Gradual easing predicted for European congestion issues

Avatar photo
by Emily Atkins

Container ship backlogs, high trucking rates and a shortage of containers have been plaguing the German economy since early in the pandemic.

However, forecasts suggest that while these conditions will persist into 2023, ocean freight rates will begin to subside in the last quarter of 2022.

The aftermath of the Shanghai lockdowns, cancelled departures of container ships and strikes in some German ports are causing serious problems for the economy. According to the Kiel Institute for the World Economy (IfW), container ships with a capacity of around 150,000 standard containers are waiting to call at Bremerhaven and Hamburg alone. The situation is even more dramatic off the ports of Rotterdam and Antwerp.

“The consequences are not only delays but also a shortage of containers. Switching to smaller ports is problematic because they lack space and a strong infrastructure for transport to the hinterland. If rail is not an alternative, expensive direct transport by truck remains the only option,” said Ralf Duester, member of the Setlog board.

Staff shortages

Logistics service providers also face the problem of not being able to ramp up their capacities due to the lack of staff. Duester does not expect an improvement in ocean freight rates in the short term -but in the long term from the fourth quarter of this year if the ship owners also play along.

Patrick Merkel, managing director of Prologue Solutions, agrees: “Inflation, the shift in interest rates and high prices in various sectors suggest that rates will fall.”

Due to the geopolitical situation and the consequences of the Coronavirus pandemic, logistics service providers tend to expect less business in the coming half-year. Shippers are also benefiting from ship owners that have built up more capacity.

An analysis of 80 Setlog customers and brands from June 22 also shows that importers of fast-moving consumer goods learned from their misery and now order products on average one week earlier than they did in 2020 and before the pandemic, thus reducing delays. Another outcome of the analysis: they are not shifting their production from the Far East to Europe.

According to the Setlog analysis, the transit time of ocean freight from the Far East to the western ports took an average of 42.5 days. For comparison: in 2021 it was 41.6 days, in 2020 around 35. Before the pandemic (2019), the transit time was 31 days.

In the past two years, up to 30 percent of goods were late due to lockdowns, production delays and long transit times, according to Setlog. However, buyers of fast-moving consumer goods managed to push the proportion of goods arriving late down to three to five percent compared to the pre-Covid period by bringing orders forward by an average of one week.

Little reshoring

While some industries are considering dual production for sensitive goods and components, as well as re-shoring and near-shoring, the analysis shows that fast-moving consumer goods manufacturers did not relocate production to Europe or Germany.

Only one to two percent of their total volume of apparel is produced in Eastern Europe or North Africa – this has not changed since the beginning of the pandemic. Turkey’s share is also constant at about 11.5 percent, China’s at 11.0 percent.

However, suppliers in Bangladesh and Vietnam were able to get more business. Bangladesh’s share rose from 28.0 to 32.0 percent during the pandemic, Vietnam’s from 4.5 to 7.3 percent.

More companies are investing in strategies and systems to increase the availability of goods and to be able to react more flexibly overall to unplanned changes in the supply chain. “More and more companies are coming to us to learn how to use software to get more transparency in the supply chain and to inform all partners about changes in almost real time,” Duester said. “For these managers availability and resilience now count more than cost savings.”

He added that companies that make a point of ensuring that products or components must be available in dual sourcing – at every location. “Companies will soon no longer evaluate buyers according to cost savings, but intensify other criteria,” Duester predicted.