Suez MSC vessel

Suez and Panama Canal crisis could go either way

Dec 19, 2023 | , , , ,

The danger to container shipping approaching the Suez Canal comes at a time when the other key maritime gateway, the Panama Canal has been restricting transit numbers and draught limits due to drought driven low water levels.

Due to the impact of the prolonged Panama Canal drought carriers have had to carry less containers from Asia, to pass through the shallow Panama Canal and accept ‘vessel bunching’ as the reduction in transit crossings creates a queue of ships at either end of the channel.

The issue has been exacerbated by attacks on container ships in the Red Sea, linked to the conflict in the region, with shipping lines suspending sailings through the Red Sea and via the Suez Canal, diverting vessels around the southern tip of Africa, until the security situation improves. 

Shipping via the Cape of Good Hope will add around 3.5k nautical miles, adding approximately two weeks to transit times, with increased fuel consumption potentially leading to significant increases to freight and bunker levels. 

It is likely that carriers will implement emergency surcharges to cover fuel and insurance costs in addition to the loss of revenue from the extended round trip voyage duration.

The extended transit time will soak up available capacity which, when combined with the current blanking programme, could lead to a reduction of up to 20% of global capacity, also leading to growing equipment imbalances.

There are two positives, however…

After better-than-expected November rains, the Panama Canal Authority have announced that they will be increasing the number of ships it accepts each day starting in January, with 24 vessels permitted to pass through, up from 22 currently.

The launch of Operation Prosperity Guardian by the US Navy is forming a coalition that includes the UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain, to jointly address the security challenges in the Red Sea and Gulf of Aden.

Suppressing the current threat to maritime trade and creating a system to ensure safe passage of container ships will take time and the shipping lines will need to be certain that all risks have been removed before they will return to the Suez Canal.

If it’s just a month or two, then the Cape of Good Hope diversions may have only a short-term impact on rates, capacity, and equipment availability. But if the security situation cannot be resolved, or worsens, the impact may be profound and long term. 

The longer it takes to resume the normal Suez Canal routing, the greater the likelihood of a knock-on effect into the airfreight market, as vessel delays push shippers to move urgent cargo via air, therefore increasing demand and pushing up rates.

These are both evolving situations, which are liable to change at any time, which is why we share important updates.

We are proactively advising customers with updates on individual vessels and routes, while our AI-powered ocean visibility tools predict ETAs based on the current situation, vessel location and liner information. 

Please be assured that we will continue to communicate proactively during this developing situation and will provide customers with updated ETA’s accordingly.

wing merro dusk

Supply chain; a year in review

Dec 19, 2023 | , , , , , , , , , , , , , , , , , , , ,

2023 was supposed to be the year that global supply chains bounced back from pandemic lockdowns and factory shutdowns, trade wars, tariffs and war in Europe, but now container shipping is disrupted by attacks in the Red Sea and restrictions on the Panama Canal.

The COVID pandemic and its aftermath, with supply-side fluctuations, shipping delays and port congestion created a logistics storm so brutal that many wondered if supply chains would ever recover.

The dramatic increase in consumer spending during the pandemic that left shippers scrambling for air, road and sea space, quickly fell away at the beginning of the year as consumers faced potential recession and a cost of living crisis.

That fall in demand provided the breathing space for carriers and ports to resolve their capacity and performance issues, clear backlogs and reposition equipment effectively, with markets reverting to pre-pandemic levels in terms of capacity and pricing.

The uncertainties surrounding tariffs, trade wars and geopolitical tensions remain, but there has been no significant move away from China, though we are seeing some diversification of sourcing, with Vietnam and Bangladesh - among other origins - increasingly popular.

While container shipping demand fell away the global shortage of RoRo capacity for finished vehicle shipments led to some car manufacturers to acquire their own vessel assets, while others looked to our containerised shipping solutions, for cheaper sea freight movement and certainty of service.

On the air freight front, having joined the Air France, KLM, Martinair Cargo Sustainable Aviation Fuel (SAF) programme in 2022, we were extremely pleased to support their second sustainable flight challenge in the summer, which was followed a few months later by the first transatlantic SAF-powered crossing, accelerating the transition to a more sustainable airline industry.

Metro’s road freight division has grown significantly in 2023, with more team members joining our UK Birmingham HQ and new support operations located close by manufacturing hubs in Desford and Wythenshawe.

Under new leadership the road freight team have increased European FTL/LTL capability, adding more lanes and expanded our groupage offering, alongside the increasingly popular European Distribution (EU/DDP) solutions. 

As the UK deferred post-Brexit food checks for the 5th time, to avoid adding to food inflation, the EU expanded its Emissions Trading System to the container shipping sector, in a move that will cost carriers, and by extension shippers, $Billions from the start of 2024.

In a move that took the market by surprise (but shouldn’t have) the European Commission announced that it would not renew the container shipping sector’s Consortia Block Exemption to operating alliances in 2024.

Despite the initial panic, it is likely that the EC’s decision will have little real impact, particularly as the Maersk and MSC 2M alliance was already ending, with the others likely to reorganise into new structures.

With 2024 just weeks away, scheduled Trans-Pacific and Asia to North Europe container shipping capacity was up 30% and 10%, raising fears of a massive blank sailing program to try and support rates, but now, with the Suez Canal transit suspended and Panama Canal disruption, we may see increased rates and delays, with air freight’s popularity rising.

We are hopeful that the US and coalition navies can restore maritime security quickly, because the prolonged re-routing of vessels away from the Suez Canal, via the Cape of Good Hope will increase transit times and costs, with a massive reduction in available capacity and a return to equipment imbalances.

Whatever challenges 2024 may bring, you can rest assured that we will keep you informed and protected, because we always have your back covered.

Golden Week

Carriers blank Golden Week sailings

Sep 27, 2023 | , ,

The cancellation of multiple October sailings from Asia to Europe is an attempt by the carriers to push capacity down and raise rates, but if they fail, they may not have another opportunity to significantly raise prices before Chinese New Year, next February. 

Container shipping lines across the three alliances have announced additional blank sailings ex Asia to North Europe and the Mediterranean, around the Chinese Golden Week holiday in the first week of October, and through to the end of the month.

According to data from Sea-Intelligence, the capacity operated on the Asia-Europe trade in September is 10% higher than last year and on the Asia-Med service it is 27% more and while the carriers are planning significant capacity cuts after Golden Week, we are wary of unannounced blank sailings in the coming weeks.

Overall 14% of scheduled sailings have been cancelled from mid-September to mid-October and this we expect are announcements to counter balance the lower demand during China’s Golden Week holiday.

The current blanking represents Ocean Alliance (5%) and THE Alliance (7%) with MSC blanking SWAN service weeks 38-43 removing 45k TEU of capacity.

MSC has radically cut capacity on the Mediterranean lane between weeks 40 and 43, but it is not clear whether HMM will blank any sailings of its Asia, India to Mediterranean standalone loop that launched in August.

The aggressive blanking announced by all three alliances means it may be challenging to find space for exports from China to Europe next month, which is why we recommend that you share shipping forecasts as early as possible, so we can reserve the space you need.

There will also be the knock-on effect of limited export sailings from North Europe during November and December, which underlines again the importance of shipping forecasts.

Carriers will, of course, be looking to raise rates on backhaul trades, as prices for oil have surged to $90 a barrel, with December Brent Crude now priced at around $95, driven by OPEC’s supply cuts, which have been extended to the end of the year.

The price of Rotterdam-sourced industry-standard low-sulphur fuel (VLSFO) jumped on Friday by another $8 per ton to $643 and has now increased by 22% since the end of June.

We are watching closely…

Whatever the market challenges are, our sea freight team keep our customers’ cargo moving, finding capacity and alternative services in the event of unforeseen blankings. 

Providing us with regular forecasting, helps us to understand critical dates and intended volumes, so that we can secure the right amount of capacity to keep your supply chains running. 

If you have any questions or concerns about your Asia supply chain or the developments outlined here, please EMAIL our Chief Commercial Officer, Andy Smith.

us china tradewar

Cutting production ties with China is impossible

May 10, 2023 | ,

In response to COVID developments and rising geopolitical tensions, companies may be re-shoring, or near-shoring production out of China, but the country’s dominance in world trade makes cutting it out of global supply chains impossible, say leaders of two of the world’s most important companies.

Europe is trying to reduce its dependency on China as the COVID-19 pandemic, coupled with the ongoing war in Ukraine, has highlighted reliance on dominant suppliers and the fragility of supply chains, but Mercedes-Benz CEO Ola Källenius, said that decoupling from China is unthinkable.

The major players in the global economy, Europe, the U.S. and China, are so closely intertwined that decoupling from China makes no sense to Mercedes-Benz.

Two of the company's top shareholders are Chinese, and China made up 18% of revenues and 37% of car sales for Mercedes-Benz in 2022, with more business expected to come out of China in 2023. 

Michael Fitzgerald, deputy finance chief of Orient Overseas Container Line, acknowledged the trend to move production away from China, but pointed out that the absolute scale of production in China is huge. So huge, that even if Vietnam and India are growing their production by a bigger percentage than China, the relative scale means that there is still a huge proportion of the global supply chain reliant on China.

While Fitzgerald acknowledged that companies including Apple, Samsung, Sony and Adidas have shifted some production out of China he contends this represents an incremental shift and that they are simply not going to pack up and go. “It’s just not possible,” he said. “How would you want to shift that much production?”

The shape of US trade is definitely evolving, with container import volumes from China dropping 10% in just a year, while the share of imports from India and Thailand rose 5% and 4%, over the same period.

We continue to monitor the diversifying growth in production around south-east Asian countries including Vietnam and the growth in emerging markets, including Africa and Latin America, to support our customers’ diversification and sourcing strategies, but China is still a huge market serving all sorts of different products.

We have fixed price and long-term capacity agreements in place with sea and air carrier partners, to support trade with China, India and South East Asia, with resilient, consistent and reliable supply chain solutions.

Our cloud-based supply chain management platform, MVT, simplifies global sourcing, by making every milestone and participant in the supply chain transparent and controllable, down to individual SKU level.

EMAIL Elliot Carlile to review our current freight profile movements to and from China and Asia.

Category: China

China | Coronavirus | Sea | Supply Chain | United States

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