Congestion at container ports around the world may spur investment in additional container fleet capacity by shippers and greater automation by ports, Fitch Ratings says. 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.

Pressure at ports around the world has been building since September, triggered by the coronavirus pandemic. Higher-than-anticipated volumes of transported goods have led to significant backlogs and delays at ports. These volumes are related to re-stocking of consumer goods and increased demand for personal protective equipment, as well as the front-loading of imports to prepare for further potential-supply chain disruptions caused by the pandemic.

Delays are further exacerbated by reduced workforce in ports due to cost-cutting measures, social distancing requirements and quarantining. In the UK these pressures have been recently compounded by stockpiling prior to the end of the Brexit transition period. Import markets, including the US and UK, are currently congested with queues of containerships waiting to be unloaded, while export markets, such as China, are experiencing container shortages.

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.

Container Shipping Freight Rates

We expect 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. However, full port automation faces obstacles in certain regions in the near term due to opposition from unionised labour. 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. Still, this congestion could demonstrate the need for port capacity and facility expansion in the long term.

Supply of empty containers has been tight throughout 2020, and we expect increasing capex on new containers by shipping companies, supported by strong profits in 2020. However, there has been no noticeable increase in shipbuilding activity. New orders have been held back by expectations of low demand growth and potential new regulations from the International Maritime Organization focussing 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 1H21.
Source: Fitch Ratings