INSIGHT: Chemicals shipping nightmare continues with no end in sight

LONDON (ICIS)–Shipping woes that have dogged the chemicals sector for over a year are worsening as delays, shortages and coronavirus flare-ups intensify the disarray in global trade.

Unbalanced and volatile rates of recovery across the globe in the wake of the onset of the pandemic have been disrupting trade patterns since the introductions of the first lockdowns across much of the world in early 2020, causing transportation prices to spike sevenfold or higher at points.

The early economic resurgence seen in China and the wider Asia Pacific region unbalanced the flow of goods across the world, exacerbated by a string of further disruptions, including the Suez Canal blockage and winter storms in the US Gulf Coast that knocked out the bulk of the country’s petrochemicals capacity for a time.

CONDITIONS WORSENING
Conditions stabilised to an extent from the highs brought on by those disruptions, but are starting to spike again, with a coronavirus outbreak at the Chinese port of Yantian and the emergence of the Delta coronavirus variant in India adding fresh complications.

“This whole year has been turbulent in getting vessels, it has gotten smoother in last few months but we see tightness coming in. Freight charges are coming up,” said a source.

“Shipping costs in May were some of the highest [this year] and June is also high,” said another contact.

“Shipping lines are struggling with a lack of containers specifically in Asia. Any freight from Asia is regularly delayed, while deliveries from the Middle East are suffering far fewer delays,” added a third.

A coronavirus outbreak at the crucial southern China trade hub Greater China Yantian has exacerbated shipping disruption further, with logjams spilling over into the Shekou and Nansha ports in the region.

The gridlock is worse than when a ship blocked the key global trade artery the Suez Canal for days, with queues understood to be continuing to lengthen.

Authorities successfully reopened the west port yard for import pickup and an additional berth had been reopened as of 11 June, according to an update from Maersk, with the port at around 45% capacity.

“With a steady inbound flow every day, the total queue of vessels waiting to berth at the Port of Yantian increases,” the company said, noting that the average additional delay stands at around 16 days.

The disruption could have a knock-on effect on chemicals production in the country due to the difficulties in sending product out of the export-oriented economy.

“Everything is blocked in China… it’s going to have huge repercussions,” said a chemicals trader source.

”China can’t export, so their demand is low,” the trader added.

SUEZ, INDIA, US GULF
Meanwhile the repercussions of the earlier Suez incident continue to reverberate through parts of the global shipping market.

“Smaller buyers in particular are holding out for better prices as very low spot numbers are heard for imports, but there are often delays. Sometimes these are down to the well documented container problem, but also by delays at European ports, still ongoing from the Suez Canal problem several weeks ago,” said a contact.

Logistics are so volatile at present that prices are being hiked in some cases after a deal is agreed, according to the source, with thousands of dollars being added to the price with no notice on some occasions.

The resurgence of coronavirus cases in India, and fears over the Delta variant’s capacity to evade vaccine protections, have further disrupted trade, with some vessel operators avoiding the country due to fears of crew infection, and because of stricter quarantine measures imposed on ships that have docked there, according to a shipping source.

CONTAINER SHORTAGES, ROAD  TRANSPORT
Road transportation is also an issue due to border and quarantine requirements instituted in some territories, the wider shipping disruptions, and a lack of drivers are also weighing on land transport speed.

According to early results of a survey by UK chemicals distribution agency the Chemical Business Association, 85% of firms reported container shortages and 90% are dealing with escalating shipping costs, as well as driver shortages in the UK and EU.

“Member companies are reporting major issues with a lack of capacity, significant delays, and logistical gridlock throughout the international supply chain, along with rapidly and ever-increasing costs.  This  is compounded by the chronic shortage of HGV drivers which has been further aggravated by the combined impact of Brexit and Covid-19,” CBA  chief, Tim Doggett, told ICIS.

Manufacturing has surged in recent  months as lockdown measures have eased in many countries, and the third quarter expected to be the strongest period of 2021, meaning that demand is continuing to intensify, which has served to drive chemicals demand and send inflation soaring  along many value chains.

“If I buy today it won’t arrive before September,” said a chemicals buyer in Europe.

Although a correction is expected in the near future, US commodity chemicals price have surged since the Gulf Coast disruption and its aftermath, with several sellers and traders globally reporting hearing back from some clients for the first time in years due to the urgent need for scarce stocks.

“We are happy we don’t have a cracker breakdown at this moment because it would be almost impossible to get your hands on ethylene,” Borealis CFO Tonkens said in February on the current difficulties in sourcing basic chemicals.

INDUSTRY RESPONSE
The shipping industry has moved to respond to the logjam. Numerous firms aresetting out to expand fleets and container capacity, with Germany’s Hapag-Lloyd re-upping container owners and industry giant AP Moller-Maersk ratcheting up capital expenditure this year.

The positive impact of greater container availability remains limited by vessel supply, and the underlying logic that has kept supply chains quietly working over the years has been short-circuited by the pandemic, with limited material for round trips and vessels often in the wrong place.

As has been seen in the semiconductor chip market this year, building out new capacity in response to shortages is a time-consuming process. Norway-based chemicals shipping and storage specialist Odfjell projects that global chemicals shipping capacity will grow by around 1% annually through to 2023.

This offers profitability potential for the beleaguered shipping sector, but this is dampened at present by the costs, volatility and inefficiencies in global trade.

The key factor necessary for the sector to normalise is an end to lockdown measures globally, according to the chemicals shipping and terminal storage specialist.

Key demand regions have recovered well through the first half of the year, according to Odfjell, but the economics of round trips continue to be affected by pandemic response measures.

“Every time we have seen increased lockdowns, roundtrip economics are immediately challenged,” said Odfjell tanker trading head Bjorn Hammer.

European markets are recovering at present, with South America and India as the key problem regions at present, he added.

Another factor in the current intensification of shipping issues is the sheer duration of disrupted trade, and the cumulative impact of a year and a half of supply chain breakdown and distortions.

Until lockdown measures ease comprehensively enough and  long enough to allow the lengthy process of supply chains to ease back to normal footing, the disruption is likely to continue. With the timeline for vaccine rollouts in many emerging economies, that could be some time yet.

Insight by Tom Brown

Infographic by Yashas Mudumbai

Additional reporting by Zubair Adam, Anne-Sophie Brant-Vaghela, Eashani Chavda, Marta Fern, Jane Gibson, Fergus Jensen, Ben Lake, Caroline Murray, Linda Naylor, and Adam Yanelli

Front page picture: Yantian International Container Terminals in Shenzhen, Guangdong province
Source: Shutterstock

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