ECONOMYNEXT – Sri Lanka’s exporters and importers are working against multiple global and domestic disruptions in logistics in the post Covid-19 period to keep exports ticking and supply the country with essential foods and raw material as freight rates soar.
Exporters are also facing shortfalls of containers with import controls in Sri Lanka, comppunding global bottlenecks in shuttling empty containers.
Though freight rates have started to stabilize gradually from Covid-19 peaks, Sri Lankan shippers are paying high rates.
Freight rates from Colombo to Europe, China and Hong Kong have jumped over 200 percent, to the US over 150 percent and to Singapore over 100 percent, Sri Lanka’s Shipper Council Chairman Suren Abeysekera said.
Freight rates were competitive before the Covid-19, helped by large container ships coming into service, but pandemic disruptions had rapidly pushed up rates as ships were taken off service reducing capacity.
The Shanghai freight index has jumped three fold compared to 2019 last quarter while the Drewry’s World Container Freight Index also shows a threefold jump from 2019 with average spot freight rate jumping from 1500 dollars in March 2019 to 4800 dollar by March 2021, Abeysekerasaid.
“In my 21-plus year experience I have never seen something like this before,” Abeysekera says calling it a the ‘perfect storm’ in ocean freight.
The resurgence of economic activities after Covid lockdowns ended and the rush to build up stocks had created congestion in the global logistics system.
Now shipping companies were making large profits and orders have also been placed at shipbuilders.
“Whatever that stopped during COVID, couldn’t come back to its former glory though the industry came back quickly to match the consumer demand,” Abeysekera explained.
Across the logistics chain, there are delays and congestion, which is a cost to shippers.
“Congestions created at ports amplify this issue with ships spending more time close to ports rather than moving cargo on water,” Abeysekera said.
“Remember the number of ships in the world has not suddenly increased but most are out of schedule creating havoc to demand when it needs supply.”
While global trade has not actually grown, it is the disruptions and delays that are causing capacity problems, he said.
“It is our understanding that the current volatility in the ocean freight market would continue throughout 2021 and shippers in the country should adapt to the new norm in containerized shipping,” he said.
The industry has taken a number of initiatives to mitigate the situation, more innovations are being done, but there are also measures that authorities can take, he said.
Overall ships were fuller than before, reducing the ability to shuttles empties.
Globally there were difficulties in getting hold of empty containers and also ones for specific types such as food grade boxes, refrigerated containers and different sizes such as 40 foot containers and 20 foot containers.
Vessels delaying their return to Asia due to congestion in export destinations had also contributed to a shortfall of containers in Asia. Others have also got stuck in inland ports.
There is at least one investigation by regulators to probe whether an artificial shortage is created, he said.
In Sri Lanka exporters are facing difficulties getting empty containers in general and specific types of containers.
Sri Lanka’s import controls had created shortfalls of empty containers, whereas in the past, there was an excess of boxes in the island.
“Specifically for Sri Lanka, the reduction of imports has had a direct impact on container availability,” Abeysekera said.
“Generally, Sri Lanka has an imbalance in the number of containers with more inflow than outflow. But currently it is reversed.”
Due to import imbalance, the 20’ equivalent size containers have a better availability compared to 40’ and 45’ containers in Sri Lanka.
But the overall export cost of 2 x 20’ containers instead of a 40’ container is incomparable.
Shippers are taking several measures on their own to mitigate the fallout and maintain the external trade lifelines of the country.
Forecasting of volumes to shipping lines and maintaining the accuracy is one way to make sure shipments can be made on time.
“Currently, the earlier you could forecast the lines, the better chance for exporters/ importers to obtain space on vessels,” Abeysekeras aid.
“Presently forecasting is done as early as found weeks ahead by some users. This helps with rates as well.”
The creation of a common container pool without having to look for containers in specific yards would also help, he said.
It is not clear whether an online data based could be set up for container freight stations to update data daily.
State authorities could also take measures that would help combat the problem.
Sri Lanka has lost a number ocean services during the congestion that happened during a Covid-19 spike at Colombo Port last year.
Though many lines have returned some are still bypassing Colombo.
“Sri Lanka should market its Colombo port internationally as a port which successfully combat Covid and attract vessels back to its shores which will increase capacity for local importers and exporters,” Abeysekera said.
Attracting new lines to Colombo would also help.
Sri Lanka can also invite shipping lines to use Colombo as their hub in Asia, he said.
Additional ships calling in Colombo will give more business to shipping agents and other service providers including husbandry and ship services.
Sri Lanka however has placed controls on foreign ownership of shipping agencies, which has some say has prevented the island from following on the path of Singapore where regional offices set up.
Fast tracking clearances by border agencies would also help, he said.
Sri Lanka can also re-look at import controls he said. Ad hoc changes are also creating ripples and uncertainties in the market.
While cost of shipping had hit record levels, shippers also have to put up with very high service charges from middle-men such as freight forwarders, consolidators.
He says such gauging is unethical given the current context.
What shippers are doing and what Shippers’ Council says can be further improved to mitigate the crisis
1. A quick solution to the problem we see from shippers’ side, is properly forecasting volumes to shipping lines and maintaining accuracy of these projections. Currently, the earlier you could forecast the lines, the better chance for exporters/ importers to obtain space on vessels. Presently forecasting is done as early as 4 weeks ahead by some users. This helps with rates as well.
2. Another opportunity available for shippers is getting into strategic contracts with SSLs with volume / rate commitments from both sides. Current spot rate markets are bullish and most of the time space not awarded or containers been rolled at transshipment points due to yield restrictions.
3. Shipping lines are also encouraging renewing of annual contracts prematurely giving the opportunity to secure rates and capacity at current levels in case the situation develops further and also to have confirm space in current context.
4. Importers and exporters should relook at their entire supply chain/ value chain activities and not in EXIM trade in isolation to attract transportation cost benefits in this challenging period
5. Another new option has emerged from shipping lines deploying smaller vessels to ply between specific port pairs which helps to speed up transit between key economies and cut down congestion having to carry, load/ unload and experience congestion calling many ports on the way. This is at a premium rate but provides consistency and dependability to freight transportation thus relieve pressure on main ocean line-hauls.
6. Availability of a common container pool in Sri Lanka without having to look for containers in specific yards would also help to quickly track and issue containers to exporters from a central repository.