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Global Container Port Congestion Reduces Operators’ Margins: Rating Agency Fitch

Global shipping has been battling with chaotic schedules for months due to swings in consumer demand for goods, the report said.

LONDON — Global container port congestion has increased port operators’ costs and put pressure on their margins, a new report by American credit rating agency Fitch Ratings said.

“We expect bottlenecks to be resolved by 2022, although some supply chain changes could be permanent,” the report said.

Fitch said demand for container transportation and trade volumes recovered sharply in the second half of 2020 and continued to grow in the first half of 2021, supported by increased consumption of goods, after a contraction in the first half of 2020 when lockdowns peaked.

“We expect shipping volumes to normalize in 2022 if there are no further pandemic waves, with growth rates consistent with those in 2018-2019 and largely in line with GDP growth,” the firm said.

Global shipping has been battling with chaotic schedules for months due to swings in consumer demand for goods, as well as factory closures and pandemic containment measures, which have slowed down ports’ operations.

As a result, there has been a shortage of empty containers in places where they are needed. This shortage has been exacerbated by the Suez blockage: roughly half the goods that pass through the Suez Canal do so on container ships.

However, the operators’ performance has been supported by the strong rebound in volumes in the second half of 2020 and 2021, as per the report.

“Some measures taken by port operators during the pandemic to improve efficiency will remain in place once congestion is resolved, including increased automation and some reduced personnel costs,” the report said. 

“These gains, despite being relatively minor, will support operator’s profitability when conditions normalize.”

The scale of congestion has led to significant delays in unloading. Many ports are already operating at full capacity, but storage charges at ports have increased, offsetting some ports’ costs.

Some port operators are suffering lower margins due to higher processing costs caused by safety measures, greater inefficiencies, and increased waiting times. 

Longer-term structural overcapacity in many port markets in Western Europe prevents many operators from increasing charges to cover for higher congestion-related expenses, the report said.

Strongly rebounding but unpredictable demand for goods, container shortages, and port congestion have led to significantly increased shipping freight rates. Shipping lines are currently enjoying very high profitability.

For many years, overcapacity in the shipping industry led to industry consolidation, price competition, low freight rates, and counterparty risk for ports. 

Currently, shipping companies have improved liquidity positions.

“We expect bottlenecks at ports and congestion-related effects to last until end-2021. We also expect consumer expenditure on services and experiences to recover once restrictions are lifted, resulting in a shift away from temporarily increased expenditure on goods,” Fitch said.

Fitch, on Aug. 3, revised the United States’ Outlook to Negative. 

“The Outlook has been revised to Negative to reflect the ongoing deterioration in the U.S. public finances and the absence of a credible fiscal consolidation plan, issues that were highlighted in the agency’s last rating review on March 26, 2020,” the company said in a blog.

(With inputs from ANI)

Edited by Abinaya Vijayaraghavan and Praveen Pramod Tewari

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