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US market update: Navigating high demand and looming strikes

Aug 7, 2024 | , , , , , ,

Shippers in the US are currently navigating a particularly challenging landscape, marked by elevated air cargo demand and looming threats of labour strikes on the East and Gulf coasts.

Air Cargo
Air cargo on the main trade lanes out of Asia remains in peak season mode. The situation is driven by distressed cargo from the Red Sea and sustained eCommerce demand, keeping spot rates high. The recent global IT outage at Microsoft, which caused massive flight delays, cancellations, and cargo backlogs, did not significantly impact the air freight market. Cargo load factors returned to normal levels within ten days.

Air freight rates from Shanghai to North America are currently 25% higher than last year. Growth in air cargo demand is expected to continue into August and September, with potential for further increases if the peak season extends into the fourth quarter.

Sea freight and the threat of East and Gulf coast strikes
The International Longshoremen’s Association (ILA) is seeking an 80% wage increase over its next six-year contract with maritime employers on the East and Gulf coasts. The ILA has issued a 60-day strike notice to the United States Maritime Alliance (USMX), warning of strike action by its 45,000 members if a new deal is not reached before the current contract expires at the end of September.

The ILA’s wage demand is significantly higher than previous agreements and follows other union victories in contract negotiations. Shippers using container ports along the US East and Gulf coasts have limited options if the ILA begins strike action on 1st October. Importers are advised to front-load cargo to these ports as outbound capacity from Asia has been tight for several weeks. Space on vessels needs to be booked immediately to ensure arrival by 30th September.

Canadian routings for inbound cargo are increasingly uncertain due to the threat of a country-wide rail strike, while diversions through Mexico present significant logistical challenges, including limited vessel space. Short ILA stoppages can be managed with East Coast ports capable of clearing backlogs quickly. However, prolonged stoppages of a week or more could take a month to recover from, causing widespread disruption.

Diverting services to avoid the US East and Gulf coasts poses its own challenges. West Coast capacity and container equipment shortages are likely to worsen, with US imports expected to increase by 14% year-on-year in August and resilient consumer spending maintaining demand. The current rate differential between East and West coasts is the widest since October 2022 but is expected to narrow as East Coast spot rates decline ahead of the potential ILA strike.

Carriers are booked through mid-August to the East Coast, keeping rates high at least for the next few weeks. However, this will change rapidly if the ILA takes action. Spot rates to the West, East, or Gulf coasts are unlikely to fluctuate significantly in the event there is no ILA strike. Additionally, no significant drop in rates is expected during the traditionally slow months of November and December.

Canadian Railways and unions resume contract talks
Canadian National Railway and Canadian Pacific Kansas City have resumed separate contract talks with the Teamsters Canada Rail Conference, representing nearly 10,000 railroad workers. Negotiations began last November but have yet to produce a new contract to replace the agreement that expired at the end of last year.

The Canada Industrial Relations Board is investigating whether a work stoppage would impact Canadians’ health and safety, with an announcement expected by Friday. While railroad workers cannot legally strike until 72 hours after the board’s ruling, the union has indicated that a work stoppage is likely by the end of August. A strike by Canada’s railroad workers would disrupt the daily movement of more than 900,000 metric tons of goods on Canada’s railways.

The US market is experiencing significant challenges in both air and sea freight sectors. With elevated air cargo demand and potential labour strikes on the East and Gulf coasts, strategic planning is more crucial than ever for shippers.

We are here to keep you informed and act proactively to help you navigate these turbulent times, ensuring the smooth movement of goods through your supply chain.

If you have concerns about potential ILA strike action, we can assess your situation and, if necessary, develop contingency plans to safeguard your import traffic. By exploring alternative access ports and adopting a collaborative approach, we will provide optimal solutions to meet your supply chain needs.

To learn how we can support your trade with the United States or for more information about our ocean solutions, please EMAIL our Chief Commercial Officer, Andy Smith.

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Global IT outage disrupts supply chains

Jul 23, 2024 | , , , , , , , , , , , , , , , , ,

On Friday, a faulty update to Microsoft software by cyber-security firm Crowdstrike, saw global supply chain operations significantly disrupted, with the fallout expected to take weeks to fully resolve.

Thousands of flights were grounded or delayed at major air freight hubs in Europe, Asia, and North America, creating severe impacts on the complex air supply chains.

Experts warn that planes and cargo are not where they should be, leading to extended recovery times and depending on the scale of the IT failure and current market conditions, these disruptions could take much longer to resolve than the duration of the outage itself.

This situation is further exacerbated by limited airfreight capacity, with global demand increasing by 13% in June compared to 2023, with the surge in demand largely driven by traffic from China to Europe and the US, putting additional strain on already limited available capacity.

While sea port operations were less affected, initial disruptions were reported in several European container terminals, including Poland’s Baltic Hub, Felixstowe and Rotterdam. These ports have since recovered, but the main issues could lie inland with truck and rail services, potentially increasing congestion if containers cannot be moved in or out of the ports efficiently.

Some air cargo operations are gradually returning to normal, with ground handler Swissport and Lufthansa Cargo reporting only minor impacts. However, Schiphol Airport and US airlines such as Delta, United, and American Airlines faced significant disruptions, with hundreds of flights cancelled or delayed, including 700 cancellations by Delta on Monday.

While most airlines have resumed operations, residual delays are anticipated due to the sheer number of disrupted flights.

Supply chain experts are concerned about the long-term effects of the Crowdstrike outage on global deliveries. The Chartered Institute of Export & International Trade warned that the disruption could create further problems in planning and scheduling for importers, exporters, and consumers globally. Time-sensitive air freight is particularly affected, with one thousand flights cancelled worldwide, by mid-morning on Friday.

Although a fix has been deployed by Crowdstrike, the full resolution of the outage issue may take some time, as IT staff may need to access individual machines to remove the faulty update.

The fallout from the outage has once-again highlighted the vulnerability of global supply chains and as the industry works to recover, the importance of robust contingency plans and marine insurance cannot be overstated, ensuring protection against financial risks and maintaining supply chain resilience in the face of unforeseen challenges.

To learn how we can develop and support your supply chain resilience or for more information about our Marine Insurance products, please EMAIL our Chief Commercial Officer, Andy Smith.

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South Korea factory fire underline danger of lithium batteries

Jul 19, 2024 | , , , , , ,

In June, a catastrophic factory fire erupted after several lithium batteries exploded, killing 22 people in South Korea. As a leading producer of lithium batteries, South Korea’s Aricell factory housed an estimated 35,000 battery cells, used in products ranging from electric vehicles to laptops.

The fire started with a series of battery cell explosions and due to the highly flammable nature of battery materials like nickel, the blaze spread rapidly, leaving workers with little time to escape. Officials stated that victims likely succumbed to toxic gases within seconds.

Lithium fires react intensely with water, forcing firefighters to use dry sand to extinguish the blaze, which took six hours to control.

Handling lithium batteries safely
Metro specialises in the safe handling, storing, and transporting of lithium batteries by road, air, and sea, with qualified personnel providing documentation and logistics solutions for hazardous cargoes.

Transporting dangerous goods is regulated based on the UN classification system, structured by mode of transport: IATA’s Dangerous Goods Regulations (DGR) for air; the International Maritime Dangerous Goods (IMDG) Code for sea; and the International Carriage of Dangerous Goods by Road (ADR).

When clients ship dangerous goods, including lithium batteries, Metro’s dangerous goods (DG) team advises on classification, quantity limits, documentation, packaging, and labelling requirements, as well as the best transport modes. Team members have completed health and safety training for transporting dangerous goods, supported by dangerous goods safety advisers (DGSA).

Proper documentation is crucial when shipping dangerous goods. Non-compliance can be dangerous and costly, with significant penalties for incorrect paperwork. Metro assists with necessary labelling and documentation, including Dangerous Goods Notes/Declaration and Material Safety Data Sheets (MSDS), ensuring hazardous cargo is handled safely and transported appropriately.

Shipping dangerous goods is inherently hazardous, which is why automotive brands, chemical suppliers, and manufacturers rely on Metro’s expertise to ensure correct classification and documentation. Attention to detail is paramount, as even a minor mistake can have severe consequences.

Metro prioritises the safety of products, people, and the environment during storage and transit. An emergency response plan is in place for accidents at any point. Metro operates a specialised distribution centre at Felixstowe, equipped with state-of-the-art safety features, dedicated to the secure storage of lithium batteries, whether in transit or awaiting call-off.

For further information on hazardous, chemical, and automotive capabilities, please EMAIL Ian Tubbs.

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Air Cargo Demand Grows Strongly in Q2 2024 – and will continue for the rest of the year

Jul 10, 2024 | , , , , , , , ,

Robust growth in global air cargo markets for April 2024 marks a strong start to the second quarter, with airfreight rates on key trades out of Asia remaining “firm” in June, despite the market entering the traditional quieter summer period or ‘slack season’. Quite simply there isn’t one.

Total demand, measured in cargo tonne-kilometres (CTKs), rose in double-digits compared to April 2023. This marks the fifth consecutive month of double-digit annual growth. Capacity, measured in available cargo tonne-kilometres (ACTKs), grew by 7.1% compared to April 2023, with international capacity up by 10.2%.

Despite economic uncertainties, air cargo demand remains strong, with the Purchasing Managers Index (PMI) for global manufacturing output and new export orders turning positive in April, indicating growth. This is the first time in two years that new export orders have been risen, suggesting a robust outlook for air cargo for the rest of the year and likely beyond.

Key economic factors

  • April PMIs for global manufacturing output and new export orders were 51.5 and 50.5, respectively
  • Industrial production increased by 1.6% year-on-year in March
  • Inflation remained stable in major economies: US (3.4%), EU (2.6%), Japan (2.5%), and China (0.2%)

Regional Performance in April

  • Asia-Pacific – Demand grew by 14.0% year-on-year
  • North America – Demand increased by 7.0% year-on-year
  • Europe – Demand rose by 12.7% year-on-year
  • Middle East – Demand increased by 9.4% year-on-year
  • Latin America – Demand grew by 11.7% year-on-year
  • Africa – Demand rose by 10.6% year-on-year

That’s a lot of stats but we are demonstrating the consistent demand and growth in what should be a soft period. eCommerce is a huge contributor to the above absorbing any excess capacity on scheduled carriers and adding hundreds of dedicated charters a week into the market. This has an impact on general air cargo and through supply and demand dynamics pushes the prices up, or certainly does not allow them to fall.

Spot rate index round-up
The Baltic Exchange Airfreight Index (BAI) shows that rates from Hong Kong to both Europe and North America remained up on a year ago and also increased slightly compared with May levels.

From Hong Kong to North America, the average spot rate in June was up nearly 17% compared with a year earlier, while Hong Kong to Europe, rates in June increased over 22% year on year.

The market has remained surprisingly strong through what is normally a low season in the year, as extra belly-hold capacity comes on stream for the summer, reflecting continuing robust eCommerce activity.

Rates are also significantly higher year on year out of some other big markets in Asia, notably from India and Vietnam and particularly on lanes to Europe.

Generally we are seeing huge demand on most inbound lanes into Europe on air freight with congestion at global hubs still prevalent.

Unlike the ocean freight theory that the market is busy due to restocking (and of course the Red Sea/Suez Canal effective closure) this idea does not make sense for air freight and time critical cargo. It’s simply a case of higher demand and not enough capacity so the signs are for a remarkably busy traditional peak season from September through to Chinese New Year.

Let us get prepared for this and discuss your requirements for known air freight, or possible/expected delayed ‘distressed’ ocean freight, that will need to be sped up in the supply chain.

For urgent, valuable and sensitive shipments we have a range of airfreight, charter, sea/air and land-bridge solutions, with block space agreements (BSA) and capacity purchase agreements (CPA) that protect space and capacity on the busiest routes.

Regardless of your cargo type, size and requirements, we have extremely competitive rate and service combinations, to meet every deadline and budget. Please speak to us. With visibility and planning we will always deliver your product when required.

EMAIL Elliot Carlile, Operations Director, for insights, prices and advice. 

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