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Chaos in container shipping!

Container shipping costs have jumped drastically along some routes as the coronavirus pandemic remaps traditional trading patterns and issues at European ports. Add the delays in the region and you’ll understand our worries. Read the highlights of the market impact, disruption, congestion and container shipping alliances in article by Tom Brown of ICIS.

The recovery of multiple key Asian markets from the pandemic, relative to the ongoing struggles faced in the west, has led to a surge in exports from the region to the rest of the world, with less product going back the other way.

The shift in demand patterns has led to containers returning empty to Asia as demand for exports from the region significantly outstripped demand for imports, increasing costs and lead times for orders.

Shipping lines cut capacity drastically during the first wave of pandemic-related lockdowns, and have failed to boost it sufficiently as demand bounced back.

Container availability has been disrupted by too many full containers being stuck in distribution chains west of Suez or in congested ports of entry, with logistics slowed down because of manpower shortages related to coronavirus lockdowns.

MARKET IMPACT

Normally freight costs are around $1,500 for a 20ft container. Now you talk about $5,000. It changes every week! The extent of demand has led to shortages in Asia, with shipping firms going so far as to send additional empty containers to the region just to alleviate some of the pressure.

Sources spoke of shipping freight rates for dry cargo rising three- or four-fold, and lead times dragging from six weeks to eight, at a point where demand patterns are extremely difficult to determine due to the trading volatility seen in the market outlook.

Lockdown measures in many European countries are creating additional headaches for the shipping sector, Some sources report the use of smaller vessels to cut down on mooring fees but resulting in reduced vessel space, and shipper terms changing fast.

All the Asian countries are producing and exporting and not importing, because of Covid etcetera.

Shipping lines are saying they can’t respect their contracts. They say: pay or we won’t ship!

DISRUPTION TO PERSIST INTO 2021
Some Asia sources have expressed expectations that freight container tightness in the region is likely to persist until February 2021.

The Chinese say it will last until March or April 2021, then the cycle of containers should go back to normal.

PORT CONGESTION
Trade disruptions, bulk orders of medical equipment by governments and geopolitical issues such as the UK’s imminent expected departure from the EU customs union, is also causing congestion at ports and storage issues.

Other key European ports have also had issues, with Rotterdam suffering from delays to arrivals and discharges of shipments due to issues with a new IT system.

The practicalities of operating during the pandemic are also exacerbating delays at European ports, with additional health and safety checks, furloughing, and social distancing also slowing the speed that product moves through the ports.

Lockdowns are expected to ease in most European countries but, with the virus still circulating at high rates and restrictions expected to be temporarily eased for a spell over the Christmas break, controls on contact and the potential for staff shortages from illness remain high.

The issues mean that, while supply chains are largely continuing to hold and orders continue to be met, logistics issues are likely to continue exacerbating demand opacity, economic volatility and shifts among buyers to more hand to mouth purchasing habits, making for a treacherous landscape for firms through to the new year.

CONTAINER SHIPPING ALLIANCES
Although shipping cartels were outlawed in 2004, shippers are permitted to operate in alliances to optimize use of shipping space.

The OECD’s International Transport Forum claims that links between these consortia mean a large majority of trade routes to and from Europe are operated by one conglomeration of these groups.

It is concerned that too much information may be shared on volumes, costs and pricing.

The container sector is a lot less fragmented compared to a few years ago. Now the top five owners are controlling close to 65% of capacity.

Also in Germany the recycling industry is demanding the government to take steps for a sustainable circular economy. Hopefully many countries will follow these initiatives and even more important: will governments take the necessary steps.

The article is from Der Grüne Punkt – 22. June 2020

The Green Dot (“Der Grüne Punkt”), Werner & Mertz and the German Association for the Waste, Water and Raw Materials Industries demand financial incentives and commitment from government.

Plastic waste in private households increased by 10 percent in recent months as the numbers of home offices and Internet orders went up and the demand for recyclates – recycled plastic from plastic waste – decreased dramatically. What appears at first glance to be a paradox can be attributed to one cause – oil prices.  The corona pandemic brought about a sharp fall in the price of oil. Cheap crude oil lowers the cost of producing new plastic and thus reinforces new plastic’s privileged legal status in Germany as it is exempt from petroleum tax and EEC levies. In comparison, the material recycling of used plastic packaging is economically even less attractive. Many manufacturers which previously used recyclates for products and packaging are now switching back to new goods.

That means not only substantial losses for the recycling industry and a giant step backwards for climate and environmental protection, but also a huge blow to the circular economy!   
Consumers long ago recognized the danger. Surveys show that consumers see plastic as the greatest (environmental) problem. They expect solutions in favor of a sustainable economy and that has not been changed by the coronavirus.

The solution to the plastic pollution of our environment has been known for some time. Used plastic from post-consumer waste collections like the German Yellow Bag can now be recycled at such a high quality that it fulfills strict requirements for use in cosmetic packaging. Plastic remains in a closed cycle, where it becomes valuable raw material instead of polluting waste.

The technology of material recycling, however, is still pushed aside because the use of new plastic is cheaper in comparison.   

That’s why three representatives along the supply chain have issued a joint statement in which they demand that the German government use the impending transformation of the economy to establish a sustainable circular economy in general and the reuse of recyclates from used plastic in particular.   

Peter Kurth, President of BDE (German Association for the Waste, Water and Raw Materials Industries), appeals to the role model function of public procurement for sustainable management: “The decline in oil prices intensified the already difficult circumstances for many plastic recyclers. Expensively produced recyclates find no takers, investments in better recycling are put off or cancelled because refinancing appears impossible. Given the lack of political action, plastic recycling is threatened with severe damage. Anyone who wants a successful, sustainable economy has to employ suitable instruments that have been known for a long time. An altered procurement process that takes ecological aspects seriously should be at the top of the agenda.”

Reinhard Schneider, owner of the cleaning products company Werner & Mertz and winner of the German Environmental Award 2019, provides concrete solutions to balance out the existing financial disadvantage between the use of post-consumer recyclates (PCR) and of new goods in Germany. “The ecological differential in the purchase prices could be incorporated in the Packaging Law in Paragraph 21 in the form of a fund to which all producers would have to contribute. Only those who use recyclates should receive reimbursement. Additionally, a plastic tax could be introduced which would apply only to new goods, something Italy plans to do. That corresponds to cutting the subsidies for the manufacture of new goods in that the exemption from mineral oil tax and EEC levies no longer apply. The debated minimum utilization rate makes sense only when combined with incentivization for exceeding the minimum rate.”

Michael Wiener, CEO of The Green Dot (“Der Grüne Punkt”), says specifically about minimum utilization rate: “The potential of the circular economy for climate protection, especially for plastic, has not yet been exhausted. We are missing out on the economic opportunities the circular economy offers. A circular economy that earns the name creates jobs and brings urgently needed added value into the European Union. Instead, we are experiencing a complete market failure. Recycled plastic saves up to 50 percent in greenhouse gas emissions generated by new plastic, but that is not reflected in the price. Politicians have to set defined recyclate utilization goals for certain product groups in order to promote the creation of sustainable recyclate markets and provide the necessary investment security. In July 2020 the federal government will take over the EU Council Presidency – a good opportunity to advance relevant measures.”

Summary: A stronger focus on sustainability in public procurement, a fund system, a new plastic tax for new goods and a clearly defined minimum rate for the use of recyclates combined with financial incentives are instruments that will save plastic recycling from extermination and, after the corona crisis, will ensure a stable, sustainable circular economy as an important contribution to climate protection.   

Ruim 200 bedrijven hebben het Green Recovery Statement getekend, en Dutch PET Recycling is daar één van. Gezamenlijk pleiten we er voor om duurzaamheid als hoeksteen te nemen voor de corona-herstelplannen. 

Goed om te zien dat meer bedrijven duurzamer willen gaan ondernemen en pleiten voor een groen en sociaal herstel. Dit doen wij, en alle partners uit het netwerk van MVO Nederland natuurlijk al jaren. En dat is nodig, want slechts 12,1 procent van de economie is nu duurzaam. Samen bereiken we meer! 

In English:

More than 200 companies have signed the Green Recovery Statement, and Dutch PET Recycling is one of them. Together we argue in favor of taking sustainability as the cornerstone of the corona recovery plans.

It is good to see that more companies want to do business in a more sustainable way and that they advocate a green and social recovery. We, and all partners from the MVO Nederland network, have been doing this for years. And that is necessary, because only 12.1 percent of the economy is now sustainable. Together we achieve more!