lighthouse - November 2021

TALENT WINS GAMES, BUT TEAMWORK AND INTELLIGENCE WINS CHAMPIONSHIPS

With IPL fever in the air, cricket seems to be ruling the roost everywhere. And when employees are in a cricket frenzy, can corporates be far behind? CSS Play Club comfortably sealed yet another championship by winning the finals against Dubai Tellicherians.

It was a classy batting display by our one and only star player, Rowhmas, who was also adjudged as the Man of the Match for the Finals. Seventy-nine runs in a quick span ensured CSS had a good start. This was followed by firecracker innings by our captain, Riyas. Other teammates like Shahir, Shajil, and Shibith also pitched in with their innings, helping CSS Play Club register an impressive total score of 228 runs.

All of our bowlers did a decent job by taking wickets at regular intervals to restrict the opponents to the score of 150 runs. Prashob PK was awarded the best bowler of the finals with three quickies, well supported by Ranjith Haridas with two key wickets.

Kudos to Shajil Balan, Reji Mohan, Prashob PK, Mohammed Rowmahs, and Mohammed Shahir for their contribution throughout the tournament.

At CSS, we are passionate about cricket. We believe that it helps with team building as we encourage our employees to continue with their passion for the gentleman’s game.

The Chairman, Mr. Kaladharan, emphasized, “As our employees represent the company in corporate tournaments, it makes winning these tournaments immensely satisfying.”

WHAT ARE THE REAL REASONS BEHIND THE RISING FREIGHT RATES?

In a recently organized webinar by the HSBC group, Brian Hay, the Chief Executive of the Cardinal Group from the UK spoke about the real reasons behind the rising freight rates worldwide. He said that while the coronavirus pandemic continues to disrupt the natural rhythms of global container freight, he expects demand for consumer products to drive the industry forward. He emphasized, “The ships are full, and freight rates are high, not just because of demand, but also the fact that equipment has been displaced as a result of COVID-19.”

Brian Hay revealed that freight rates have risen from USD2000/40’ high cube container to today’s market rate of USD20,000.00. There are several real challenges, but he expects freight rates to improve towards mid-2022 till 2023. With the capacity growing year on year, this could bring down freight rates as it eases the demand for space on shipping vessels.

Real Reasons for the Sky High Rates

He threw light on the four key areas for this pricing behavior, influencing the dramatic rise in freight container prices:

1. Reduced velocity in the usage of equipment

2. Consumer behavior and the surging demand for space

3. Port closures and congestion

4. Shipping line behavior

It is also to be noted that the pandemic has fueled all these factors.

Usage of Equipment

From relatively small to larger vessels of 22,000 TEUS, about 5.5 K container ships are in operation now around the globe. Shipping lines have been painted as the bad guys, making hay while the sunshine. However, most shipping fleets are in full circulation, and the parking of ships is not driving the demand.

Shipping vessels are not available mainly due to the pandemic, interruptions in scheduling, and problems in the WHAT ARE THE REAL REASONS BEHIND THE RISING FREIGHT RATES? deployment of empty units. It is more of care of slower circulation rather than deployment of empty containers. For example, Hapag Llyod, one of the largest shipping companies in the world, needed 300,000 units to reach their pre-pandemic levels and fulfill pre-pandemic bonds. This requirement is not due to the rising consumption and demand for space in ships. However, it is just to manage their pre-agreed bonds.

According to Hay, the current situation is not driven due to equipment shortage but due to slow circulation, rescheduling, port congestion, and general in-availability of vessels.

The freight rates are expected to remain at record levels for a more extended period impacting the sector as it is susceptible to rate volatility, weak economic recovery, and trade protectionism. The Q42020 and Q12021 supply chain disruptions involved container box shortages and port congestion, resulting in frenzied container freight rates. Most shipments during the period are being booked at higher rates than recorded and add on priority load surcharges.

All freight and logistic companies worldwide face operational nightmares as they try to secure container space for their clients.

Brian Hay mentions that they are often fighting for equipment as they are reallocated elsewhere due to the slow circulation of the containers due to the pandemic. Typically a container is used in deep-sea service six times per year, and it could be even below 4 in 2021.

Consumer Behaviour and Demand for Space on Ships

The consumption resulting from the pandemic is phenomenal and will continue to remain so unless we switch our behavior from products to services. Since almost everyone worldwide has been cooped up at home, people have been on a buying spree to make their living and working spaces more comfortable. Most retailers are trading beyond their expectations. The freight liftings in the USA in Q4 of 2021 are 35% higher than in Q1 2020. The deployment has been more to the USA as the demand has been more.

Port Congestion

Port Congestion has been phenomenal in pandemic times and can be seen even from outer space. Currently, all ports, particularly in Asia, are saturated due to a strong rise in inactivity. Ports are also operating from lower productivity rates due to pandemic restrictions. For instance, the port of Liverpool is struggling to meet increased demands due to a severe lack of manpower. In China, Yantian port was closed due to a COVID outbreak. The sky-high freight rates are all a result of these contributing factors.

Shipping Line Behavior

Shipping liners made a combined profit of $16.2 B in the first three months of 2021. What is astounding is that all their Q1 earnings are more than they did in the same period of the previous ten years combined. Mr. Hays noted that their action destroys years of collaboration and loyalty and might be fuelled by profits. He also reiterated that logistics companies are working on their values of integrity and are not increasing the freight rate to take advantage of the situation.

How shipping lines used to sell out a vessel typically was long-term contracted rates, the large volume moves, named account deals, and the rest on the spot market. But the pandemic has reversed the ratios. Service agreements have been put aside, and most of the deals are on the spot market. It does not allow freight operators to operate the way they want to.

It is next to impossible to provide the right service in the current situation with no real prospects of rates easing in the near future. Usually, rates soften in July and August and go into a peak with the Christmas shipments. There might be a leveling by the end of the Chinese New Year, between Feb and March 2022.

With people moving to more experiential services rather than products, inflationary pressures due to rising prices may ease demand and decrease freight rates. Brian Hays pointed out that the rates will not return to the old levels of $1000-#2000 – for a container from Asia. He believes that being forewarned is being forearmed, and the figures can be pegged at $5000-$10,000 per container. Brian Hays is the CEO of Cardinal Global Logistics, the UK’s fastest growing logistics service provider with 22 offices worldwide and over 400 staff, with its head office located in Manchester. Cardinal provides integrated end-to-end supply chain solutions to businesses ranging from SMEs to large-scale multinational entities. Known for designing and implementing transformative supply chain solutions, Cardinal provides customized innovative approaches for each client.

VIRTUAL ADMIRALTY CASE: SETS THE RECORD OF MANY FIRSTS IN ITS NAME

The last year 2020 accelerated the concept of “Work from Home” and helped to realize that even the Civil Court Proceedings can also be done virtually. With the pandemic, the Court proceedings had to switch completely to virtual hearings, without any Judges, Lawyers, or the Parties to the suit, being personally present in the courtroom. Many countries even introduced new regulations or rules to regulate remote hearing.

Amid all this chaos, the year 2020 also marked its first virtual admiralty case, and interestingly, its hearing took place by telephone due to the COVID crisis.

In the case, Qatar National Bank (QPSC) vs. The Owners of the Yacht “Force India” (No. 2) [2020] EWHC 719 (Admlty), the claimant bank had a mortgage over the Yacht following a default under an underlying loan agreement and even obtained a judgment for the sale of the Yacht in the Admiralty Court for the sums secured by the mortgages. Interestingly the unusual arrangement, in this case, was that the Mortgage was not in place to secure a loan taken out by the owner of the Yacht. Instead, the loan was taken out by a related company to finance a property purchase in the South of France. The Yacht was mortgaged as additional security concerning that property purchase. However, following the order made by the Admiralty Court for the sale of the Yacht, the claimant bank applied to the Court to have the order for sale set aside, on the final day for bids to be received. The Court declined this request instead gave some time to enable a hearing to take place, allowing the Court to consider the arguments of all the interested parties. The order was set aside on the basis that a third party had paid the sum secured by the Mortgage, and so the judicial sale of the vessel was no longer required. Where the sum secured by the Mortgage has in effect been paid by a third party, the judicial sale of the vessel was no longer required.

Under English Law, there are no specific rules as to how the sale should be organized. In most of the judicial sales, the Marshal invites the potential purchasers to send written tenders that usually include the bidder’s name, its agents, the bid validity period, and the person/company who submits the highest bid above the appraised value purchases the ship. After the highest bid has paid the purchase price into the Court, the person/ company shall sign the conditions of sale. Subsequently, the Marshall will deliver the ship and the documents along with its certificates to the new buyer. This being the normal procedure of “Judicial Sale of the Vessel,” the Court also emphasized that this setting aside of sale should certainly not become a practice because if it becomes a practice, then those willing to incur the time and expense involved in making a bid for a vessel ordered to be sold, might feel disinclined to do so and this might lead to Vessels being sold for a value less than that of its Market Value, which might tarnish the reputation of the Court.

Mr. Justice Teare concluded the judgment of the aforementioned case to be “Special and Perhaps Exceptional” as it was a rare incident where an independent third party would discharge the judgment debt and render the sale unnecessary. That is what happened in this case.

Though there are few instances where application being made to set aside a sale, the Marshall and his Agents, in relation to this case, has commented that in their 40 years of association with the Court for conducting judicial sale of vessels, they have never known such an application being made to halt a sale at such a late stage and the only reported instance appears to be almost sixty years old.

CONTAINER CONGESTION IN THE USA – CONTAINERS PILE UP AT WEST COAST PORTS

Preparation for the holiday season has brought in container congestion across the USA, as demand surges and retailers pile up stock, as containers pile up across the West Coast ports, especially in Los Angeles and Long Beach.

Container xChange, a leading neutral online platform for container logistics, has published data on inbound and outbound containers at the US West Coast ports – Los Angeles and Long Beach ports.

“Our CAx (container availability index) data reveals 60% increase in the inbound outbound ratio at the ports of US West Coast, surpassing the pre-Covid levels, indicating that there is excessive stress on the ports, and therefore indicating further congestion is expected in the coming months as we approach the holiday season in the latter part of the year.”, commented Dr. Johannes Schlingmeier, Co-founder and CEO, Container xChange.

Domino effect

The cargo congestion seen in the ports on the US West Coast is a domino effect of the global supply chain disruptions. With demands driving up the need for containers, the situation has been aggravated due to infrastructural and human resources issues faced by logistic companies worldwide. All these factors combined lead to exacerbated delays in cargo arrivals.

There is an average increase of 60% in the CAx values during August 2021 compared to the same period in 2020. This explains why the inbound containers at the LA port have increased 60% from the last year during the same time the previous year.