US flag and port

US importers face multiple challenges

May 16, 2024 | , , , ,

The rapid escalation of transpacific ocean freight spot rates is reminiscent of the spike experienced during the COVID-19 pandemic, while the air freight surge from Asia to the United States, that began late last year, looks likely to continue through the traditionally quiet summer months and into a potentially robust peak season.

Container shipping lines are being accused by the trade press in the US of slashing back or eliminating contracted volume allocations, in favour of carrying higher-yielding cargo at spot rates that have increased by more than 50% in Q2.

It is likely that contracted fixed-rate bookings will diminish even further as spot rates from Asia to the US continue to increase.

Carriers implemented a general rate increase (GRI) on the 15th May, which will double average spot rates (MoM) from Asia to the US West Coast, if successful. And with space on vessels leaving Asia in May extremely tight, and carriers rolling containers onto subsequent voyages, they are likely to be successful.

In anticipation of their success, carriers have already filed a further GRI for the 1st June, mimicking the rapid escalation of pricing that was triggered by the 2021–22 COVID-19 pandemic.

US imports from Asia have already surged over 19% YoY in 2024 and retailers are forecasting continued import growth into the traditional fall peak shipping season.

West Coast congestion
Imports from Asia into Los Angeles-Long Beach increased by almost 1/3 in Q1 2024 to 1.96 million TEUs, creating container backlogs at marine terminals, a sharp increase in eastbound intermodal train movements and a chronic shortage of returning railcars, which exacerbates delays.

Most backlogs have cleared and terminal operators insist they have successfully supported first quarter volumes, but their challenge is not over with imports forecast to increase 5.5% in May, 8.9% in June, 6.6% in July and 6.9% in August.

Baltimore Bridge Accident
The collapse of the Francis Scott Key Bridge in Baltimore created some disruption, but activity pretty swiftly shifted to nearby ports, so its impact has been limited. 

A criminal investigation by the FBI will determine if the crew left port knowing that the ship had serious system problems, while the ship’s owners eventually declared general average, which means that shippers with goods on board become financially jointly and severally liable for the incident, which could be very expensive without appropriate marine cover.

The Port of Baltimore expects to restore normal capacity by the end of May.

Threat of East Coast strikes growing
The International Longshoremen’s Association’s labour contract on the East Coast expires on the 31st September, with the 17th May the cut-off date set by the union for local contracts to be agreed, so an overall master contract can then be negotiated.

No deal has been agreed and the threat of strikes loom closer.

Air freight surge continues
Relentless eCommerce demand from China to the US, which has continued for over six months, shows no signs of letting up as we move into traditionally slower months.

The intense air cargo demand that began late last year is set to extend through the summer and into a robust peak season. Largely driven by modal shift, due to the Red Sea crisis and a huge increase in consumer volumes from eCommerce marketplaces like Shein and Temu, who send over 600,000 packages to the US every day.

Demand for air cargo space out of China to ship eCommerce is absorbing more than half the available outbound capacity, particularly in the southern regions and is so intense that rates on alternative sea/air routes to the US via Taiwan, Japan and Korea are exceeding those from mainland China.

In the UK shipments up to £135 are exempt from duties, although they are always subject to VAT regardless of value.

The US’ de minimis threshold is $800 and it is estimated that 2.5 million de minimis shipments currently arrive at US Customs and Border Protection (CBP) facilities every day.

In 2023, CBP processed more than 1 billion de minimis shipments; in January 2024, CBP had already processed half a billion.

There are calls to close the ‘de minimis loophole, but while it lasts, sustained demand is likely to keep transpacific air freight rates well above prior-year and pre-pandemic levels.

We negotiate long-term and protected contracts with airlines and shipping lines across the alliances to secure space and rates, so that we can provide the best alternatives and options, whatever the situation.

To learn how we can support transpacific and transatlantic trade, or to learn more about our ocean and air solutions, please EMAIL our Chief Commercial Officer, Andy Smith. 

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Red Sea diversions create Western Mediterranean port congestion

May 16, 2024 | , , , ,

The mass diversion of container ships away from the Red Sea since December has raised fears of congestion across west Mediterranean container ports, as carriers from Asia drop boxes destined for the eastern Mediterranean.

Instead of entering the Mediterranean Sea dead end, created by the effective closure of the Suez Canal, Ultra-large container ships from the Far East are offloading containers at western Mediterranean ports such as Barcelona, with smaller feeder vessels transporting them to final central and eastern Mediterranean destinations.

Transhipment traffic in Barcelona was up year on year by 22%, 64% and 63% in January, February and March, while Algeciras, Valencia and Las Palmas grew at 7%, 18% and 33% in Q1 2024.

And while the ports managed the first quarter’s throughput, they are operating at (or are close to) operational capacity, which means that any continuation or increase in volumes could lead to a dangerously high level of utilisation and potentially serious congestion.

Alternatives, to spread volumes out, include the Moroccan hub of Tanger Med, but its utilisation is already sitting at 83%, so even a relatively small increase in volumes could fill it up.

The southern Portuguese port of Sines has capacity to handle an additional 1.4m teu, while the ports of Malaga and Castellon may also be worthy of consideration, to avoid a potential supply chain bottleneck, with storage yard capacity drying up at ports in the western Mediterranean.

The seven-day average vessel waiting time at Barcelona increased two days due to increased cargo flow, lowered productivity, IT issues and bad weather. Shipping lines are asking customers to pick up both their import units and empty containers as early as possible, due to congested line-up and increased waiting times.

One of the two container terminals at Algeciras confirmed that their facility was “quite full” and warned that “capacity is very limited”, leading them to restrict the amount of cargo accepted, to avoid severe congestion.

There are two potentially significant negative outcomes due to the current Mediterranean situation:

First, transshipment networks require more ships for the feeder services and carriers may remove ships from other trades, particularly those in North Europe, which could create a capacity squeeze and push rates up.

Second, port congestion creates a de-facto reduction of available vessel capacity, which leads to an increase in blank sailings, because there is a schedule gap when vessels are unavailable, which squeezes capacity and pushes up rates.

If you have any questions or concerns about the issues outlined in this article, or would like to discuss any aspect of your Mediterranean supply chain, please EMAIL our Chief Commercial Officer, Andy Smith.

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India; sourcing opportunity

May 16, 2024 | , , , , , ,

For years India has been looked to as the next global manufacturing powerhouse and it now appears to be finally becoming the manufacturing power and sourcing alternative to China that it has long promised to be.

India’s Prime Minister Narendra Modi inherited an economy that was teetering on an economic precipice a decade ago.

Immediately after his victory in 2014, the prime minister launched an ambitious ‘Make In India’ campaign to turn India into the world’s factory.

Foxconn – which makes iPhones for Apple – are moving their supply chain to India and other major global giants like Tesla, Micron and Samsung have also been enthused to invest in manufacturing.

And while investment in manufacturing has not reached the highest expectations, India’s growth is outpacing other major economies, overtaking the UK as the fifth largest economy and it’s on track to leapfrog Japan and Germany and hit the third spot by 2027.

India has been heralded as the next global manufacturing powerhouse, only to be outshone in trade diversification initiatives by Vietnam, and more recently by Mexico, but over the last decade, US imports from India have doubled, to the 1 million TEU range, with East Coast ports reaping the largest gains.

Retailers and fashion brands have been shifting their focus to India for many years, in a bid to speed up supply chains, keep costs down and spread out sourcing to other countries.

Carrier commitment
Container shipping lines are expanding services and local presence, with ONE launching a service to the US East Coast and HMM securing slots on the new loop.

In December, MSC acquired a 49% stake in a container terminal, near Chennai, while CMA CGM and Hapag-Lloyd are also targeting Indian port opportunities.

Last year, Hapag-Lloyd invested in local ports and logistics and Maersk also has a significant footprint inland, with marine terminal operations at Nhava Sheva and Pipavav.

OOCL and APL have invested in rail services and container freight stations for nearly two decades.

The current supply chain
Despite the investment and presence of the shipping lines, Indian exporters are turning to air freight as ‘Red Sea’ vessel diversions around southern Africa have choked off capacity, by omitting Indian subcontinent port calls, making air cargo and sea/air the viable alternatives.

In a further complication fashion products are moving in trucks from Bangladesh into India, which is adding further demand for air freight.

Another significant contributing factor to elevated export air cargo rates is the shortage of capacity as big Chinese eCommerce marketplaces buy up as much space as they can find at premium rates.

With high rates on offer, capacity has moved from the Indian subcontinent to the Chinese market and as capacity dwindles rates out of India, Pakistan and Bangladesh go up even faster.

Overall, rates to Europe from South Asia are up 120% from the same time last year, with India to Europe spot rates up 174%.

There is also strong underlying economic growth in India, with HSBC reporting that the economy’s rate of expansion the strongest since July 2023, led by the strongest manufacturing output in nearly three and a half years, with export orders showing improved robustness.

India’s next decade could resemble China’s hyper growth, analysts from Morgan Stanley wrote and other trends like digitalisation, clean energy and growth in global offshoring will propel future growth, say experts.

For over 40 years Metro has helped customers open up new export markets and diversify sourcing across Asia and India.

Integrated on our MVT supply chain platform, our commercial and operations teams work closely with our partners across India and surrounding regions, processing air, ocean and sea/air shipments.

If you have any questions, rate requests or would like any further information on our capability in India, please EMAIL our Chief Commercial Officer, Andy Smith.

HKG truck

Ocean demand outweighs supply

May 1, 2024 | , , ,

The ongoing impact of vessel diversions as a result of the Red Sea conflict continues to absorb available capacity at a time when demand is rapidly increasing. Container volumes are already higher than many predicted and there is a possibility that we have already entered a peak season market environment.

Container shipping lines are deploying maximum numbers of their fleets and new vessel deliveries and sailing them faster to offset the longer transits around southern Africa, but there is a finite limit on how much space they can throw at the market.

The additional two weeks it takes for ships to sail around the Cape of Good Hope effectively reduces available vessel capacity, with an average of 11 weekly scheduled voyages from Asia to Northern Europe in the coming weeks. Compared to the typical average of 17 voyages through the Suez Canal.

With spot rates rising as capacity tightens, it is clear that unwary shippers’ cargo will not get shipped, as capacity hits an increase in demand, extending the booking window to a minimum of 21 days ahead of cargo ready date.

The situation is further complicated by blanked sailings, smaller capacity vessels being used to fill schedule gaps and carriers restructuring their networks to support new sailing schedules.

The overall impact means that in recent weeks there has been anything up to a 50%-80% capacity cut on certain lanes, with carriers implementing additional blank sailings around this week’s Bank Holidays in China.

The intelligence that we are receiving from our network and carrier partners is that May and June could be tough in terms of equipment and space across the whole of Asia for all the major container shipping lines and this is in what would usually be the quieter period ahead of the peak season.

European imports from the Far East are up 12% year on year and US imports up 24%, which means strong Westbound and transPacific peak seasons are assured. However, demand into other markets is even more pronounced, with Asia to Middle East/India and Asia to Oceania’s both up nearly a third.

The demand explosion means more equipment is going to these regions than forecast, with some lines imposing priority surcharges, rolling cargo and others restricting equipment for contracted clients.

China’s factory activity has been growing for six straight months, suggesting that the rebound in the world’s second-biggest economy can be sustained, with export orders surging and a significant peak period looking certain.

We urge you to provide us with forecasts ahead of time, ensure shippers book 21 days ahead of cargo ready date and to communicate with us if you have any urgent/high priority orders.

We negotiate long-term and protected contracts with shipping lines across the alliances to secure space and rates, so that we can provide the best alternatives and options, whatever the situation.

To learn how we can support your Far East, transPacific or transAtlantic trade, or to learn more about our ocean capability and solutions, please EMAIL our Chief Commercial Officer, Andy Smith. 

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