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  • Writer's pictureStephen Fodor

Power's out at Port of LA, Rwandan forces retake port town, global demand is down but rates are up

Updated: Aug 9, 2021

Monday Morning Wake Up Call

August 9, 2021

Long Beach taking a ‘pause on shore power’ as a result of California’s energy shortage

The Port of Long Beach’s Executive Director Mario Cordero has announced that the port will ‘take a pause on shore power capabilities’, as the state of California is looking to free up energy supply to deal with the severe drought conditions.

This follows on from a proclamation that California’s Governor Gavin Newsom issued on 30 July which said: ‘Because of the accelerating and compounding effects of continuing wildfires, ongoing drought, and extreme heat conditions caused by climate change, California currently faces an additional projected energy supply shortage of up to 3,500 megawatts during the afternoon-evening "net-peak" period of high power demand on days when there are extreme weather conditions.’

As a result, said Governor Newsom, the California Independent System Operator (CAISO) has introduced a raft of measures to free up more energy supply, including a temporary suspension of the requirement for ships to hook up to the shore power supply when in port.

The proclamation stated: ‘Ships that are berthed in California ports while the CAISO Grid Warning or Emergency notice is in effect shall not be required to use shore power until 11:59 p.m. on the third day following the last consecutive day on which the CAISO issued a Grid Warning or Emergency notice.’

The Governor’s proclamation added: ‘Any other permit, regulation or law prohibiting, restricting or penalizing the use of auxiliary ship engines or other conduct allowed by this Paragraph is suspended.’

In a press conference on Thursday (5 August), Cordero said: ‘The impact of the order will be on shore power. We will take a pause on shore power capabilities as we have seen the shortfall of electricity predicted this summer.’

There was also a suspension on shore power requirements at Californian ports last year, as a result of excess demand on the state’s energy grid.

Mozambican, Rwandan forces retake port town from insurgents

(Reuters) - Mozambican and Rwandan security forces have recaptured the port town of Mocimboa da Praia, an insurgents' stronghold, the two countries said on Sunday, adding to a growing list of retaken towns and villages.

Mozambique's northern-most province of Cabo Delgado, which has gas developments worth some $60 billion, has since 2017 harboured an Islamist insurgency.

Since last year, the unrest has escalated as insurgents, linked to Islamic State, seized entire towns, including the strategically important Mocimboa da Praia.

Last month, the Rwandan government deployed a 1,000-strong force to Mozambique to fight alongside Mozambique's forces and troops of the 16-member Southern African Development Community (SADC) approved the deployment of a joint force to help Mozambique respond to the conflict that is concentrated in the northern Cabo Delgado province.

Soldiers from Rwanda, which is not a member of SADC, would fight alongside Mozambique's forces and SADC troops, the Rwandan government said.

Fighting erupted in October 2017 and thousands civilians, soldiers and insurgents have been killed in the violence.

"The Rwandan contingent will support efforts to restore Mozambican state authority by conducting combat and security operations, as well as stabilisation and security-sector reform," the Rwandan government said in a statement.

Rwandan defence forces spokesman Ronald Rwivang told Reuters the new force would have deployed in full by Saturday.

He said the Rwandan contingent was made up of members of the police force and troops trained "to deal with terrorism and security-related issues in that northern province".

Mozambique's Defense Ministry said would release information on the matter later on Friday.

Almost 800,000 people have been displaced in Cabo Delgado and the fighting has brought a $20 billion natural gas project led by oil giant Total to a halt. read more

The decision by SADC concluded months of deliberation within the bloc about what was required to stop an insurgency that threatens to open up southern Africa's first jihadist front.

Mozambique's population is mostly Christian, while Cabo Delgado is one of the few provinces with a Muslim majority.

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Global demand isn’t booming. So why are shipping rates this high?

(FreightWaves) There is no COVID-era surge in global cargo demand. There’s a lengthy albeit temporary spike in congestion compounded by a localized, stimulus-and-savings-driven demand boom in America.

That explanation for skyrocketing rates gained more traction Friday when liner giant Maersk released details of its quarterly performance.

Maersk — which pre-reported record Q2 2021 results on Monday — estimated that global container shipping demand was up only 2.7% in the second quarter versus the same period two years ago, prior to the pandemic.

And yet, Maersk’s average freight rate (including both contract and spot business) was $3,038 per forty-foot equivalent unit, up 63% from $1,868 per FEU in Q2 2019. The Drewry World Container Index of spot rates rose to $9,371 per FEU this week, 6.7 times what it was two years ago.

Consultant Lars Jensen, CEO of Vespucci Maritime, told American Shipper, “Global demand for the first part of the year is up around 4% compared to 2019. We did not have a capacity problem in 2019. We had enough ships, we had enough containers, ports were fine, and trucks and rail were fine, at least from a global perspective.

“With 4% global demand growth since then, we should not have a problem now. You have some skewing because of the demand boom in North America, but none of this is down to a global demand boom — because that doesn’t exist. The problem right now is predominantly one of capacity.”

Congestion curbs effective capacity

Ocean freight capacity is being heavily curtailed by congestion, with equipment tied up both on land and at sea.

Maersk sent out a customer advisory on Wednesday titled, “Critical help needed — congestion increasing.” The advisory pleaded with U.S. customers to return equipment more quickly, stating: “We do not anticipate the congestion decreasing any time soon. On the contrary, the industry overall is forecasting higher [U.S.] volumes into early 2022 and beyond.”

Alphaliner reported this week: “Carriers need much more tonnage as ships get stuck in congested ports in both the U.S. and Asia. Some carriers reported that they needed at least 20-25% more fleet capacity [in the trans-Pacific] to continue carrying the same amount of cargo.”

Maersk confirmed that its own effective fleet capacity was down versus pre-pandemic due to congestion.

Vincent Clerc, executive vice president of Maersk, said on Friday’s conference call: “Our fleet has grown by 2% from 2019 but our volumes are down by 3%. It basically takes more TEUs [twenty-foot units of fleet capacity] to transport each FFE [forty-foot boxload of cargo]. That will go away when congestion goes away.”

Evolution of the rate spike

“The U.S. is booming enormously,” explained Jensen. “And while you can certainly shift vessels and containers from one trade to another, you cannot shift ports from one trade to another. It also doesn’t do you any good to have plenty of trucks in another country if the trucks are needed in the U.S. The same with rail.”

On the capacity side of the equation, congestion drivers have just kept on coming — “one domino after the other” — from the anchorage situation off California to the Suez Canal blockage to the closure of the port in Yantian, China. The next threat on the horizon is the delta variant outbreak in China.

“On top of that, you’ve had every conceivable little operational mishap,” Jensen continued.

“You always have some vessel breaking down somewhere. Normally if that happens, you charter a replacement vessel or shift the cargo to another service. But now, there are no vessels left to charter and shifting the cargo to another service is out of the question. They’re already all booked. So, every tiny operational mishap adds more cargo to the pile of cargo you can’t move. And things are just getting worse.”

‘Everything we see now is temporary’

When congestion does eventually clear, which appears more likely to be a 2022 event, spot rates could pull back quickly from ultra-high levels if more effective capacity is injected amid unexceptional global demand growth.

“We need to bear in mind, given the extreme levels that we see on the short-term rates, that the correction towards a more normal level could be quite rapid,” said Clerc.

Jensen said, “I believe everything we see now is temporary. It’s all governed by COVID and eventually it’s going to go away. I don’t see COVID changing anything structurally. So, for me, what’s interesting is the underlying trajectory of the industry prior to the pandemic.”

That trajectory, he said, had been one of gradually improving fundamentals for carriers, better capacity management due to carrier consolidation, and stronger rates.

After congestion eases and capacity returns to the market, Jensen predicts that “freight rates will come down substantially from where they are today, but they’re not going back to anywhere near where they were pre-pandemic. They will definitely tumble compared to where they are now, but it will still represent a sizable increase compared to where they came from.”

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