UK ports in disarray and trade at risk
Port congestion is putting pressure on UK supply chains just as Brexit looms and a resurgent COVID variant paralyses the country
The UK has been caught in a logistics maelstrom as the year closes out, creating major headaches for businesses and the potential for far greater disruption ahead as Europe discusses a ban on travel to and from the UK and the ongoing Brexit negotiations reach their most critical stage yet.
UK ports have faced major disruption throughout 2020, but this has compounded significantly towards the end of the year.
When it comes to typical trade flows into and out of the UK, the port of Felixstowe in Suffolk takes the bulk of the load. This is UK’s largest port and it usually handles around 40% of all UK container movements.
In the last quarter of 2020, this dynamic is under enormous pressure, creating warps in the typical movement of goods and a scramble for alternative solutions as the port, as well as counterparts in the country’s south, have been hit by major delays.
This has been driven by a coalescing set of factors that have created major issues for those trying to use the port at all levels.
Firstly, global container movements have been through a rollercoaster, seeing shipping lines cutting capacity and operating blank sailings earlier in the year, before demand came back with force. Ports and warehouses have strained under the weight of arrivals of PPE and restocking from businesses trying to catch up on lost sales from earlier in the year and their desire to create large scale reserves for both raw and finished goods before Brexit occurs at the very beginning of 2021.
This has been a huge issue for the UK economy given its reliance of Felixstowe and has brought significant bottlenecks in UK trade flows to the fore. The port has been hit by major delays and has been one of the worst performing in 2020 when it comes to quickly turning around ships and moving cargo out of the port efficiently.
Data from IHS Markit has found that, for the period January to September 2020, Felixstowe took 46% longer than the average in their sample to move a container, with the average vessel spending more than 32 hours in port, compared to 18.5 hours for Qingdao, the quickest port in the sample released.
The knock-on effect has been trade shifting to other ports and general business disruption within the UK. Ships initially were re-routed to Southampton, also on the UK’s south coast, but as this too became overwhelmed, shippers have cast their nets further afield, with both MSC and Maersk shifting their TA2/NEUATL2 transatlantic loop to call at Liverpool instead.
For those reliant on the goods arriving at UK ports, there have been definite and material effects on their businesses. Dixons Carphone Chief Executive Alex Baldock said they were looking at two-day delays in mid-December, Honda briefly shutdown production lines due to parts delays, Bentley has booked five giant Antonov cargo planes in anticipation of disruption and both the British Retail Consortium (BRC) and the Food and Drink Federation (FDF) have requested a parliamentary inquiry into the situation.
Soaring rates and added surcharges
Compounding the issue is a general imbalance in global trade routes that has proved problematic for shippers globally, but particularly in Europe. The jarring effects of COVID-19 have left containers stuck in some ports and not circulating as they would normally. Major exporting countries have been desperate to get containers back to their own ports and turn these around, while European and American points of disembarkation have struggled to clear backlogs.
This has meant shippers prioritised getting containers back to Asia-Pacific to ship exports to key markets, and have also focused on shipping trans-Pacific over European markets given time and availability constraints.
“Shipping lines have just not been able to return equipment fast enough to the Asia market, and that’s really been driven by some of the issues we’ve seen in the UK, with Felixstowe Port not being able to load empty containers on fast enough before the vessels had to depart,” said Scott Irvine, VP for Air and Ocean for freight forwarder Zencargo on a webinar. “We’ve also seen a spike in demand and companies stockpiling for events like Black Friday, as well as Brexit, and more recently backlogs of PPE containers in the thousands in Felixstowe.”
This has been to the extent that UK ports have seen shipping lines prioritise returning empties over handling export loads, giving another headache to UK export-led businesses.
The global consequences of this imbalance and the sudden return of demand has been shipping rates across major transcontinental routes shooting upwards. They aren’t likely to resettle until some way into next year.
The Freightos Baltic Global Container Index (FBX), a weighted average of 12 major global container routes, has hit record heights, passing beyond $3,000 in mid-December. Rates both on trans-Pacific routes and for those between Europe and China have experienced triple digit increases Year-on-Year (YoY).
Freight forwarder Espace Europe said to Reuters that the cost of moving a set of goods from the Netherlands to London had increased by approximately 80% in the last quarter of the year.
As a further kick to UK importers, the issues at British ports have resulted in shipping lines demanding a congestion surcharge to unload at the worst affected ports.
CAM CGM, for example, has placed a hefty $150 surcharge per TEU on containers arriving into Southampton, Felixstowe & London Gateway Port from North East Asian routes.
A cut-off UK?
The discovery of a significant set of mutations to the COVID-19 virus within the UK has the potential to majorly compound the crisis. The new strain, according to initial analysis, is more transmissible and has mutations to the protein spike, which is the part of the virus that allows it to enter our cells and is important for vaccine efficacy.
Given the danger this represents, restrictions are being placed on movements to and from the UK. France, Germany, Italy, the Netherlands, Austria, Switzerland, Ireland, Belgium, Israel and Canada have closed air travel and France went further in suspending truck movements at midnight Sunday 20th December for 48 hours.
British transport minister Grant Shapps implored hauliers to avoid ports in the South of the country on Sunday 20th December as major queues began to develop in Kent.
EU states are meeting to try and coordinate a response to the new strain as of the time of writing.
Brexit deal hanging by a thread
On top of all of this, Brexit negotiations are in a crunch state, and the eventual nature of a trade deal remains unclear.
Talks have an extremely slim window to conclude so legislative bodies on the continent and in the UK can pass the eventual agreement. Both sides have made positive noises on coming closer to a deal, however, the precise details of it are not yet known over four years after the initial referendum result.
The net effect of that uncertainty on businesses is profound. For example, the BBC reported that UK model marker Hornby suspended all shipping out of the UK until 4th January 2021 due to the lack of clarity around tariff regimes.
Although businesses can do some preparation like acquiring an EORI number and agreeing incoterms with partners, and the UK has struck equivalent agreements with over 50 countries, it is the EU that by far remains the UK’s key trade partner. Companies need to know what tariffs will apply, if any, and how those will be levied by the EU and, as yet, this remains unknown.
It’s hard to avoid the view that 2021 will be a tricky one for UK business.