Getting New Zealand’s primary products to international customers has become increasingly challenging with significant Covid-19-related disruptions to international shipping.
In a recent presentation, ANZCO Foods’ Head of Logistics Brent Falvey, said a massive and completely unexpected shift in consumer behaviour during the pandemic, with people spending money on goods rather than services, saw an unprecedented 20% increase in the volume of goods moving through international shipping terminals.
Even in normal conditions, ports would have struggled with an increase of this magnitude, but layer on labour shortages and delays due to Covid restrictions and shipping schedules are thrown into chaos and ports have become extremely congested.
Since October last year, waiting times outside of ports have been days or even weeks.
These long delays are contributing to an international shortage of shipping containers exacerbated by a 40% drop in new container production, again due to Covid restrictions.
In parallel, shipping costs have soared. About 60% of the ocean fleet is chartered and charter rates have climbed from US$18000 a day in January of this year to US$35,000/day in March, $40,000/day in April and $45,500/day in May.
At $35,000/day, this means an additional US$8 million every seven days or about US$300 more per container just to break even – and there is no respite on the horizon.
Global trade is forecast to lift 8% this year and a further 6% in 2022 which suggests there won’t be any let-up in demand. This continues to put upward pressure on global freight rates.
This massive disruption in global shipping comes on the back of a decade of bankruptcies and mergers in the international shipping industry, driven by low profitability and overcapacity.
This began after the global financial crisis in 2008/2009 and between 2014-2017, the industry underwent a transformation due to the consolidation of four major carriers and one bankruptcy.
Prior to the Covid-19 pandemic, the industry had been slowly recovering and while shipping lines are now enjoying soaring profits, many are remaining loyal to their long-term clients in the knowledge that the situation could change very quickly.
To negotiate this extremely complex world of international transport logistics, ANZCO Foods has its own inhouse logistics and shipping team which was established in 2019.
Falvey says this means ANZCO has direct and personal relationships with all shipping lines, so are working with accurate four weekly forecasts and have weekly teleconferences with shipping lines to understand schedules, bookings and equipment availability.
Regular meetings with individual shipping lines ensure both parties have met agreed expectations and targets. They also agree on future freight rates and volume commitments.
Bottlenecks, border requirements and backlogs
“It’s not plain sailing for our exports.”
This is how Thomas Chin, New Zealand Grain and Seed Trade Association chief executive, euphemistically describes the challenges facing all primary sectors.
“Shipping is critically important to us, it’s one of the biggest challenges we are facing and it’s an on-going global problem.”
He expects these challenges to stretch into 2022.
With crops in the ground and strong demand for NZ-grown seeds on the back of weather and fire-related seed shortages in Europe and the US, this is concerning for a sector that in 2020 exported $300m worth of product to 60 different markets in Australia, Asia, Europe and the US.
“There is absolutely no guarantee that any of these issues will be resolved before the next export shipping season.”
The fact that NZ is exporting from the bottom of the world – and for seed companies – from the South Island – does not help when shipping companies are preferring to focus on shorter, more lucrative routes between Asia and the US and Europe.
This also means a shortage of empty containers coming into NZ.
One seed exporting company typically needs 50 containers in a season and this year they had 12. Chin has calculated the industry needs around 2500 containers for the coming harvest.
Freight costs have increased astronomically as a result of this under-capacity in shipping which is a significant extra cost for exporters. This, says Chin, is particularly tough on commodity exporters whereas exporters of high value seed crops do have more leeway.
In this environment, timeliness is critical and Chin says government testing and sampling processes can slow the loading of containers, which is frustrating.
Fleet-footed
Sydney-based My Therese Blank, head of Oceania Export Market for A.P. Moller – Maersk (Maersk and Hamburg Sud) which operates the largest general and reefer container fleets in the world, says they are experiencing significant disruption to their ocean network as a result of the pandemic, changes in consumer buying patterns increasing demand on goods and congestion at terminals.
Congestion at Ports of Auckland, as well as industrial action in Australia, are also placing additional pressures on their network.
Blank says the vessel delays are caused by terminal congestion – as a result of the higher demand – coupled with measures to contain the pandemic which have slowed global supply chains.
“This is negatively impacting on available vessel capacity and the availability of empty containers as the turn time is increased.”
They are losing vessel positions and it’s taking longer before to reach demand locations, which ultimately leads to exporters experiencing a shortage of empty containers.
Blank says it’s hard to predict when the situation will be alleviated as this depends on further unexpected Covid-19 disruptions, bottlenecks or shifts in local consumer demand.
The global supply chain is complex and at times like this, when it is already facing disruption, smaller issues have a compounding impact.
“We are doing everything we can to get back to normal as soon as possible and minimise the impact to our customers as much as we can.”
She expects the situation to last until at least the end of the year.
In the past nine months A.P. Moller- Maersk has increased the number of ships that call on NZ and back in March, launched the Sirius Star service which Blank says adds significant flexibility to their network, particularly to and from Nelson and Timaru.
They have added one vessel to their Southern Star service which connects NZ to South East Asia to absorb some of the schedule delays and deployed extra loaders and additional ad-hoc vessels to help position reefer containers to NZ to meet export demand.
These extra loaders also help with the removal of empty, lower-grade containers which are unsuitable for agricultural exports back to Asia. This helps alleviate the inland depot congestion in Auckland.
Blank says during the past 18 months, A.P.Moller-Maersk has invested significantly in building new shipping containers to increase the number in circulation.
While the number of containers available for NZ exporters has increased, shortages are still occurring due to port congestion resulting in increased waiting times for ships to get a berthing window and slower turn-around times.
“This means that even though we have more containers in circulation they cannot be reused as many times as each trip takes significantly longer.”
Additional vessels in NZ are helping to move empty containers to demand locations.
