There is growing urgency for European shippers and their forwarders to come up with solutions to manage the wave of unneeded inventory now in transit and about to land at ports in locked-down countries.
Non-essential retail stores are closed across Europe, and with their products not considered critical in the battle against the coronavirus disease 2019 (COVID-19) and their warehouse staff and drivers not classified as key workers, cargo owners have limited ability to pick up containers from terminals. Concerned over storage costs as unwanted containers arrive, shipper and forwarder groups in Europe have called on carriers and terminals to exercise restraint before issuing detention and demurrage charges.
“The sharp demand drop is happening in the import countries — yet millions of containers are already on the high seas, bound for discharge into countries where the importers cannot, or will not, take delivery,” Sea-Intelligence Maritime Consulting noted in its latest Sunday Spotlight.
“Contingencies for off-site storage, including access to additional reefer plugs, have to be developed quickly, to prevent a complete gridlock in terminals, which in turn would also prevent the movement of needed and necessary goods,” it added.
Solutions so far being studied by shippers and their service providers include storage at origin, in-transit storage, extending voyage times, storage at carrier transshipment hubs, or storage at destination in Europe.
Mediterranean Shipping Co., for example, rolled out a “suspension of transit” (SOT) service in the first week of April. Under the SOT offering, the carrier will store cargo that is already on the water, but unneeded at destination, at one of its transshipment hubs in Bremerhaven, Germany; Busan, South Korea; Abdullah Port, Saudi Arabia; Lomé, Togo; Rodman PSA Panama International Terminal; and Tekirdag Asyaport, Turkey.
MSC told customers in a statement there were “substantial cost savings” to be made by using its SOT service, which would allow shippers to control storage costs at the booking stage, rather than facing uncontrolled warehousing and storage costs, demurrage, per diem, and potential detention fines at destination.
In an open letter to customers, MSC Group president and CEO Diego Aponte said the SOT used transshipment hubs as advance storage posts to help shippers start moving goods early in anticipation of a resumption in demand.
Similarly, Maersk Line is offering to slow down supply chains by extending transit times and also storing cargo in transshipment hubs with a longer layover, or storing containers at designated yards and depots at origin or destination ports.
Cargo in the hand
The logistics director for a global manufacturer of household products told JOC.com that for this in-transit offer, although the in-transit services come at a cost, the price is still lower than what they would pay for storing inventory at origin.
“If we learned anything from Hanjin Shipping’s bankruptcy in 2016 or the West Coast port shutdown in 2015, it is that a bird in the hand is better than 10 on the roof,” he said.
“But you need to weigh the cost of these solutions against the cost of renting warehouse space at destination, especially if you don’t have any of your own, and then moving the cargo out of the destination port as soon as possible,” the source added. “That way, you have that ‘bird’ in hand when the world changes for the better and space shortages set in.”
David Emerson, SEKO Logistics vice president of sales and marketing for Europe, Middle East, and Africa, said storing goods at origin would save on freight shipping, higher destination storage costs, and also delay the payments of duties and taxes on products that would not be sold “for ages.”
“However, this is hard to do for [small to medium-sized enterprise] customers that don’t have access to warehouse space in Asia, and don’t have buying power to get their suppliers to postpone products,” he told JOC.com, adding that warehouse space in Europe was at a premium, but this was an ongoing supply and demand dynamic and not exclusively related to the pandemic.
Emerson also pointed out that for many products manufactured in Asia, there are tax incentives offered for exports that don’t kick in until suppliers transport those goods out of the country.