Why are there shipping delays right now?

Óscar Calvo, CEO of JCV shipping, was interviewed on the Más de uno programme on the Onda Cero radio network on 8 November. Hosted by Carlos Alsina, the interview was designed to shed some light on the shipping delay issue that is having a serious impact on the entire logistics chain and, in turn, the end consumer.

And this is what they discussed during the interview.

Alsina: The problem with the containers is not that they’re packed together or that they’re on ships going round in circles, but that there are other things, that it’s a situation due to other factors that we in the sector have seen coming for a year. So, I called Óscar to enlighten us on this issue: the containers, maritime transport and the issues with a lack of certain goods in some sectors.

Alsina: Good morning, Óscar. Explain to us a little bit about exactly what it is you do?

Calvo: We’re a forwarding company specialized fully in maritime transport. Similar to the way travel agencies generally don’t have hotels or planes, but organize everything for you, from picking you up from your home to the tours you want to take in the country you’re going to visit, freight forwarders don’t have ships, don’t have containers because they’re owned by the shipping company, but they organize the entire trip according to the conditions that the buyer and seller agree on. They organize all the paperwork, that is, customs clearance, organizing the booking with the shipping company, transport at origin and transport at destination to your warehouse, all the formalities to ensure that the goods reach you successfully and on time.

Plus, there are platforms, well, we’ve developed a platform that makes real-time tracking possible, so you can see where the ship is and know when your goods are going to arrive.

Alsina: So, you manage all the information, not only on prices, but also on transport delays: how long it’s taking for goods to get from one place to another in the world, what’s happening, the shipping delays that are occurring, the increase in transport costs… You mentioned to me the other day: there are other factors, and this has been coming for a year.

Tell me, what are these causes of what we’re now seeing?

Calvo: Well, ultimately, what José Antonio was saying about crammed containers and ships turning around, we have to bear in mind that this sector is a tightly interlinked chain. Each link involves a maritime company that puts its ship on a specific rotation that goes round a circuit. When China stopped in January last year, this meant that ships that were supposed to sail on a specific schedule didn’t. During the Christmas period, they began to cancel trips because there wasn’t enough merchandise, and these shutdowns that occurred in China were then replicated until they reached Europe. We also shut down in March, so when China started up, Europe was at a standstill. Since Europe wasn’t able to receive these goods, they began to be diverted from the chain between China via the Far East and Europe, and these containers or part of these containers began to be diverted to the chain between the Far East and America. Mainly, the west coast, which is the one that transports the greatest flow of goods at a global level, excluding the intra-Asian section.

Of course, the market logistics from Asia to Europe aren’t the same as those from Asia to the United States. When you unload an import container in Europe in 2-3 days, as a general rule, that container is empty again and can be used for export.

Internal logistics in the United States are much more complex, and once a container is unloaded, it takes the shipping company several weeks to get it back to reuse it for export. If we add all this to the congestion in Los Angeles, which we’re talking about 70 container ships and, in addition, we’re talking about ships that transport an average of 20,000 containers each, then ultimately the bottleneck is produced because the ships arrive, and the port doesn’t have the capacity to unload everything that arrives. There aren’t enough lorry drivers in the United States to pick up all the goods arriving at the ports and, therefore, bottlenecks begin to form that make the circuits that the ships have to do in 30 days longer, and they don’t have time to do all the circuits scheduled. The capacity of the ships is reduced, in turn, and there is a delay and the ports become backed up with containers in storage.

Alsina: Then the major issue lies in the capacity of the ports in the USA. Is the bottleneck occurring in the ports on the west coast of the USA?

Calvo: It’s a part of it. That’s why I commented on my Twitter that it was part of the situation. There’s a combination of several factors here:

➢ There was a collapse in the Suez Canal in March.

➢ There are Chinese ports which are suffering a COVID crisis, which means that they are stopped for weeks at a time.

➢ There is an increase in demand due to the fear of running out of supplies, and that makes people buy more than they need.

➢ There is an increase in the price of raw materials.

➢ Maritime freight rates have increased sevenfold since the beginning of the year and this also leads to a sense of uncertainty, driving people to buy now for fear that it will cost them more later.

So, it’s a combination of factors that means that there are more containers in one part of the world than in another, when they shouldn’t be.

Alsina: And the cost of freight has increased sevenfold. Why are we paying more to get the ships and containers when ships are moving less around the world? In other words, is the one who pays the most the one who ends up getting them, or why have they become so expensive?

Calvo: Well, we have to keep in mind that we’re in a really concentrated sector. In terms of container ships, five shipping lines have more than 65% of the market share and, if we extend this to the top 10 shipping lines worldwide, they have more than 85% of the market share. So, there’s a tremendous concentration that makes freight rates much more controlled.

When shipping lines that have been losing a lot of money for many years saw that the demand for space was greater than the supply, this caused prices to start to increase and if we add in the factor that ships are less productive, that is, there is less possibility of space on the ships, this makes the freight rate increase even more. It’s the sum of many factors.

Alsina: In other words, those who are making the most of the situation right now are the big shipping companies, those who control the business.

Calvo: In a free market it’s assumed that it’s ultimately a question of supply and demand, and that is the way it is. But of course, we have to also consider that there are exceptional situations such as the extension of the maritime alliances until 2024, because there are 10 shipping lines that are then grouped into three alliances, which means that supply is much more concentrated. 

Not only that, but artificial elements such as blank sailings are also being used, that is, I don’t have enough cargo to fill my ship, so instead of taking advantage and clearing out that port, I cancel a voyage, wait until the cargo starts to increase again and that way I keep supply and demand tight, my ships are full and my profits increase.

Alsina: And what forecasts or perspectives are you working with? We heard some reports, I don’t know if it was from the World Trade Organization, that said that we shouldn’t expect things to go back to a certain level of normality until at least until the second quarter of next year, in other words, that transport times and transport prices will return to the levels they were at before the pandemic. What are yours?

Calvo: Ours are the same. We don’t expect this to recover in terms of transit times until after the summer. You were talking about a two-month transit time for goods coming from China to Spain. That’s counting the time from when they’re picked up at the supplier’s warehouse, the time they wait in port until the ship arrives and then there is a transit time of approximately 35 days depending on the port of origin and destination and then delivery at the destination.

Of course, if the ports of origin are backed up, and you have to wait two weeks instead of 4-5 days, if transit times are increasing by 7-10 days and then delivery is also delayed, then that means that those months have to be recovered little by little.

But the transfer ports are backed up as well, we’re talking about the bottleneck in Los Angeles, which is going to take a long time because not only is it an issue with supply and demand, but also because of the endemic problem they have there with the transport issue that you were also talking about just now.

Well, we think that the situation won’t start to return to normal levels until after the summer, that is, when a customer called you, you loaded that same week, the container was loaded onto the ship the same weekend the ship set sail, and it continued on its route to its final destination.

Alsina: You were telling me at the beginning about how long it takes in a European port compared to what it takes in a port on the West Coast of the United States from the time the container has been emptied until it can be used again for export. What’s the difference between 1 or 2 days in Europe and up to a week or more in the USA?

Calvo: You have to keep in mind that we’re talking about distances. You can be loading a container in Los Angeles that has to be unloaded in New York. The main port of entry for the entire Asian market is the port of Los Angeles. So that’s where the goods are redistributed to many inland points in the United States. Rail transport in the United States is highly advanced compared to Spain, which accounts for a very small part of all goods. Rail transport is much more sustainable, it allows you to move large volumes, but logically it has less flexibility and less agility than road transport. These are all factors that mean that it takes longer to get that container back to a port where it can be used for export. And these containers are part of those that were on the route from the Far East to Europe. This also means that the volume of available containers drops when the European factories started to operate again starting this past March.

Alsina: A 20-foot container, how much is that in metres?

Calvo: 6 metres, 5.90 inside.

Alsina: 6 metres long by 3 metres wide?

Calvo: No, by 2.35 wide, approximately.

Alsina: Is that the one that’s used most?

Calvo: Well, it depends on the type of goods. Normally, the ones that are used most are 20 feet, which is the 5.90 interior metres, and 40 feet, which is 12 interior metres. If the goods are really heavy and have a small volume, 20 feet is used, for example, for tiles or very heavy products, and if the goods have more volume than weight, for example, electrical appliances, then 40 feet is used.

And this concludes everything that Óscar Calvo has shared with us to help clear up our questions about shipping delays.

Many thanks to Óscar Calvo, CEO of JCV shipping.