ESC and Clecat demand change to failing ocean freight market

European shipper and forwarder representatives ESC and Clecat are urging container lines to review their current operational and business practices and return to “respecting schedule reliability and service quality” in accordance with their contractual terms with customers, as ocean freight customers struggle to maintain supply chains in the current environment.

The European Shippers’ Council (ESC) and the European Association for Forwarding, Transport, Logistic and Customs Services (Clecat) said the current conditions in the ocean freight market are slowing economic recovery of European businesses, calling on all parties “to work together to ensure that the maritime supply chain becomes more reliable, predictable, and resilient”.

The two leading European associations said that since the outbreak of the global pandemic, the container imbalance and the reduction of capacity in liner shipping “has seriously impacted on the shippers and freight forwarders who have been seeking to ensure the fluidity of their global supply chains, which remains crucial during the ongoing crisis”.

Since these problems have continued, ESC and Clecat now “urge carriers to review their operational and business practices to ensure a regular flow of cargo and containers, whilst respecting schedule reliability and service quality in accordance with contractual terms”.

Denis Choumert, President of the European Shippers’ Council, noted: “The lack of vessel capacity and container shortages, partly caused by hundreds of thousands of containers stranded in US logistics chains, cannot alone explain the liners’ shortcomings. Customers are irked that liners have been taking advantage of the capacity crunch to increase revenues much beyond their costs.”

He continued: “Ongoing service unreliability, coupled with the record profits of shipping companies at times of crisis, clearly depicts a seriously disrupted market and demonstrates that carriers have been passing tremendous hikes on spot rates, imposing heavy surcharges above the fixed-term contractual rates.”

Willem van der Schalk, President of Clecat, noted: “Further frustration comes from the fact that we continue to be obliged to work under a responsive emergency planning mode to adapt to the very short carrier notices of equipment and slot availability, multiple container roll-overs and numerous additional surcharges. The costs for the freight forwarding industry are huge: they range from the re-booking of shipments to sometimes even losing customers, because there is simply no service made available by carriers.”

The associations continued: “European shippers and forwarders call on liner carriers to put an end to the present situation and to return to a situation whereby contractual agreements are respected, as further supply chain delays may risk the speed of the post-pandemic recovery of the European economy. Coming out of the crisis will need cooperation and good will from all the stakeholders.

“ESC and CLECAT, therefore, call on all parties in the supply chain to work together to ensure that the maritime supply chain becomes more reliable, predictable, and resilient.”

The two associations highlighted that liner shipping companies benefit from special legal privileges through the Consortia Block Exemption Regulation, “which has been renewed in April this year, to the dissatisfaction of the customers of liner services”. They noted that the European Commission has granted and extended this exemption from normal competition rules several times, “as it believes that customers benefit from efficiency gains, achieved through coordinated capacity management by the members of a consortia”.

They added: “However, this is not the case today. Such privileges are now excessive as they allow carriers to use tools to manipulate the market.”

They continued: “Whereas the US Federal Maritime Commission stepped up its scrutiny of liner activity this week, European industry is perplexed that the European Commission has not responded in any way to the current crisis. ESC and Clecat are convinced that the ‘new normal’ will need a better monitoring of the liner shipping activities and a new EU policy framework, which would benefit Europe’s economy and its citizens.”

Asia-Europe rates soaring

The comments from the European shipper and forwarder representatives come as container spot freight rates from Asia to northern Europe have broken the $2,000 per teu level for the first time in a decade after rising by more than a quarter this week. The Shanghai Containerised Freight Index reported rates of $2,091 per teu on the Asia-northern Europe trade.

The last time rates were this high was during the “dead cat bounce” that followed the global financial crisis, when rates topped £2,100 per teu in May 2010. Asia-Mediterranean rates rose slightly less this week, rising $422, or 23.5%, to their highest recorded level of $2,219 per teu.

But these rates may not set records for long, with Xeneta reporting rates indicative levels of $2,100 per teu on Asia-Europe trades for December.

“The sky-high prices combined with full ships, record demand and lack of equipment have been a common problem on the transpacific eastbound for the past few months,” Xeneta said.

“The same issues are now observed also on the China to Europe trade. With no material change on the supply and demand components, we expect these prices to be sticky for the remainder of the year/peak season and possibly well into the new year.”