Covid lockdowns are ticking up in China again with neighbourhoods in key port cities such as Shenzhen and Dalian forced back home this week, and mass testing underway at other important maritime gateways including Tianjin.

There is no let up in the government’s zero-covid policy, which has stretched global supply chains a great deal this year. The difference today is that while outbreaks have been getting more widespread in the last fortnight, lockdowns are pursued neighbourhood by neighbourhood rather than city-wide, and quarantine times have been cut back since the middle of June, according to analysis from research firm Gavekal Dragonomics.

Nevertheless, the quickening spread of the omicron variant has some analysts concerned.

At a news conference Monday, Shenzhen officials said the latest outbreak is mainly driven by new subvariant Omicron BF.15, which they said is more transmittable and harder to detect.

“The upcoming period will be the most stressful, high-risk and grim period for epidemic prevention and control in our city,” a Shenzhen official told the news conference.

“Markets could once again be hit in the next couple of weeks, likely triggering another round of cuts by economists on the street,” Japanese finance company Nomura warned in a note on Tuesday, adding that the situation might be worsening, as omicron has spread to large cities.

Nearly a quarter of European companies in China are considering shifting their investments out of the country thanks in large part to the nation’s strict covid policies, results from a survey released in June by the EU Chamber of Commerce in China said. Similar sentiment was echoed in other reports from American and British chambers of commerce.

Despite Beijing taking some heed of the negative sentiment from foreign conglomerates, resulting in some easing of the rules earlier this summer, there are still plenty of signs of big brands looking for alternative manufacturing sites outside of China, an issue that will be under the spotlight in tomorrow’s issue of Splash Extra.

Preparations are still underway to get Ukrainian grain shipments exported across the Black Sea, but international shipping still has many unanswered questions as to the safety of the operation.

Russia, Ukraine, Turkiye and the United Nations (UN) hammered out a deal last Friday to create safe shipping corridors from three Ukrainian Black Sea ports to move last year’s harvest. Combined, the three ports of Yuzhne, Chornomorsk, and Odesa accounted for 65% of the country’s total grain exports over the past five years, according to data from BIMCO.

The deal is valid for 120 days, with an option to extend, and it allows bulkers to be escorted to the ports through a safe corridor. To create a navigable passage, the corridor will have its sea mines removed, a process that is expected to take one to two weeks.

Over 20m tonnes of Ukrainian grains are ready for export and the country’s grain traders union expects around 25m tonnes more to come from the 2022 harvest. With the wheat harvest underway and the maize harvest to start in September, a swift export of grain is needed to ensure space in silos for the new harvests.

Initially, only ships owned by nationalised Ukrainian companies will be transiting the humanitarian relief corridor. Commercial ships will follow in subsequent days, after regulation and advisories from the newly formed Joint Coordination Center (JCC) in Istanbul have been published.

Frederick Kenney, director of legal and external affairs at the International Maritime Organization and a retired US Coast Guard rear admiral and judge advocate, has been put in charge of the JCC.

Data from shipping platform Sea/ today shows none of the 80-plus mothballed ships have left Ukrainian ports and no vessels have indicated they are calling at the war-torn country yet. All Ukrainian seaports have been closed since Russia invaded on February 24 this year.

“With this deal, the UN hopes to increase monthly grain exports from Ukraine by 5m tonnes. However, since over the past five years, these three ports have not ever handled such a high amount of grain, meeting this target could prove to be a challenge,” said Niels Rasmussen, chief shipping analyst at BIMCO. “Even if port logistics accelerate to expedite exports, the need to escort ships in and out of the ports is likely to cause some congestion.” 

To accelerate exports the Danube ports, as well as land routes, will likely continue to play an important role in the shipment of Ukrainian grain in the short to medium term.

“A significant obstacle to Ukrainian grain exports will be the voyage risk and corresponding insurance premiums. For the shipping of Ukrainian grain to be attractive, high rates will be necessary to mitigate risk-related expenses,” said Rasmussen. “Russia’s recent missile strikes in ports such as Odesa will add to the insecurity and uncertainty of operating in the Black Sea.” 

The issue of insurance is one that continues to vex. The UK’s foreign secretary Liz Truss said on Monday, during a televised leadership debate, that “an agreement has been reached” with Kyiv on maritime insurance for getting grain out of Ukraine.  Ukraine’s infrastructure minister Oleksandr Kubrakov cautioned yesterday that in fact no deal had been concluded, but he was hopeful an agreement could be reached soon.

Beyond insurance, there is the issue of crew safety, something touched on by InterManager secretary-general Kuba Szymanski at an online meeting of members yesterday. 

“There is no way we can send anybody there because the green corridors are not approved, we have not got a deal with Russia, we have not got a deal with Ukraine. Therefore the shipmanagement industry is on standby, if it is safe to do so we will be sending ships there,” Szymanski said. InterManager is the global association for shipmanagers. 

Looking at the overall situation, maritime security consultants Dryad Global suggested that despite assurances within the terms of the treaty, vessels participating in the Black Sea Grain Initiative will be exposed to significant ongoing threats during transit through Ukrainian territorial and international waters and whilst at anchor in the ports of Odesa, Chernomosk and Yuzhnhnyi. 

“The persistent threat of sea mines remains the most prominent threat, although such a threat can in part be mitigated via both effective mine avoidance and mine clearance where required. The additional threats of Russian aggression and continued commitment to the terms of the agreement are harder to account for, and as such present a potentially greater threat to the continuation of the agreement over the longer term,” Dryad Global stated in a new report published this week. 

The first week of the operation will be highly significant for the initiative, Dryad Global argued, as these types of agreements are most vulnerable to being broken in their early days. 

“Whilst there are strong reasons for Russia to act strictly within the bounds of their agreement with Turkiye and prevent any attacks on grain terminals and ships, this conflict has repeatedly demonstrated the importance of never assuming Russia will behave within the bounds of reason,” Dryad Global warned. 

Xeneta has called out the peak for long-term contracted freight rates. The Scandinavian box freight rate platform has detected a slowing month-on-month growth for long-term rates in July, following many months of spot rates declining suggesting prices may have peaked. However, according to the latest Xeneta Shipping Index today’s valid long-term agreements stand 112% higher than this time last year, and a massive 280% up against July 2019.

Xeneta CEO Patrik Berglund said the signs were clear that there is a shift in sentiment.

July’s increases are the slowest since January, with upward pressure on long-term agreements easing as spot rates fall across major trades. In addition, volumes on many corridors are down, with, for example, containerised European imports down by 3%, and exports 6%, in the first five months of 2022.

“Indications are there that we may have reached a peak and that prices of new agreements are more likely to hold than suddenly leap up again, as we’ve become accustomed to seeing of late,” Berglund said.

Splash reported late last month on how spot rates on the transpacific had fallen below long-term contracted rates leading many shippers to start to look at the fine print of their contracts.

Xeneta disclosed today that it ran a survey of its customer base in July and found that many were now looking to renegotiate contracted rates given the recent spot market drops.

Berglund commented: “Our customers, mainly large volume shippers, now find themselves in a stronger negotiating position.”

The survey showed that 44% no longer feel confident in the stability of long-term contracts – of that 44%, some 22% said they were more likely to allocate lower volumes only to cheaper contracts, while 22% preferred to move allocation to the spot market as soon as prices dip below long-term rates.

Many analysts have been discussing the peak of the container bull-run this month.

“[T]he post-Covid demand boom appears to have run its course,” Drewry stated in a recent report with many nations around the world battling high inflation and some of the world’s largest shippers indicating lately inventory overstocking.

Drewry is still predicting carriers will make improved profits over the records set in 2021, and that supply chain constraints will persist through the first half of next year.

“While we should stress that we believe it is too early to confidently declare that there will be no 2022 peak season, the continued signs of market weakness … are hard to miss: Spot rates tumbling faster than seasonality, congested capacity being re-activated, contracts being reopened, rate declines not driven by capacity injection, and … continued sluggish demand, utilisation dropping below the ‘magic’ rate-rocketing level, and a return to normal in US consumer demand for durable goods,” Sea-Intelligence stated in a mid-July report.

“The signs are all suggesting a return to a more balanced market,” Sea-Intelligence reckoned, going on to predict the potential return of blank sailings if volumes dry up.

Looking at the average vessel utilisation on the head haul of each of the major east-west trades shows nominal utilisation dropping below the levels which previously sustained the higher rates during the pandemic.

On the transpacific utilisation rates have dropped below the 90% level for the first time since mid-2020, according to Sea-Intelligence who said that this implies that capacity is finally beginning to open up. On Asia-Europe, meanwhile, utilisation rates are back below 80%.

Sea-Intelligence pointed out on Sunday that boxship trading distances are turning negative.

“When trading distances increase, this also increases the need for vessel capacity and vice-versa. During the post-pandemic period, this led to an added need for capacity, however in recent months this effect has turned negative,” Sea-Intelligence pointed out, adding: “As the current market is clearly on a downwards trajectory in terms of supply/demand balance, this shift in sailing distance impact once more becomes an added element, pushing the development – this time downwards.”

Highly elevated spot rates on major ocean trade lanes have passed their peak, but shippers should expect short-term prices to settle at two to three times pre-pandemic levels for the foreseeable future, the CEO of logistics giant Kuehne+Nagel said while unveiling record interims on Monday.

“Despite the falling prices, there are signs that ocean carriers don’t view this trend as the start of a complete collapse. Continued elevated rates for secondhand and chartered container ships show ocean carriers are still looking for capacity. Carriers have also scheduled 20% more transpacific capacity through October compared to last year,” commented Judah Levine, head of research at Xeneta rival, Freightos.

Sam Chambers

With Shanghai progressively reopening, gateway terminals in western consuming nations are bracing for a tsunami of boxes to hit already congested quaysides in June as the peak season gets underway earlier than normal this year.

State media in China this week claimed the port is back operating at 95%, while prime minister Li Keqiang stressed in an online meeting with 100,000 state employees on Wednesday a list of priorities including easier truck movement across provinces as he leads China’s economic fightback after a horrendous spring of lockdowns affecting a third of the nation.

Sea-Intelligence says that based on current vessel deployment, carriers stand to increase capacity on transpacific substantially starting from week 22, and by a relatively smaller margin on Asia-Europe, indicating an early start to the 2022 peak season.

Shippers have learned the hard way that it’s best to be prepared during the ongoing supply chain crunch – with added concerns about Shanghai’s long lockdown and the contract negotiations with dockworkers on the US west coast.

Drewry estimates 260,000 teu of export cargo was not shipped from Shanghai in April alone, warning in a new report of further capacity challenges in the coming months coinciding with the peak summer season.

Data compiled for Splash by Danish liner analysis platform eeSea shows the boxships bound for North America and Europe (see maps below) with eeSea founder Simon Sundboell suggesting that for the moment the feared tsunami effect was not in evidence.

“We’re not seeing major disruptions. The vessels have continued to flow through the Chinese ports throughout the crisis , only slightly slower, and possibly – unverified – with lower volumes loaded – and so we’re not at this point able to verify an avalanche or any sort of whiplash effect,” Sundboell told Splash.

Congestion at the port of Shanghai remains high for the time of year, but is steadily normalising as the city’s covid wave subsides.

VesselsValue data shows average waiting times for tankers, bulkers and containerships at the port are now down to 34 hours today, from a peak of 66 hours at the height of reported omicron spread in late April. This is around 10 hours longer than levels this time last year, and the higher end of the three-year range.

Average waiting times for containerships at Shanghai are now down to 36 hours, from a peak of 69 hours in late April. This remains some 13 hours higher than year ago levels and the top of the three-year range, but is also falling back towards normal levels, according to VesselsValue.

A joint research paper published last week by Windward and Sea-Intelligence looked at the congestion issue in Shanghai, the world’s largest container port, suggesting that when the port does fully reopen, it will be mainly for imports of full containers, many of which contain raw materials required for the starved factories in the hinterland to function. Export containers will consist of goods produced before or during the lockdown, but held up in export facilities at the factories, or elsewhere.

“There is no way of knowing how many containers are, or can already be, stuffed and ready to move, but it is safe to say that the amount is substantial,” the joint study suggested, adding that for export operations to run efficiently, Shanghai port must first be “drained” of many prepositioned empties, which will take time.

“Shanghai is now bursting with such containers, and if not cleared or substantially reduced, there may be little room for export loading movements to occur as smoothly as they normally do,” the authors of the report warned, going on to discuss the so-called ketchup effect that will hit overseas destinations when Shanghai ramps up exports, something that will be all the larger as both US and European ports are already suffering from very high congestion levels – and in the case of the US, far lower productivity with the ports of Long Beach and Los Angeles faring dreadfully in a new global port productivity report issued by the World Bank this week.

According to HSBC the time it takes for a boxship to travel from China to the US is now 104 days versus pre-pandemic levels of under 50 days.

According to New York-based Ocean Audit, a total of 690,000 teu is destined from Asia to Long Beach and Los Angeles between May 25 and July 1, up from last year’s “extreme” 646,000 teu for the same period.

Maersk said this week that it foresees the ports of Los Angeles and Long Beach soon implementing the container dwell fee, announced in October and since delayed week after week, as the ports continue to tackle congestion and brace for the delayed Shanghai boxes. The company said in a rate announcement that the likelihood the fee will be implemented “has risen significantly this month”.

Sam Chambers.

Singapore terminal operator PSA Corporation and Japanese containerline Ocean Network Express (ONE) have released details of a successful collaboration to recover and recycle refrigerant gas from reefers.

PSA is the first in Southeast Asia to commence trials on the use of reclaimed refrigerant gas for reefers, with ONE being the first shipping line to successfully complete the trials using their reefers with PSA.

Recycling refrigerant gas effectively saves about 4,000 kg of carbon emissions per reefer, which is equivalent to the emissions from driving a normal internal combustion engine car for close to a year, the two companies stated in a release today.

Refrigerant gas, or hydrofluorocarbons, are potent greenhouse gases which contribute to global warming.

PSA now aims to offer this service to other shipping lines.

Sam Chambers.

May 20 has been given as the first official deadline for Shanghai, China’s largest city, to open up.

The metropolis, home to the world’s largest container port, entered lockdown in late March for what was meant to be 10 days as part of China’s strict zero-covid policy. Most of the city’s 25m population have been living in lockdown ever since with a deleterious effect on local transport as the trucking chart below illustrates.

Closed loop productions are unacceptable as a long-term solution for German companies to operate in China

Up until today, Shanghai authorities had been unwilling to give a firm date for when the city would reopen with persistent cases of covid flaring up across its 16 districts.

Vice mayor Wu Qing said at a news conference today that an orderly opening would now proceed in the middle of this month, using a Chinese term that refers to the period between May 11 and 20. 

In terms of port operations, Peter Sand, chief analyst at container platform Xeneta, told Splash earlier that it would take anywhere from four to eight weeks for normal operations to resume, while gateway terminals in the US and Europe have repeatedly been warned by container analysts to brace for a so-called whiplash effect from Shanghai’s reopening.

The reopening cannot come soon enough with many international manufacturers reporting extreme distress and pessimism at how local authorities have handled the Shanghai outbreak.

A flash survey carried out from May 6 to 8, polling 460 member companies of the German Chamber of Commerce in China, shows that only a small number of firms have been able to operate and resume production in the People’s Republic. Foreign employees are increasingly planning to leave the country due to China’s strict covid strategy, the survey showed.

In areas affected by lockdowns, companies can only restart their operations under constraints. Just 19% of the surveyed German companies have permits to produce under adverse conditions in such areas. Of those allowed to run operations under lockdown, many only operate at less than half of their full production capacity. Logistics problems, low availability of staff and uncertainty caused by sudden changes in policies are the main reasons for hampering the increase of production capacity, the survey showed.

Nearly one third (28%) of foreign employees of the surveyed companies plan to leave China due to covid-related measures, with 10% planning to do so even before their current employment contract ends.

“It will be extremely challenging for German companies to substitute these employees with new staff from abroad, considering how the current covid outbreak in China is handled”, said Maximilian Butek, executive director of the German Chamber of Commerce in Shanghai. “The current circumstances under which German companies have to operate in China can only be short-term solutions in emergency situations. Closed-loop productions are unacceptable as a long-term solution for German companies to operate in China.”

Among other key findings from the survey, it turns out that 73% of the respondents’ business operations are in areas under full or partial lockdown

At least 32 cities across China are now under full or partial lockdown, impacting up to 220m people, according to calculations from international news channel CNN.

Authorities in China have this week imposed a de facto international travel ban, forbidding citizens from going overseas for non-essential reasons.

In a statement Thursday, the Chinese National Immigration Administration said it would tighten its reviewing process on issuing travel documents such as passports, and strictly limit those looking to leave.

Sam Chambers.

With the cargo business blasting, financier firms are bouncing from organization to organization quickly, prompting high paces of turnover. Regularly, agents are beginning the work with the guarantee…

Mediterranean Shipping Co’s lead over 2M partner Maersk at the top of the liner rankings has stretched beyond the 100,000 teu mark, a gap that is set to widen considerably further in the months ahead.

Latest data from Alphaliner shows the Aponte family-controlled MSC has 4,351,960 slots in its fleet compared to Maersk’s 4,248,120. Alphaliner reported MSC surpassing Maersk in fleet size on January 6, the first time in a quarter of a century that Maersk has not been at the top of containerline rankings. Moreover, MSC’s orderbook, the largest in the industry by some distance, will ensure the gap widens beyond 500,000 teu in the coming months.

Starting out in 1970 with a German-built secondhand vessel of just 2,900 dwt, acquired from Hapag-Lloyd and renamed Patricia, MSC, now headed by former Maersk COO, now operates 664 ships of which 186 have been bought on the secondhand market since August 2020, the greatest fleet buildup in the 66 years of containerisation.

In recent years Maersk has repeatedly stated its intention be a logistics integrator with a fleet no larger than 4m to 4.4m teu.

“If MSC ends up having more capacity than we do, that’s not the end of the world,” Maersk CEO Søren Skou said during Maersk’s capital markets day last May. “That’s not how we think about being number one. Our focus is on having a much higher turnover per container that we ship.”

In similar comments, MSC’s Toft said in the wake of surpassing his old employers three months ago: “Size isn’t an objective for us. At MSC, we never set a specific target to be the biggest. Growth, profitability and supporting customers are what have driven us, and what will continue to drive us forward.”

Sam Chambers.

The State of Maryland has asked Taiwanese liner Evergreen to establish a so-called responsibility fund to pay for costs related to the month-long grounding of its Ever Forward vessel in the state’s Chesapeake Bay.

In a letter to Benjamin Tsai, president of Evergreen Shipping Agency (America) Corporation, Maryland comptroller Peter Franchot said, “While we do not know the full scope of the environmental impact thus far, a 131,420-ton ship, carrying tons of cargo and fuel, getting stuck in our waters undoubtedly has resulted in disruptions to the Bay’s fragile ecosystem.”

Franchot asked the company to set up a $100m fund to cover the environment-related costs, as well as economic costs, in particular for the seafood industry.

“The damage that this incident has already caused – and could potentially continue to cause – will require financial resources to correct,” he said.

Regarding the dredging undertaken to help free the ship, Franchot wrote: “While this may have been a necessary action, among its potential consequences include damage to oyster beds and disruptions to the spawning season for several species that our seafood industry – already struggling economically due to labor shortages – will harvest in the coming months.”

Franchot said money from the fund would potentially compensate workers in the seafood industry if they are impacted, and pay the cost of labor for employees from federal, state and local agencies involved in refloating the ship.

“The establishment of this fund will send a clear message that Evergreen is a good faith actor,” he said, that “understands the environmental and economic damage this incident has caused to the state of Maryland.”

Kim Biggar.

For years, the shipping industry has focused on regulations and procedures to improve safety. Yet shipping is still at risk of major accidents. The whole industry needs to change its focus. Ticking boxes never made anyone safer, argues Dr Torkel Soma, chief scientific officer at SAYFR in the first of a two-part series for Splash.

It has been well documented that most maritime accidents (~80%) are caused by human error. Still, most of the focus on learning is rooted in technical causes and adding procedures and checklists.

Despite this bias, many accident investigation reports pinpoint that the leadership or safety culture was the root cause of more recent accidents such as the Bulk Jupiter, El Faro, Helge Ingstad and Costa Concordia, as well as older accidents such as the Exxon Valdez, Bow Mariner, Herald of Free Enterprise and Amoco Cadiz.

Industry blind spot

The critical failures leading to the accident were in most cases known before the accident took place. This demonstrates that failures which are not handled properly may develop into critical situations and accidents. This is a blind spot because the biased focus on technicalities and “impeccable” safety inspections makes people reluctant to be open about their failures, concerns and mistakes.

We at SAYFR think shipping companies, and the whole industry, needs to change its focus. Thousands of auditors and inspectors across the world are engaged by classification societies, flag and port state authorities, vetting and insurance companies and HSEQ departments. They verify that ships do the right thing and comply with technical and procedural requirements. However, ticking boxes never made anyone safer.

Cover-up culture

Also, and worryingly, there is a cover-up culture causing errors and unsafe practices. There are now so many procedures and checklists that, in some cases, it is impossible to comply with all of them. The fear of failure is driving accident statistics, and surveys reveal that 45% of seafarers admit that they regularly do not comply with procedures.

I firmly believe that human factors are key to prevent threats and failures from escalating. Yet improving safety or performance is about improving not only individuals but also the collaboration between sea and shore staff, between officers and crew and between different nationalities and cultures on board ships.

Huge potential to reduce accidents

Although this is recognized, it is not always addressed, so I believe a new approach is necessary to improve collaboration and reduce risks. Indeed, collaboration is strongly correlated with the risk of accidents and business interruption. Our experience of working on multiple projects over the years shows that it is possible to reduce the risk of major accidents by up to 75%.

However, there is no quick fix to improve collaboration and implement behavioural changes through, for example, training courses. Changing the culture is key and that process takes time. To help operators improve their approach to safety, proven methodologies must be used.

Culture assessments key to improving safety

In order to understand how the organizational culture influences safety, there is a need to use methodologies specialized for this purpose. One thing that many people are ignorant of is that a key professional competence of organizational psychology is advanced mathematics and data analysis. The evaluation of organizational culture relies on interviews, observations and questionnaires applying psychometric instruments that are tailor-made to ensure valid and reliable results. The professionals drive the process while the data provides the results. As a consequence, the more and better the data on these topics, the more valid, reliable and to-the-point are the results. Therefore, SAYFR has developed tailor-made psychometric instruments to assess these topics and has a database of responses from about 300 000 seafarers.

Reduction in the frequency of serious accidents

It is not only the psychometric instruments that rely on data. The use of digitalization, the internet of things (IoT), sensor data, machine learning, and big data has picked up in recent years. The idea is that those with the most data can create the best analytics and forecasts. With the use of more quality data, risk assessments and worst-case scenario simulations provide reliable predictions and identify effective interventions to prevent accidents.

In short, what we at SAYFR see is that the best shipowners and operators have a proactive organizational culture that goes beyond ticking the ‘compliance boxes’ and instead applies a collaborative, trusting approach from top to bottom in the company’s organization. This also includes assessing culture using valid and reliable survey instruments. This is what really helps to improve safety.

Source: Splash