Friday, March 29, 2024

PULSE: Shipping a long-term challenge

Avatar photo
Just as the global demand for protein and produce was waking up last November, New Zealand exporters were slammed with massive disruptions and growing costs to shipping. Initially exporters and meat processors were optimistic the issue would be rectified by mid-2021. Now, heightened freight rates and tight shipping capacity is expected to last for at least the rest of the year.
Reading Time: 2 minutes

The issue arose at the beginning of 2020, when shipping companies anticipated covid-19 would trigger a widespread drop in demand for all commodities and reacted by limiting shipping capacity.

This disrupted the global supply of containers, which was exacerbated by the proximity of China’s covid-19 outbreak to Chinese New Year 2020.

An increase in demand for commodities ahead of the festival meant an increased number of containers were shipped to China, only for them to be trapped there when lockdowns ceased port operations. 

Similar upsets happened at ports around the world as different countries went into lockdown, and an uneven recovery from covid-19 limited shipping companies’ ability to secure a reliable container supply for the unforeseen jump in global demand last year.

Rising demand and tight shipping capacity has seen rates soar through 2021. As of April, China’s Container Freight Rate had risen by close to 200% year-on-year, while the Baltic Dry Index – a comprehensive shipping price indicator – had grown by 400%. This extreme rise in profitability and demand for shipping has motivated companies to forgo isolated trade routes, like Australasia, to cut costs and maximise productivity.

The impact to NZ exporters has been two-fold.

Firstly, a lack of ships at our shores has challenged the shelf life of high-value commodities, such as seafood and chilled beef and lamb, and risked the sale of exports if arrival times are not met. Secondly, fewer ships reaching NZ shores has reduced the availability of chilled containers exporters use for storage. 

Add in the fact some shipping companies have converted reefers – refrigerated containers – into dry bulk use, and the supply of containers to NZ is highly constrained.

Shipping companies are attempting to increase capacity to meet the demand. In the first five months of 2021, there was a record level of new vessels and containers ordered, adding a cargo capacity of 2.2 million 20-foot equivalent units, a 6% lift on current capacity. However, this new capacity is not expected to come online until 2023.

Until then, it is likely that NZ cool stores will remain under pressure to house produce which was scheduled for earlier shipping. 

Space at cool stores is now at a premium, which is just another cost to businesses, and smaller operators are severely challenged. Large meat and export companies are in a less vulnerable position, as they have the clout to secure what containers do come ashore and charter boats when needed.

High export values have further insulated meat companies from rising shipping costs, allowing margins to be maintained without sacrificing returns at the farm gate. 

Overall, pressure should ease in the near-term, as cattle and lamb throughput seasonally softens at plants. The challenge will be how storage and shipping is managed when production ramps up through spring, and exporters must find capacity for larger export volumes, including high-value chilled cuts.

Total
0
Shares
People are also reading