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.

Suez map

Container shipping lines to avoid Suez Canal

Dec 18, 2023 | , , , , , ,

Following further attacks on merchant shipping, entirely unconnected to the conflict between Israel and Hamas, container shipping lines have suspended sailings through the Gulf of Aden and Red Sea with immediate effect.

MSC announced on Friday, after the MSC Palatium III was attacked and suffered fire damage, that its vessels would not transit the Suez Canal eastbound and westbound "until the Red Sea passage is safe".

Maersk and CMA CGM have stated that all ships in the Red Sea area will pause their journey until further notice, with Hapag-Lloyd also pausing container ship traffic and due to make a decision on routing today.

The Suez Canal is a critical artery for global supply chains, and as seen when the Ever Given ran aground two years ago, blockages cause schedule disruption for container shipping and delivery delays.

ONE vessels are in holding patterns and HMM vessels were seen on Friday being diverted around Africa, while COSCO vessel, the COSCO Galaxy appeared to have stopped into a holding pattern in the Red Sea yesterday, despite the Chinese carrier not yet issuing any statements as to their position on the threat.

With over 30% of global containerised traffic moving through the Suez Canal, the decision to avoid it will have a profound impact on supply chains from Asia, with vessels sailing a further 4500 nautical miles around Cape of Good Hope, burning a lot more fuel and adding around 10 days to their transit.

If all services that would usually go via Suez now re-route via the Cape it would add 3-4 weeks to transit times on total round trip voyages, effectively remove approx 25% of capacity and would also mean that equipment shortages will become a major issue again.

Re-routing via the Panama Canal is not an option currently, particularly for larger vessels, due to the ongoing drought situation. 

However, this may change in time as solid amounts of rain over the past six weeks mean that the Panama Canal Authority (ACP) will increase daily transits to 24. 

This is an increase on the forecasted daily transits of 20 slots for January and 18 slots for February, but is still insufficient to be a solution for the Suez situation.

It’s too early to determine the impact this will have on international shipping, but it is worth noting that freight costs and insurance premiums are almost certain to rise, as shipping lines pass on the additional costs of the extended voyages.

We have very limited intel from the shipping lines currently, but as we learn how individual vessels and routes are affected we will advise customers accordingly. 

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

ship and graph

Shipping lines get creative with charges

Dec 6, 2023 | , ,

With sea freight rates so low, below cost on many important trade lanes the container shipping lines are looking to surcharges and all manner of ancillary charges to boost their cash flows.

Macro-economics continue to work against the shipping lines, with global demand suppressed and costs rising leaving them struggling to impose general rate increases, with a long-term surplus of shipping capacity adding to their problems. 

The deterioration of their operating results is encouraging carriers to introduce temporary surcharges as a mean of compensating, at least partially, for current low freight rates.

Shipping lines have long been accused of using surcharges to pass additional costs and restore their profit margins and while some surcharges were expected, like the EU-ETS emissions surcharge, which is due to come into operation on the 1st January, other surcharges, like those for war risks, have turned out to be much heavier than expected.

There is a strong likelihood that we will see surcharges become a much larger component in the costing of sea freight services in 2024, with combined surcharges accounting for 20% of the overall freight rate. 

On the spot market, in particular, surcharges are added to the basic freight rate and the lines will do all they can to ensure that these surcharges are applied

War Risk
Surcharges for war risks are applied when cargo transits close to conflict zones and are usually justified by the fact that the insurers themselves apply surcharges to the shipping companies. 

This is not always the case and there is potentially an opportunity for the shipping lines to make some additional profit.

However, today, there is no shortage of geopolitical hotspots. The war between Russia and Ukraine has made the Black Sea a particularly exposed area, with a Turkish ship colliding with a mine and Russia opening fire on commercial vessels. 

The conflict in Israel raises the risk of regional contagion and a direct threat to one of the world's key sea freight routes, with the Gulf of Aden and Suez Canal exposed.

Already we have seen an NYK car carrier hijacked, a CMA CGM container ship seemingly attacked by a small drone in the Indian Ocean and Maersk replacing two vessels in the region, presumably due to ownership concerns.

Zim is re-routing some vessels resulting in longer transit times, due to security concerns and has applied a war risk surcharge.

Fuel
There is currently a high risk of speculation on refined product prices and if there is a major escalation of the Israeli-Palestinian conflict, they are likely to become even higher. 

This means that there is a risk that a general Emergency BAF surcharge could be introduced to take account of these potential cost increases.

Aden
With the USA seeking a coalition to protect shipping, this surcharge could be extended to cover the extra cost of securing merchant shipping convoys crossing the Gulf of Aden. 

The increased risk involved in transiting the gulf could result in a significant increase in this surcharge, which was originally created to cover the cost of anti-piracy measures.

Suez Canal
The Suez Canal is increasing fees by 15% for Asia-Europe traffic from the 15th January 2024. 

Again, if the Israeli-Palestinian conflict escalates, the carriers could be asked to contribute to the cost of securing the Suez Canal militarily, which would be in addition to war risk surcharges.

Panama
Transit and draught restrictions were imposed by the Panama Canal Authority (ACP) in response to persistent low water levels from the drought that has hampered operations since May. 

Container shipping lines have reacted to the restrictions by adding canal transit surcharges ranging from $300 per teu to $500 and restrictions may stay in place for years.

Container shifting
Maersk has said that from the 1st January it will introduce a varying ‘container shifting’ charge at various ports in North Europe and the Mediterranean to cover re-stows on its ships.

Maersk explained: “This charge is for additional operational expenses due to extra container moves for reasons like re-stacking because of a change of destination or vessel, or moving of the container from load stack to gate.”

It said it did not cover extra moves related to customs inspections, or to facilitate the stuffing or stripping of the container, as these services were already covered by separate charges.

Surcharges like BAF and CAF have become a standard feature of freight rate calculations and the same often goes for the ISPS (shipping and port security) and MARPOL (ship pollution) surcharges.

While many of these new surcharges are justified we will, as always, pressure our carrier partners to fully justify the imposition or increase of charges.

EMAIL Andrew Smith, Chief Commercial Officer, if you would like to learn more, or have concerns about any of the issues raised here.

Category: Supply Chain

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