With it appearing more and more likely that the United Kingdom will be leaving the Brexit transition period with no deal, the focus on the island nation’s supply chains, port infrastructure and shipping capacity will become ever stronger. In 2019, the United Kingdom’s ports handled 486.1 million tonnes of goods, up 1% from the previous year. Trade with the European Union accounted for 41% or 196.9 million tonnes of this total, far more than any other individual trading partner. 

The various studies that have taken place since the referendum result in 2016 have forecast that extensive delays, queues and other logistical disruptions would impact the sector significantly under a No Deal scenario. Yet, in the build up to a No Deal scenario, under the weight of increased traffic flows generated by the confluence of various logistical patterns the British port system is under a massive amount of stress. And the post-Brexit red tape has not yet come into effect! Across the whole economy, 2020 has been a year like no other and through the third quarter and into the fourth, the impact of Brexit stockpiling, Covid-19 pandemic consumer behaviour, the changing inventory management practices and the ongoing question of whether retail outlets need to stock up for reopening under whatever tier they are or not.

Unfortunately, so much talk in relation to the post-Brexit trade deal or lack thereof, has focussed on tariffs. Tariffs are rightly an important element, but it must be remembered that if a deal is agreed to lower or abolish tariffs altogether, there is a set of qualifying criteria for said lower tariffs. Rules of Origin regulations are a common example but this is just one element of an extensive process which begins at the factory or at the farm and continues through every single layer of the supply chain, adding complexity and more importantly, paperwork, at each level. The EU single market has, in the opinion of the author, been characterised as a free trade deal throughout the Brexit process. While this is true to a certain extent, it is far more than that. The regulatory harmony it creates between a number of the world’s largest and leading economies is unlikely to be replicated within the coming decades or perhaps longer. And this is why the framing of the post-Brexit trading relationship as a “free-trade deal” matter is well wide of the mark.

As we have seen in recent weeks with the signing of the RCEP deal and in previous years with the EU-Japan deal, the EU-Canada deal and others such as the US-Mexico deal, the proliferation of free-trade agreements is occurring around the globe. At their heart, free-trade agreements are about eliminating barriers to trade, whether these be tariffs or non-tariff measures, and in essence, they are about convergence. This convergence is about harmonisation, mutual recognition or even mutual adoption of production and trading practices which allows countries to open up their markets without the threat of unfair competition undermining domestic production, employers and workers. Brexit is the opposite. Brexit is about divergence. Whereas under other FTAs, trade barriers will be gradually removed as countries move closer across a range of regulatory and economic fields, barriers will be (in many cases slowly) removed. With Brexit, barriers between UK-EU trade will gradually be erected if one or both sides diverge from the current, non-existent, trade barriers.

From a maritime perspective, throughout the Brexit negotiations much has been made of the importance of the Dover-Calais route, which accounted for 23.43 million tonnes of the UK’s trade in goods in 2019, almost all of it with the EU. The spokesmen of other major port groups have often said that there is considerable container capacity existing elsewhere around the UK that could be utilised to take pressure off the short-sea ro/ro routes. Right now that is looking highly unlikely. While the period of exceptional volumes may subside, the friction in the supply chain is likely to emanate from other areas, a tightness in the amount of ECMT permits issued to hauliers, non-UK drivers not coming to the UK amid concerns about the likelihood of queues given many are paid by kilometre and not per hour. Following the well documented testing of the French post-Brexit port operations, the delays have not subsided, as one industry insider active in freight forwarding  stated, “Both travelling from and into the UK has been terrible. it has been taking around 3-4 hours to cross into France (usually around an hour from check in the landing in France). From EU-GB it is even worse, on average taking around 4-5 hours to cross. the main ferry routes are checking in around 5hrs in advance of when you arrive to sail. North sea sailings are fully booked well in advance as well.”

The source went further to state that “there is a great shortage of drivers willing to travel to the UK. Due to the huge delays on the channel crossings, it is not financially viable for them to wait in 6-7hr delays when they could be loading for other destinations. At the moment drivers will be loading around 2 import loads per week due to these delays (from Northern France, Belgium & NL) , when usually they could be doing 4-5 per week”. The queues are said to have generated significant concerns about the safety of drivers amid an increase in migrant attempts to enter the lorries while sat stationary.

Finally, in regards to the new regulations, the source stated that “We have had a number of our British sub-contractors who have been unable to obtain the necessary permits  to continue UK-EU trading. Luckily this has been extended to June but who knows after that what they will do if they are refused again. They will either be stuck doing UK domestic work, which is likely to become extremely competitive as a number of hauliers are unlikely to get the necessary permit, or they will be forced to close”. Further concerns were raised about the number of potential permits being offered, with some hauliers who have been operating over 30 years declined.

Elsewhere, it has been noted at container ports that vessels have avoided berthing as landside delays build and containers are not picked up. In practical terms, the ongoing issues at the UK’s container ports have led to major operators diverting vessel calls (Evergreen), changing the port call itineraries (2M Alliance), higher freight rates, and the restriction on potential import orders (CMA CGM).

Post-Brexit, once the current exceptional volumes and issues with container availability subside (with some carriers suggesting this may not be until the Chinese New Year), the friction will emanate from elsewhere, be it customs formalities, reduced productivity among freight forwarders in dealing with the necessary documentation, a shortage of drayage availability or other areas well documented elsewhere, the friction will remain. Overall, the magic bullet of avoiding congested ro/ro shipping lanes with extra container capacity at other ports does not appear to be a viable option, at least in the short-term. Eventually supply chains, capacity and trading practices will adjust but the current disruption could be set to stay for a prolonged period.

The Szczecin and Swinoujscie Seaport Authority has started the search for the future operator of the 2 million TEU deepwater container terminal that is under construction on reclaimed land along the coast of Swinoujscie. The terminal will offer a quay line of 1,300 metres with a maximum draught of 15.5 metres. The application is scheduled to close towards the end of January 2021. The SSA is said to have imposed strict community and environmental conditions as a key requirement of any successful bid. The terminal forms part of the Polish government’s 2030 program for the development of seaports, which came into force in 2019.

Following the well documented delays and the difficulties that some shippers are having in getting their goods to the intended destinations, CMA CGM has introduced a new Trans-Pacific service. The SEAPRIORITY Express (SEA-X), which will operate between Yantian, Los Angeles and Ningbo, indicates that it will have a transit time of just 12 days with exclusivity for shipments booked via its SEAPRIORITY scheme. Additionally, the French carrier has stated that these cargoes will receive priority discharge and be mounted on a chassis for pickup within 24 hours. With reported delays on the roads and the shortage of available drivers continuing, it is yet to be seen as to how “speedy” the service is in its entirety.

In the nine month period to September 30, 2020, Hapag-Lloyd recorded a 3% year-on-year decline in container volumes. For this period, the German carrier reported total carryings of 8.70 million TEU.

HMMs nine-month financial results are unique in that sense that the South Korean carrier is probably the only major operator (besides troubled PIL) posting a loss in the first nine months of this year. Despite a revenue increase of 6% to KRW 3.88 trillion (USD 3.32 billion) and an operating profit of KRW 352 billion (USD 301 million), in combination with a reduction in carryings of 15% to 2.82 million TEU, the company posted a net loss of KRW 12.8 billion (USD 11 million). Notwithstanding, on a quarterly basis, the company posted a net profit of KRW 24.6 billion (USD 20 million).

Earlier this week, the International Maritime Organisation announced its draft amendments to the MARPOL convention would require ships to combine a technical and an operational approach to reduce their carbon intensity. The draft amendments will now be put forward for formal adoption at MEPC 76 session, to be held during 2021. 

Hot on the heels of the announcement, Maersk Line, the world’s largest carrier, indicated that it is not going to be joining with other carriers, notably CMA CGM, in transitioning a significant portion of its fleet to LNG. The Danish giant instead has put its faith in the development of future carbon neutral fuels.

So far, 2020 has seen a number of carriers either committing to or indicating their desired pathway towards reduced emissions and/or carbon neutrality. As such, pathways are becoming clearer but much remains up in the air.

In the nine-month period to the end of September, intra-Asian container trade reached 31.35 million TEU, down 1.9% year-on-year according to the latest figures available from Container Trade Statistics. The trade now represents around 75% of all intra-regional trades worldwide and this proportion could be set to increase in light of the recently agreed Regional Comprehensive Economic Partnership between fifteen Asian states. In essence, any regional trade deal that removes barriers should have a positive impact upon cross-border trade between the signatories.

Overall, Asia is set to be the growth area for container shipping in any case in light of the current make up of its constituent economies and the potential for rapid growth across both industry and consumer behaviour. As such, while there could well be a jump in certain trades (Japan-China) for example given the absence of any existing agreement, the overall impact of RCEP may be difficult to distinguish from existing trends.

The Port of Felixstowe, the busiest container port in the United Kingdom, has come under immense pressure in recent weeks. With businesses beginning to stockpile in the run up to both the holiday period and the end of the Brexit withdrawal period, the port has seen demand levels increase while struggling to shift containers inland. All in addition to the general disruption caused by the coronavirus pandemic. Concerns have been raised about the availability of drayage connections and the mounting delays waterside. One carrier – Evergreen Marine – even took the opportunity to reroute one of its vessel to Rotterdam after delays became “unacceptable”.

A Brexit deal is seemingly no closer and the negotiators of both sides appear to be dug in and firmly set on their (often-conflicting) objectives. As a result, it is highly likely that the disruption will last well into the New Year and other ports will most likely join the party on the back of new customs regulations, the bedding in of new computer systems other trade related bureaucracy and congestion.

For whatever reason(s), the markets were very happy this past week. The main DynaLiners Shares Index posted a growth of fifty-seven points to end the week on 993. This was the second largest jump this year after the sixty-seven point gain of week 18. The sector indices performed as well, if not better, with DLSI Owners best of all with a 111-point and 14% gain to 929. The other three managed to grow by between forty-three and fifty-eight points.

After a stellar start to the year in which the conventional reefer segment reminded the market of its importance and key attributes, namely speed and flexibility, the seasonal downturn in cargoes well and truly hit through September and October.

As was reported in the September edition of the DynaMarkets Monitor, “earnings for conventional reefers continued to move downwards after the improvements seen in the first half of the year. There remains a dearth of activity in the chartering markets on the back of low cargo availability and the return to some sense of normality in the containerised sector. There is a more general sense of positivity regarding the end portion of the year as some seasonal cargo opportunities come available. Overall, September proved to be a weak, slow month in the reefer market”.

And later in October, “October proved to be a very quiet month in the reefer market. Chartering activity had dropped off considerably from the levels seen earlier in the year, although a great deal of this relates to the seasonal drop in cargo availability. The market should pick up in the coming weeks as the Faroe Islands fish catch continues to gain momentum, while the catch off Mauretania is finally improving. Elsewhere, the Moroccan citrus volumes should start to hit the market alongside Algerian potatoes”.

With some operators now struggling to cover tonnage and others sounding alarm bells about their ability to continue operating under current market conditions, 2020 could shape up to be a defining year for the segment. A year through which it proved its worth in the face of cold chain disruption and problems in the sourcing of reefer containers, but it may not be enough to redeem the ailing segment.

Despite the challenges that the conventional reefer market has faced over a number of years, namely high fuel costs, highly seasonal cargo flows and the erosion of market share by the container sector. The conventional reefer segment has proved to be highly resilient, fighting for its share of the niche trades such as fish and, so far in 2020, citrus fruit. On a yearly basis, it is reported that charter rates hit rock bottom as seasonal cargoes dry up and the fleet waits for new streams to come available. However, through 2020, the value of dedicated, point-to-point reefer shipping became apparent. With reefer container transport ultimately dependent upon the demand for wider container shipping, the sector’s exposure to market force, not necessarily those tied to the supply and demand for refrigerated cargoes, were widely exposed. After the number of blanked sailings increased dramatically through the end of the first quarter of 2020 and into the second quarter, delays at ports and coronavirus related container handling issues, reefer containers became an increasingly rare and valuable commodity. As such, some shippers, notably South African citrus exporters turned to the conventional segment, while major reefer ports such as Antwerp reported a sharp rise in the number of conventional port calls. The market was further aided by the low fuel costs driven by the underlying dynamics of the oil markets and the failure of the IMO 2020 regulation to bring the expected spike in such costs.

With 2020 proving to be more positive in comparison to previous years, it begs the question of whether this is a short-term blip in the downward spiral of the conventional segment or a defining moment in which the segment’s value is truly realised and proves its worth to shippers, potentially attracting new business opportunities. In the times of COVID, it is often folly to make grand predictions about the future of the market and it is not the aim of this post, however, there remains value in looking forward. While talking of what may yet come to pass, it is important to note that Siem Shipping (Star Reefers) has poured doubt upon its ability to continue operating in the conventional reefer segment due to the increasing volatility of having to rely on spot market cargoes rather than long-term contracts of affreightment. The pool of conventional reefer operators, while dwindling, has been buttressed by the presence of a small number of notable players, with Star Reefers being one of them. If one of said players were to exit the market, it raises the prospect that others could follow, as the market dynamics could well be the same for others.

There will no doubt remain a place for conventional reefer tonnage, but despite a more positive year, it still feels as though the noose is tightening somewhat. Cold chain logistics is becoming an ever more important buzzword for ports and logistics service providers, carriers have been active in securing new refrigerated boxes and the increasing scale of container shipping in general could see, in absolute rather than relative terms, the number of available plugs on major trades continue to increase. Additionally, the almost non-existent reefer orderbook could mean that, if scrapping were to pick up, the pool of vessels will decrease further. Such predictions were made for 2020, but due to the unprecedented impact of the coronavirus, it did not come to pass, but it remains on the cards.

In conclusion, while there was greater reason for optimism in the conventional reefer segment through much of 2020, it remains short-term optimism. The sector has definitely proved its worth to shippers but it is yet to be seen if this will make a lasting impact when the costs and availability of reefer container shipping settle after an historic year. If the conventional segment is to maintain its current market share and arrest the somewhat inevitable drop into a real niche trade, shippers may have to provide a lifeline in terms of long-term, stable contracts, to provide hope for operators such as Star Reefers.