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Friday, October 20, 2017

What the ... Chinese New Year already?

Posted to Far East Maritime (by on January 13, 2012

Container lines appear to have been caught unawares by the most predictable cargo surge in history. Again.

January 23 will be Lunar New Year’s day, a time that has been celebrated ever since the year 14 BC. The following 12 months will be known as the Year of the Dragon, one of the most auspicious dates on the calendar.

People born under the legendary dragon’s watch, like your humble author, are possessed of qualities superior to the average mortal.

But more to the point is that Chinese New Year is not a surprise sprung on an unsuspecting world every year. It happens every January, or early February, just like it has happened every year for the last 2,026 years.

Admittedly the container shipping industry is slow and resistant to change, but two millenniums should have been enough time to scribble “Chinese New Year” in the annual operations calendar.

Alas, it seems the pre-Lunar New Year rush to get cargo from China to the international markets has indeed come as a complete surprise to the industry.

Here's what happens. Every year mainland factories work flat out to complete orders before the entire country shuts down for two to three weeks, and forwarders book cargo space accordingly.

However, cargo owners are reporting having to pay extra, on top of a previously agreed freight rate, to guarantee their shipments are carried on the pre-booked line. We have read of reports of cargo being loaded in Hong Kong then offloaded in transshipment ports such as Singapore to make way for “premium” cargo. Forwarders are advising shippers to add seven days to their Asia-Europe shipments.

This all smacks of Chinese New Year 2010 when the lines slashed capacity, rolled booked cargo all over Asia and aggressively hiked rates as shippers clamoured for space. It led to huge delays in shipments and disruptions along the supply chain, not to mention boosting carrier profits.

It appears to be déjà vu all over again. The container lines late last year began merging services and idling capacity as demand dropped off and new vessels flooded into service. By limiting the capacity, when the regular-as-clockwork (we can’t stress this enough) cargo surge before Chinese New Year started last week it turns out there was not enough container space available on the major trades.

China factory orders have been dismal for months and there wasn’t much of a peak season. It shouldn’t have required a Harvard economics degree to predict that the need to replenish inventory would lead to an increase in containerised export goods arriving at China’s ports.

Much of the cargo will have been pre-booked, anyway, so there would have been a reliable indication of demand. You don’t arrive to pick up the baseball team in a six-seater bus.

We understand that container lines need to merge services, form alliances, lay up capacity, delay newbuildings, and limit the master’s beard trimming allowance, etc, in order to improve profitability.

But surely capacity allocations should have been made to cater to the predictable surge in business that always comes before an event that has been around longer than Christmas.

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