Letter to the trading community of Tasmania

13th May 2021

Situation update – Tasmania

Domestic

It is fair to say that by all reports that the domestic shipping situation to and from Tasmania is travelling very well. Over the last 12 months, the three carriers across Bass Strait have navigated the COVID situation outstandingly and I expect that the trading community by and large are satisfied that this aspect of our trade is in safe hands. It is important not to lose sight of this important aspect of our connection to our customers on the mainland and as a bridge to the rest of the planet. We have experienced in the past events that have seen our current equilibrium falter – industrial action, weather events and cyber-attacks are all very real aspects of the world we live in and it would be wise for us to be alert and plan for disruptions in the supply chain at all times, even when things appear to be going well. In years to come we will see a major disruption as the operations move from Webb Dock up the river with a proposed completion date of 2026 recently stated by Port of Melbourne. The TT Line move to Geelong will also have some adjustment required for users of this service in 2022.

International Air Freight

Airfreight remains a costly exercise with the constant shifting goal posts of when and if international travel will emerge. IFAM is committed until September 2021, the majority of cargo flown around the world is on cargo aircraft and still attracting a large freight cost impost. Over the last 12 months, I have overseen a number of airfreight shipments of significant tonnage and the theme has always been that it can be done, but it comes at a cost. At this stage, there appears to be little to support any change to this narrative. 

International Ocean Freight

Of significant concern is the current situation with international container shipping. Most conversations I have in this area begin with the phrase “I have never seen it as bad as this” – and that sentence is repeated with the same people on a daily basis for the last twelve months. The level of stress in this part of our trade world is significant on many levels and is a global situation. To put it quite simply, the world trade volumes have increased in an environment where the shipping lines are not in a position to adjust to accommodate the capacity. Stimulus packages worldwide have achieved their goal in consumer and infrastructure spending whilst the deployment of new capacity has not entered the market when needed. Internal infrastructure coupled with lock downs in many countries has not been able to adjust to the larger volumes. Industrial action, port congestion, equipment imbalances and competing world trade lanes has seen equipment shortages and space restrictions on all countries and Australia is not immune to this – indeed, one could say that we are significantly way down the list. Congestion in ports has seen shipping schedules change with omissions, short shipments and roll over at transhipment ports become a daily event. Over the last 12 months, the pain has been felt considerably by importers with constant delays particularly ex Asian ports as well as skyrocketing freight pricing. This pain is now being felt by exporters as equipment and space on the traditionally “back load” export model of Australia is fundamentally changing. Exporters are being restricted to the number of containers allocated to them on certain trade lanes and ports in various countries are being restricted or even removed from vessel calls due to congestion issues. Our usually safe and reliable trade between Australia and New Zealand is one of the worst hit with ships recently departing leaving behind large volumes of containers to try to recover some schedule integrity. What unfortunately goes with such challenges is the upward trend of freight charges as the market becomes more and more constrained.

I am often asked if I can see an end to all of this and what the “light at the end of the tunnel” is. Quite frankly, I am afraid there does not appear to be one at the moment. Every time I think I spot a light, it ends up being the bow light on a ship across the Suez Canal or an email alert to another rate increase. Below are some statements that I think traders in Tasmania need to consider for the difficult road ahead.

·       Long term forecasting and planning is essential – inform your freight forwarder, shipping line representative and transport provider of shipment as early as possible – send them a spreadsheet of your years export and import planning.

·       Do not rely on “just in time shipping”. Delays for export and import cargoes have to be planned for and expected. Direct shipping to, from ports are over booked, and expected departure dates could be as long as one – four weeks in some case. Shipment over transhipment ports such as Singapore and Port Kelang are experiencing delays of between one and five weeks due to congestion.

·       Consider ordering early and holding stock at your premises or external warehouse. Whilst this is understandably difficult in relation to cash flow and additional cost of storage, the balance between having stock on hand verses delayed on the water needs to be considered.

·       Expect increases in freight costs. At present, export and import freight charges are changing regularly and increasing in incremental of US$100.00 to US$2000.00 per 20’ container depending on the trade lane (one line today introduced an increase of US$1000.00 for NZ destinations). During peak import times, rates can change fortnightly. We are also seeing additional fees being implemented by shipping lines on top of freight charges. Congestion surcharges, peak season surcharges, equipment imbalance fee are regular additional charges that range from US$75.00 to US$300.00 per container.

·       Expect issues with biosecurity – over the last twelve months importers and exporters have experienced delays with inspections and documentation releases – the volume of work has impacted this department and whilst there is actions being taken to remedy these delays, importers and exporters should be prepared for delays during peak times.

·       Be aware of the free time conditions for use of your container during packing or unpacking. With shortages of equipment, the shipping lines are not as agreeable to free time extensions and will invoice charges for detention without hesitation – this can get very expensive – planning of the use of the container must be monitored closely. As I type this, an increase in detention charges has just been announced by a shipping line.

·       For importers, please ensure that your import documentation are always compliant with the import conditions. Australian Customs and Biosecurity are very strict with the documentation and it is important that both you and your supplier are aware of the requirements before shipment – check with your customs broker whilst discussing the purchase to ensure all documentation requirements are considered. Please always have your documents to your customs broker as soon as the shipment has departed the origin (even copy documents).

If I had to predict the future, I would suggest that exporters would continue to struggle with equipment and space for some time. Planning for alternative services that traditionally service Tasmania is needed (we are already sending goods for packing into container in Melbourne for some customers or repositioning empty containers to Tasmania to accommodate exports) – all of this comes at additional costs.

Rates between Asia and the US or Europe are at an all-time high and severely over capacity. This in turn will see shipping lines in Asia favour equipment releases to the higher paying freight routes and as a result, Australia will have significant challenges with equipment in the latter half of 2021.

Further to the reduction of equipment availability for the Australia trades, we will see rates continue to increase as we compete with other countries for equipment release. Shipping lines will not commit to any contracts outside of the volumes they have already committed and importers will be subject to spot pricing. There is unlikely to be any additional capacity added to the Australian trade routes for 2021 at this stage.

You could be forgiven for feeling unfairly treated in regards to freight pricing. It would be a brave shipping company representative that would deny that 2020 and 2021 is the year that their profits turned around (One shipping line recently announced their group revenue was up 30% to US$12.4bn driven by a 35% increase in freight rates coupled with an increase of volume of 5.7%). Despite the unfairness of it all, it is still important to respect the local representatives of our shipping lines that are under significant stress from customers and their head offices. They are human and the impacts of not being able to accommodate requests does not warrant aggression or frustration directed at them personally – please remember this during your conversations.

Final comment.

The recent budget announcement for the TFES Southbound as well as the allocation of funds for infrastructure and biosecurity and trade certainly shows the commitment of the Government to facilitate and encourage trade. The issues we are facing with shipping are a result of confidence in our ability to trade locally and globally. It is encouraging to see such a focus on growth and recovery and over time, we will see adjustments and solutions that will see us right into the future. Now however, we are in a period where the adjustment has not occurred and we will all need to work together to see us through challenging times. Your health and your family are everything, as they are for all of the people that you will speak with during these times – please do take the time to ensure you have balance and understand that the person on the other end of the phone is experiencing the same issues and challenges from a different angle.

I hope this latest communication has been of some help and remain as always available to discuss or assist in any capacity.

Sincerely,

Brett Charlton                                                        

Chairman

Tasmanian Logistics Committee.