The COVID-19 outbreak not only significantly impacted people’s livelihoods, but presented insurmountable challenges for the ocean freight sector. The maritime industry is responsible for facilitating approximately 90% of global trade.
However, it constitutes multiple intertwined moving parts whose disruption has cascading effects. Unfortunately, COVID-19 turned out to be the disruptor whose ripple effects almost crippled the cargo shipping sector and its efficiency.
So, being an uncharted territory, freight companies needed to adapt to this unprecedented global situation and formulate effective response strategies and plans.
Freight services are a critical component in the fight against the pandemic, with the ability to facilitate the transportation of food, energy, and medical supplies across the continents.
Ocean freight market update 2022
The maritime sector underpins most global supply chains and economic interdependency. In 2022, a resilient rebound in international trade and demand for consumer goods put the global ocean freight ecosystem under stress.
International container freight rate index from January 2019 to April 2022. Source: Statista
Unfortunately, the continued surge in demand for shipping containers from East Asia has also dramatically increased shipping costs.
Part of the issue has been the operational disruptions, such as pandemic-related shutdowns of major ports, that put logistic systems under stress, with the increased cost uncertainty.
Overall, global supply chain shortages caused by the Covid-19 pandemic are predicted to continue into 2022. Nonetheless, in 2022, demand for ocean freight services remains relatively lower during the height of the pandemic.
However, inconsistent vessel schedules, severe congestion, blank sailings, equipment imbalances, port omissions, and high fuel charges continue to pose overarching difficulties for the industry.
Year-on-year change in port calls in the European Union (EU) between 2019 and 2021, by ship type. Source: Statista
The impact of COVID -19 on the global shipping sector
Shipping problems due to COVID-19
Shortage of containers
The COVID pandemic led to a suspension of production in Asia, which, in turn, interrupted the supply chains of containers to Europe. This consequently led to a significant shortage of container and vessel capacity on the Asia-Europe route.
As a result, importers and exporters faced overwhelming challenges in shipping their products, which eroded their competitiveness in trade. To further exacerbate issues, as a logical consequence, ocean freight rates dramatically increased.
Punctuality of ships
The punctuality of cargo ships significantly dropped since the advent of COVID 19, with delays of up to 6 weeks not uncommon.
This was not the fault of single market players like shipping companies, or freight forwarders, but rather a worldwide problem of shipping capacity shortages triggered by the pandemic.
Crew change issues
Due to the impact of COVID 19, approximately 25% of normal crew changes were possible due to strict restrictions imposed by health and immigration authorities. Not forgetting, the suspension of most major international flights.
To further exacerbate issues, border closures also significantly affected maritime trade flows and complicated the process of crew changes. As a result, a large number of seafarers stayed onboard cargo ships much longer than normal.
Besides the humanitarian and crew welfare concerns, there was an inherent risk that fatigue could lead to potentially serious maritime accidents.
Closure of ports
Because of national restrictions such as lockdowns, many ports were closed or were subject to stricter customs regulations that impeded trade flows. This consequently led to long ship queues, which, in turn, led to the low schedule reliability of container ships.
The surge in container freight rates
According to Statista, container freight rates steeply increased between January 2019 and April 2022, reaching a record-breaking price of nearly 10,400 U.S. dollars in September 2021.
To contextualize this, the world’s largest shipping company, AP Moeller-Maersk, reported that 2021 was its most profitable year ever, raking in approximately $18.7 billion.
These profits were recorded despite instances of ports being closed or becoming congested. Furthermore, the price of bunker fuel has been steadily increasing since mid-2020, putting more pressure on ocean freight rates.
Read our article on “Factors that affect ocean freight rates.”
Ocean freight market outlook for 2022-2024
With the hard-hitting impact of COVID-19 on national economies, maritime transport will play a more critical role in supporting the resilience of national economies.
Despite the dramatic levels of freight rate volatility, demand for ocean freight services remains strong amidst limited capacity. However, freight rates are expected to stabilize much later in 2024 as COVID-19 infection rates dwindle.
Furthermore, new containers are expected to come to the market, which will increase the overall capacity and augment schedule reliability.
On the other hand, port congestion is expected to continue well into 2022 due to the risk of random port closures on short notice from local COVID-19 outbreaks. Nonetheless, by 2023, rates are expected to slowly stabilize, but at far higher levels than pre-Covid periods.
Overall, the COVID 19 outbreak also created opportunities for logistics and supply-chain entities to venture into new markets, and innovate on new service offerings. It also afforded freight companies the ability to better understand their market position and risk exposure, especially with how the trade lanes develop in the midst of a crisis.
With this mindset, companies can explore the development and testing of new strategies for crisis response, whilst simulating different likely scenarios and deducing shifts in operational and commercial approaches to stay ahead of the curve.
This can help freight companies develop granular scenarios on how demand might evolve or make informed decisions about how to deploy assets to trade routes less impacted by a crisis.
Also, read our article on “10 Reasons for Ocean Freight Delays”
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