It was something of a welcome surprise when the recovery from the slump came much earlier. This recovery indicated strong demand given the fact that eCommerce was gaining steam despite COVID-19 and the US-China trade skirmishes. Quite simply, consumers were shopping online more often and they needed carries to transport their orders. The shipping industry has tried to keep up with the increased workload.
CMA CGM recently announced that it would be launching a weekly service from Ningbo and Yantian landing in Los Angeles. This was a direct response to the strong demand for guaranteed equipment as well as loading at Asian ports. There was also increasing interest in the chassis availability when vessels arrive in Southern California.
U.S. Imports in Asia
There has been a strong demand for services in the shipping industry, unexpectedly so, when one considers the Asia-US loop. The reasons for skepticism included the COVID-19 pandemic which threatened to halt trade across the globe. Secondly, China has been having a trade dispute with the US which has resulted in retaliatory sanctions that once again damaged the already fragile shipping industry. Despite all those challenges, imports are up and showing signs that they will grow.
CMA CGM is taking advantage of the situation by launching the Sea-Priority Express. Under this service, customers will be guaranteed equipment releases as well as space on select vessels. The itinerary involves a 12-day transit starting from Yantian. The service will also include priority container discharges. Additionally, those who take advantage of this service will be entitled to mounting on a chassis once they are in Los Angeles – Long Beach. It is estimated that the container will be available within 24 hours of discharge from the vessel. This has been confirmed by a statement from CMA CGM.
Recent challenges with premium services
The new premium service is a welcome sign of optimism given the recent challenges that partners have faced when trying to access premium services. At one point, shipping companies were not sure of demand, and then at other times, demand started coming in unexpectedly with many retailers looking to replenish their stock in time for the Holiday shopping season. In any case, the demand for protective equipment continued to keep the industry ticking over as everyone adjusted to the new normal following the COVID-19 pandemic.
As the new weekly premium service is launched, there are indicators that importers are willing to pay more for a guaranteed service. This is particularly true of e-commerce retailers who almost always handle time-sensitive shipments. The Asia-US loop has been struggling with severe container shortages in Asia.
The struggle over space and priority have led to congestion on the marine terminals as well as chassis shortages at the Los Angeles – Long Beach port. This has made the extended 2020 peak season particularly tricky for the shipping industry. For example, US imports from Asia increased by 24% in October when compared to the same month last year.
The peak season has been longer than usual, starting in late June. It is expected that non-vessel operating carriers and common carriers will remain strong for the short run. Certainly, no sooner than the time when Asia shuts down for the Lunar New Year festivities on February 12th, 2021.
Effects of these problems
The pre-existing premium services included one that was initiated by Matson Navigation company and Zim Integrated Shipping Services. This would run from China to Los Angeles-Long Beach. During the increase in demand, there was a high utilization rate. The implication is that the market had exposed a gap that could only be filled by a dedicated trans-Pacific weekly service.
CMA CGM offered just that alternative, as long as customers were willing to pay add-on costs. The new offering included as many as 17 high-value services. It is anticipated that the port rotation will include Ningbo, Yantian, Los Angeles, and back to Ningbo. Six vessels will be deployed, with an average capacity of 5,500 TEU.
The first vessel on the premium service departed from Ningbo on December 5th, 2020. There will be priority handling for the qualifying cargo once it is in Los Angeles. This is in addition to priority container availability in China as well as priority loading in Yantian.
The service guarantees to mount on chassis for pick-up within 24-hours of the vessel operation. These premium customers will no longer need a truck appointment. Such services are popular at the moment, but they still face challenges in meeting the high expectations that they have raised among their customers.
According to non-vessel owning carriers, or NVOs, many existing priority services are not always able to meet their equipment guarantees comfortably. This is particularly true at the Asian load ports. Key problematic areas include chassis availability, vessel docking facilities, and expedited container release commitments. The result is a highly congested port facility at Los Angeles – Long Beach.
Some NVO members have anonymously reported isolated incidents of bottlenecks. Customers in these cases were frustrated by paying for Asia priority treatment and not getting it in full. One of the areas that are reported is the add-on features that are becoming popular. Part of the reason for the bottlenecks is the upsurge in customers that start with regular weekly services and then proceed to request premium add-ons. The requests create logistical nightmares for the service providers who are not entirely prepared for this additional demand and its urgency.
Things do not get any better when the ships land in Los Angeles- Long Beach. It appears that most of the Southern California supply chain is clogged. This means that vessels are waiting for several days before being allowed to anchor. In these circumstances, the introduction of a premium service by CMA CGM is a welcome move. It remains to be seen whether it can make a dent in the demand of a crowded market.
Wrapping up
Given the demand for trade routes between China and the USA, some companies are responding by providing premium weekly services at a cost. One such service has been announced by CMA CGM. The advantages for customers are clear: priority in loading and unloading. This is a much-needed boost in a market that is riddled with bottlenecks during the elongated peak season. It remains to be seen whether such services will continue to grow and whether they will help deal with the increased demand for priority processing in the shipping industry as it relates to the US-China loop.
