CONGESTION at container ports around the world may spur investment in additional container fleet capacity by shippers and greater automation by ports.
Triggered by COVID-19, pressure at ports around the world has been building up with higher-than-anticipated volumes of transported goods leading to significant backlogs and delays at ports, according to Fitch Ratings.
“We expect backlogs and delays to be resolved within a few months with the credit profiles of Fitch-rated ports and shipping companies largely unaffected,” the credit rating agency pointed out.
According to Fitch Ratings, delays are further exacerbated by reduced workforce in ports due to cost-cutting measures, social distancing requirements and quarantining.
Import markets, including the US and UK, are currently congested with queues of container ships waiting to be unloaded, while export markets such as China are experiencing container shortages.
However, both ports and shipping companies are able to pass through additional costs to end-customers to varying degrees.
Shipping lines pass on costs through congestion surcharges and overall higher freight rates, while pricing power for ports is limited to higher demurrage charges and storage costs.
However, Fitch Ratings expects congestion to gradually dissipate in the coming months although it could trigger longer-term changes in ports’ and shippers’ investment programmes.
“We expect an increased focus on efficiency and digitalisation in the port sector in the medium to long term, accelerating technology and automation uptake,” it projected.
“However, full port automation faces obstacles in certain regions in the near term due to opposition from unionised labour.”
In addition, the expansion of port infrastructure may be hampered by pandemic-related uncertainty over future traffic volumes in the short term which has led some ports to put terminal upgrade plans on hold to preserve cash.
Fitch Ratings expects increasing capex on new containers by shipping companies, supported by strong profits in 2020. However, there has been no noticeable increase in shipbuilding activity.
Currently, new orders have been held back by expectations of low demand growth and potential new regulations from the International Maritime Organisation focusing on decarbonisation that could impact the design of new vessels.
“We expect freight rates to start declining once the peak season ends and ahead of the contracting period in 1H 2021,” added the credit rating agency. – Dec 21, 2020
