NO: DELENG / 2017 / 70663
official media partner of national maritime foundation
Is a slowdown in demand possible?

The closure of country borders and the restrictions imposed by the pandemic in importantports impacted the global supply chain, container shipping andlogistics processes of import and export, triggered the congestion ofimportant nerve ports for world trade causing a deficit of products

demanded by consumers with new consumption patterns.


Increased consumer demand and the scarcity of space available on ships fortransporting the goods caused an increase in the costs of maritime transport,causing an accumulation of containers in storage spaces in different ports,which was aggravated by the shortage of chassis and skilled labor. The crowded portspatios and warehouses that exceeded the import capacity, as happened in the portsLos Angeles and Long Beach, both terminals considered as the gateway toentry of Asian imports into the United States.


The port terminals of Savannah, Charleston, New York, New Jersey and Houston, in theUnited States were congested, to the point that the port of Philadelphia closed for severaldays to decongest the terminal. These and other factors measures caused the slowdown in theunloading of containers on ships that had to wait up to several days for unloading,while the rest of the ships remained anchored waiting to be able to dock.


This congestion of important ports in the world caused a strong interruption in the chainof supply, producing shortages of raw materials and consumer goods. Theretailers faced product shortages due to problems also with ground transportationand rail hubs that handle intermodal freight. The lack of spaces in many terminalswith warehouses at capacity, impacted in one way or another the logistics chain that, together with theshortages of longshoremen and labor caused an increase in the cost of shipments.


The port activity was marked by the partial closure and the low operability in ports ofAsia, due to ongoing outbreaks of COVID 19. This led to quarantine measures on shipsand port workers. As the port terminals endured the outbreaks of thevirus the ports were operating at their capacity, the containers arrived without being able tobe returned empty to their places of origin, other boxes instead remained stacked andflooded docks, waiting for a place in warehouses that were overflowing which contributedwith congestion at different ports.


In retrospecting the behavior of shipping lines in the past decade,It can be seen how they withstood freight rates with downward trends and, as he pointed out in aLloyd's List[1], opportunity: “ earning little or no money ”. Before these circumstances,large ocean carriers chose to reduce unit costs to offsetrate levels that were falling, however, this led to a consolidation andbroader integration between carriers and the restructuring of new alliances.

At the beginning of the pandemic, a strong recession was expected in the maritime transport sectorwhereas the demand for products transported by sea began to decline, as a result of a lower circulation of vessels with cargo in containers. But despiteof this, once port restrictions eased and countries begin to open upback to foreign trade container shipping encountered a lack capacity to meet the increased demand for consumer products, this and other factors, some are present in greater or lesser intensity continue to cause disruption inthe global supply chain that affected all world maritime trade.


From this perspective, it is possible to affirm that there are diverse causes that originated thecontainer shipping and global supply chains would be affected. In this sense, the UNCTAD ruled in its report on Maritime Transport 2021[1]: “ freightincreased even more with the closure of the Suez Canal in March 2021 ”, however, it is worthrecall that the interruption of operations in major ports in China and Southeast Asiasuch as Yantian, Ningbo and Vietnam due to the outbreak of COVID-19 cases in groups of workersports also caused a significant impact on changes in trade flowsinternational.


To the extent that an increase in logistics costs occurs, the price of goods increases.of consumption, so that, when these costs rise, trade is significantly impacted,which ends up affecting final consumers due to an increase in costsof shipping freight. Freire and González[2], consider that the longest transport timeproduces a higher cost of the same and the consequent affectation on the prices of the productsis nothing more than a response to that situation: “


In the maritime traffic market, the set of all the actions of biddersand plaintiffs determine freight prices ” (…) “... maritime transport, beingthe most used mode of transport for the development of foreign trade and the one thatallows the greatest movement of goods in terms of container loads andlarge masses of liquid bulk, allows the best shipping at the lowest cost ”.


The global supply chain crisis and port congestion that overwhelmed transportationcontainer shipping, although it has resulted in various factors that stand outmainly, the increase in electronic commerce which presented a greater demand forconsumers, who opted for this service as a result of confinement and restrictionsof the pandemic.Hoffmann Jan[3], head of trade logistics at UNCTAD, believes that to the extentthat there is a shortage of articles that have a high demand, prices rise, that is why: " theHigh freight rates have a direct impact on the import price of goods and, on theextent that the costs are passed on to the consumer, also in the final price in the store ”.


It is appropriate to point out how UNCTAD , in the 2021 Maritime Transport report, considers:

“… to the extent that freight costs are controlled by expanding the capacity so thatmatch the demand, it is possible to control the costs, this would allow to increase the efficiency ofports to the extent that trade facilitation measures are adopted ” (…) “ The pressurein costs and high freight and recharges will weigh down small businesses and will make themselves feltin prices ”


The aforementioned report addresses how the search for suppliers outside of Asia, can reduce somefreight transport costs, once alternative ports have been usedto avoid congestion in ports, this situation may influence the acceleration ofrelocation and offshoring processes in the purchase of goods in other markets,marking a new turn to international trade. On the demand side, other factors maybe present: “… the future balance of demand will be affected by prescriptionsregulations aimed at aligning maritime operations with the objectives ofdecarbonization ”.


The investment in port infrastructure, the shortage of personnel and specialized labor, as well as, the lack of training are decisive to alleviate the pressure in the supply chain so that, implementing digitization among the different actors involved isparamount, given the new reality of maritime trade. Port facilitation is anotherimportant tool to speed up processes and achieve greater efficiency and transparency ofoperations between ships, taking into account that the activities surrounding the operationsport operations impact the entire logistics chain.


The flow of international trade is expected to resume its course, although it will be in conditions

different, the change in some practices by carriers is appreciated, especially thosethat are related to the reduction of charges for delay and detention charges, before thecall for review by the regulatory bodies and, not least, the change in theconsumption pattern keeps online product purchases booming, strengthening tradeelectronic more and more.


On the other hand, the lack of capacity in cargo handling in terminals, problems in spacesof warehouses, delays in the transfer of goods, as well as the shortage of driversof surface and chassis still persist, these, in addition to those already mentioned, are factors to whichCarriers face a demand for transportation that is limited by the samecapacity in the ships and with the impossibility of satisfying the greater demand.Ship waiting times at some port terminals may be

decreasing, however, as demand persists capacity problems in transportcontainer shipping is maintained, coupled with spot freight rates thatcarriers are negotiating in contracts at higher prices, they manage at the same time to influencein the increase in shipping costs.


The market power of ocean carriers is another aspect that has been on the table andregulators have considered reviewing and updating existing legislation, especiallydue to the situation that has been occurring with the charges for detention and demurrage billed bycarriers, without neglecting the existence of a possible market concentration thatowned by important shipping lines and that could result in prejudice to competition,activities carried out by maritime transport in the year 2021, monitored by the UnionEurope, China and the United States in the “ Fifth Global Meeting on Maritime Regulation ”.


Reviewing this scenario, it is unlikely that the slowdown in demand will be balanced in the short term, especially since the spread of the Omicron variant is still present in many countries,causing personnel restriction and the partial closure or blockade of important ports that, atpersist, slow down operations at the terminals, disrupting the logistics processes thatintertwined with the impact on the reliability of container lines schedules impactsat the same time the global supply chain, however, these factors have alsocontributed to profitability and a positive balance for the shipping industry incontainers. In these circumstances, everything seems to indicate that the increase in freight rateswill remain in much of the year 2022.

Sea And Coast Exclusive Column