Chemical shippers say that transportation delays at ports have eased somewhat in the last two months but they remain cautious about the rest of the year as cargo capacity has not yet caught up with demand, particularly for imports to the U.S. from Asia and South America. Opinions vary as to when the tightness will begin to ease, but most expect that it will start some time next year as newly built container ships are commissioned. "The question is, will demand grow as fast as these ships are being built," says John Chinn, executive director of the U.S. Shippers Association (USSA: Allentown, PA), an organization consisting of 12 chemical companies that aggregate their container cargo.
Freight rates are expected to continue rising, due in part to tight capacity in all modes of maritime transport, shippers say. Delays in and out of ports contribute to those costs, as do rising steel container prices.
There is a shortage of container ships globally, particularly for imports into the U.S., Chinn says. Import traffic is heaviest during the peak June-October shipping season. "It's not chemicals that are causing the congestion, it's demand for finished goods from the Wal-Marts and other retailers that are taking up ship space, and thus affecting container capacity on the import side," he says. Imports to the U.S. from China especially are driving growth in container shipments, tightening capacity and creating congestion at West Coast ports, he adds.
Shipping capacity is also tight in the deep-sea parcel tanker market, shippers and carriers say. Demand from China is strong in regions including the Mideast, where the petrochemical industry is booming, shippers say (CW, March 30, p. 45).
Several parcel tanker firms have ordered new tankers, but the additions are largely replacement capacity. Stolt-Nielsen Transportation Group (SNTG) recently ordered two, 43,000-dwt parcel tankers for delivery in late 2007 and early 2008. Both are replacing older ships, SNTG says. "Newbuilding prices have increased quite substantially over the past two years, primarily because of the high cost of steel, but also because of limited shipyard capacity, which means you can't get a ship before 2008 even if you placed an order today," the company says.
There has been steady congestion at the Gulf Coast ports for the last few years, but it is nowhere near that at West Coast ports, shippers and carriers say. "We anticipate congestion when we ship through the West Coast, so we try to get the product there 3-4 days early, which is a negative on our working capital," says one producer of chlorine derivatives. Other shippers say they have increased their inventories so that they do not run out of product if raw material cargo arrives later than anticipated.
Tight cargo capacity and port congestion problems have forced U.S. importers to lengthen their lead times for bookings on some routes, including to and from Australia, Chinn says. "In the last 7-8 months you have had to book about four weeks in advance, as compared to about seven days in advance at this time last year," for shipments to and from Australia, he says.
On the export side, there are a lot of empty containers available to U.S. shippers. However, this is somewhat offset by port congestion, which delays those shipments. That is the same situation that shippers found themselves facing for several months last year, particularly at Los Angeles and Long Beach, CA, where congestion was so severe that at one point nearly 100 ships were waiting at anchor for days. Congestion cleared slightly by year-end, but became a problem again earlier this year. Some companies are trying to circumvent the problem by using other ports, including Seattle and Tacoma, WA but even those ports are struggling with equipment and congestion problems, Chinn says. Montreal is also experiencing congestion, due in part to increased volume and rail congestion, he says.
"We expect to see the same level of port congestion this year as last year, particularly from June through October," a DuPont spokesperson says. "Service by top-level ocean container carriers has deteriorated in recent years, particularly in customer service and cargo tracking."
Many chemical shippers also blame the railroads for the congestion and delays at ports, and say that the national shortage of qualified truck drivers is also hurting service. "Port congestion is also an issue of infrastructure, and is greatly affected by current trucking and rail congestion," DuPont says.
Chemical shippers say they are frustrated by poor rail service throughout the U.S. "We've had to add to our fleet of rail cars because the current transit times are about 10% longer than they were in the prior year," the chlorine derivatives producer says. Rail cargo capacity is not growing at the same rate as demand, he says, and "not only is the service level of the railroads deteriorating, but their costs are going up."
Ports and railroads each say they have hired and trained more workers to help address delays and congestion issues. Some ports and railroads are also in the process of reducing "free time," the time that cargo is allowed to sit at their ports and terminals free of charge, as a way of helping to relieve congestion, Chinn says. "By reducing free time, they force shippers to get the materials off the docks or terminals, or pay a fee," he says.
Meanwhile, analysts say that a new round of consolidation in the container shipping sector may be under way, as Safmarine and Maersk Sealand's parent A.P. Moller-Maersk A/S recently announced an offer to buy Royal P&O Nedlloyd for (euro) 57/share ($ 72/share), or (euro) 2.3 billion. "We believe these two highly complementary businesses will achieve far more together than apart. Their combined scale and know-how will create the world's leading container shipping line and logistics provider," says Andrew Land, chairman of P&O Nedlloyd.
