory replenishment will support goods trade well into 2022, and the channel shift to e-commerce is likely to keep pressure on outbound logistics capacity. But risks are increasing as rising prices and a reduction in government financial support challenge the global economy and threatens to erode demand and dampen trade. Commentators have started to moderate growth projections while raising inflation forecasts, most notably in the US. Central to the impact on trade is how consumers in the US and Europe react to higher prices and less government support. Latest analyst forecasts indicate China’s economic growth will grow by more than 5% next year despite risks posed by a rapidly slowing property sector and uncertain domestic consumer demand. Concerns over the impact on production from power supply disruptions eased in November after China increased coal production which allowed the governments to lift some of the restrictions imposed on industry.

These uncertainties have led to a normalization of global container demand growth compared with a projected 7% increase in 2021. This is based on a normalization of consumer demand as spending on tourism, dining and other services returns to pre-pandemic levels. But current demand levels on some trades, including on the Asia-North America trades, could remain stable as buoyant demand and inventory restocking continues into 2022.

Container market continues to show extraordinary volatility due to supply chain disruptions caused by port congestion, trucker shortages and changes in demand. Global container demand growth moderated to 2% in Q3, slightly lower than the 2.5% increase forecast, and down from double-digit growth rates in H1 2021. Growth in the third quarter was mainly driven by Latin America where trade grew 14% year-on-year and North America which saw a 4% increase supported by technology products and retail goods. North America container imports from Asia rose 2.7% in Q3, while European container imports from Asia fell by 3% due to a drop in consumer demand.

The container industry remains capacity constrained as port and landslide bottlenecks reduce the amount of available vessel capacity even as the nominal capacity increased 4.2% to 24.7m TEU in Q3 compared with a year earlier due to new vessel deliveries.

Trending Topic

• Maersk to significantly expand air freight capabilities. Maersk will strengthen its air cargo operations with the planned acquisition of Germany’s Senator International Freight Forwarding Group. Senator has its own air cargo flight network as well as intercontinental rail, warehousing, distribution and packaging operations across Americas, Asia, Europe and South Africa. Maersk will also lease three cargo aircraft next year, while the two “new build” 777s will be delivered by Boeing by 2024. The Senator acquisition and freighter additions will significantly ramp up Maersk’s air freight capacity, offering customers a unique combination of air freight integrated with other transport modes. Please click here to learn more.
• RCEP heralds a new era of Asia trade. The Regional Comprehensive Economic Partnership (RCEP), which comprises 10 mainly Asian countries, will come into effect on January 1, 2022, to create a new era of ultimately tariff free trade in Asia. RCEP, comprising China, Japan, New Zealand, Australia, Brunei, Cambodia, Laos, Singapore, Thailand and Vietnam, will become the world’s largest free trade area, handling around 30% of total global trade. RCEP will slash regional tariffs among member countries and will be eliminated for 90% of goods by 2032. RCEP will also strengthen economic and trade collaboration especially on the China-Japan and Japan-Korea trades. Efforts will also be made to standardize trading rules and procedures and remove non-tariff related barriers as much as possible to reduce supply chain costs in the region.
• China power shortage: Key manufacturing areas in China including Guangdong, Jiangsu and Zhejiang have been affected by electricity rationing with about 20 of the 31 provinces in China having been impacted to varying degrees. The shortages have been caused by several factors including high coal prices, unpredictable weather patterns and the introduction of tougher energy and emissions. While China has increased coal production and some of the restrictions eased in early November, Maersk has identified three measures customers can take to mitigate any disruption to supply chains. 1) Firstly, continually monitor the supply situation so manufacturing and logistics schedules can be adjusted; 2)Secondly, stay in regular contact with local vendors and partners, who will be able to best monitor the local electricity distribution plan so disruptions to supply lines can be addressed earlier; 3) Thirdly, reach out to Maersk to discuss mitigating actions that may be needed to reduce cargo delivery delays.

• Asia import/export demand and supply outlook: Demand remains strong overall, although we see some flattening of demand growth at certain destinations. There is a significant order backlog that will keep export markets full, but space will remain very tight. The impact on Chinese exports due to the power restrictions is expected to be minor but imports are soft in certain segments, including wood and timber, due to the ripple effect from power controls.
• Sea-Intel report highlights Oceania schedule reliability improvements. The latest Sea-Intelligence schedule reliability report has highlighted the positive impact from our schedule optimisation initiatives that Maersk has made to its Southern Star service. On the Oceania-Asia trade, Maersk is the stand-out carrier with a schedule reliability on its Southern Star service of 72% compared with the industry average of 14.3%. This was achieved by adding one vessel to build a schedule buffer, removing the Brisbane port call to build buffer and enable on-time arrival at critical ports and the ad-hoc omission of Napier port to protect schedules.
• Key Market Outlook across trade lanes.

Imports from China: Capacity shortages have resulted in transit times extending to beyond 7 days from Mainland China. Airlines continue to support higher volumes moving from Mainland China to Europe and US with the balance of capacity moving at express rates into Australia and New Zealand. Maersk blocked space from Shanghai into Melbourne has resulted in stability in capacity. Weekly consolidations readily available on the main carriers from Hong Kong to Australia and New Zealand remains on spot levels.
Import from India & Vietnam: X-ray scanning is now mandatory for cargo exporting from Delhi. Extended transit times which range between 7-10 days are now common. For Vietnam, capacity remains at critical levels with all cargo accepted on a spot basis for both price and capacity.
• Japan and Korea: Increased air cargo demand to US and Europe is tightening capacity and raising freight rates. China’s strict restrictions on international flights due to the China International Import Expo held in Shanghai in early November and the Beijing Winter Olympics in February 2022, has resulted in higher airfreight costs for exports and imports from/to China. Import capacity from Vietnam is very tight due to high demand from fashion, retail and electric products.
• Thailand, Singapore, Malaysia: Demand, especially from hi-tech, electronic and consumer goods, continues to outstrip capacity. Transatlantic rates continue to soar and unlikely to stabilise until early December. Maersk is working with selected airlines on designated chartered routes to ensure capacity is available.
• Vietnam, Cambodia and Myanmar: Airfreight capacity from Vietnam is at critical levels due to strong demand and a shift by carriers to charter flights. We advise key clients to provide shipment forecasts to ensure we can propose the correct solution. We strongly recommended customers book at least two weeks in advance.

• Japan and Korea: With strong demand for Intercontinental rail service, capacity on relay vessel has been expanded to offer more space for customers. Severe port congestion in Vostochniy has caused 2 voyage omissions in November, resulting in backlog and congestion in Busan port which further leads to disruptions to entire logistics flow. South Korea could potentially see a large number of diesel-fuelled vehicles become non-operational for the next coming months due to a severe shortage of diesel exhaust fluid, after China reduced its production and exports in an effort to save coal for power usage.
• Vietnam, Cambodia, Myanmar: With Vietnam factory production back to normal, we anticipate higher demand from both Vietnam and Cambodia into US and Europe for November and December. We have planned additional capacity in both countries to support this demand surge. Equipment availability has remained a significant challenge in Vietnam, but no significant challenges are expected for Cambodia and Myanmar.
  Maersk has additional capacity on ICR in November and December. We have also added capacity on a public train where customers can now ship less than 23 FFE. The land-sea solutions from Cambodia and Myanmar are still active and we continue to support some customers who have ocean space constraints. We expect to operate three block trains a week in November and December.
• Indonesia: We are seeing constant strong demand from export customers from core segments including retail and lifestyle, FMCG and industrial due to the year-end rush. North America, Europe & Mediterranean are our top trades. There will be strong demand towards the end of this year for trucking capacity. Disruption to feeder schedules and a shortage of empty containers will affect customers’ transportation plans for the rest of the year. Maersk is providing a temporary container yard for customers.

Major Port Update

Major ports update (Vessel waiting time indicator)

• Ports in China: Dalian suspended all cold chain facilities from November 8 that impact all reefer shipments except chilled fruit. We suggest customers change final destination to other non-congested ports in East and South China. Hong Kong barge operation will be suspended from the end of December to Lunar New Year in early February 1. We expect limited ocean capacity for transhipment within South China and suggest customers replan schedules to avoid cargo delays.Three Gorges Dam maintenance between February 21-March 23rd will result in longer transit times and reduced barge capacity into/out of Chongqing & Yibin. Intermodal/ICR available as alternative solution for customers.
• Ports in South East Asia: Tanjung Pelepas congestion remains critical, impacting cargo acceptance to some South East Asia destinations.
• Port of Busan has seen an improvement in congestion levels with vessel waiting times forecast to be around three days.
• Port of Los Angeles and Port of Long Beach continue to be severely congested with around 80 container ships waiting at anchor in mid-November. Waiting times are up to 25 days as all large vessels are limited to four gangs in LA.
• North Europe faces congestion with high yard density and multiple day delays into virtually all main ports. Felixstowe is most critical, and we continue to divert to Wilhelmshaven on the AE7 service. Operational capacity in Hamburg has improved significantly, allowing us to reinstate the AE7 call earlier than expected. The first vessel calling Hamburg is 137W Matz Maersk. Our contingency plan on AE6, omitting Le Havre (served via AE55 instead) and AE55 omitting Antwerp (served via AE6 instead) will be maintained until at least end of Q4.
• Mediterranean: We have four confirmed slidings all impacting WMED. Barcelona and Valencia will suffer two consecutive slidings in the first two weeks of December. Algeciras and associated feeder network will miss a sailing.
• Port of Seattle: 21 days average waiting time for vessels that have been in queue.
• Port of Santos: Trucker strike in progress.
• Port of Colombo: Port is facing operational delays due to high yard density and bad weather disruption.
• Port Elizabeth: Due to feeder space constraint, we cannot accept bookings to this port.
• Ports in Australia and New Zealand: Industrial action continues to impact Australia export ports. Sydney, Melbourne and Fremantle are experiencing up to 8 days delay. Melbourne’s VICT terminal is still experiencing the impact from COVID shutdown with reduced staffing numbers. Auckland Port is congested, and the current yard utilization is 93%.