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.

Latest on USA Trade agreement post Brexit

The US market grows in size and opportunity

Dec 6, 2023 | , , , ,

The United States of America is the UK's largest single trading partner, with the value of goods and services nearly five times the value of trade with Germany, the UK's second largest export market and hopes are growing of a breakthrough in US/UK trade negotiations.

Total US goods imported to the United Kingdom in 2022 were £60 billion, up 24% on 2021 and up 39% from 2012, while exports totalled £51 billion in 2022, up 14% from 2021, and 16% from 2012. 

Despite FTA negotiations starting in May 2020, there have been none since October 2020 and officially no agreement is expected soon.

However, press reports have been emerging that President Joe Biden and Prime Minister Rishi Sunak are preparing a “foundational” trade agreement to be agreed before elections in both countries next year.

Despite British business and trade minister Kemi Badenoch insisting there was a "zero" chance of a free trade agreement (FTA) with the United States, negotiations are expected to start, with the initial set of chapters completed by spring of next year, according to a draft plan prepared by the United States Trade Representative’s (USTR) office in late August.

Tentatively dubbed the US-UK Trade Partnership Forum (TPF), the initiative will not remove tariffs, but it could reduce barriers to trade, simplify access to the US market and create opportunities for importers and exporters, which is why we will watch developments closely.

The United States is an important market for many of Metro’s largest and longest-standing customers and the main board has reaffirmed the US’ strategic importance, by committing to the further growth of Metro’s local network, capability and resource in 2024.

Andrew Smith, Metro Chief Commercial Officer, recently returned from a series of client, carrier and local partner meetings in Pennsylvania, Ohio, Massachusetts and Illinois.

Commenting on his most recent trip and Metro’s US commitment, Andrew said. “It was most gratifying to conduct a positive 1st Quarterly Business Review with a customer new to the US market, on the ground, with the local team.”

“This trip was concentrated in the NE quadrant of the country and focused on visiting network partner and carrier operations, to review processes and capabilities, as well as considering new sites, for trial shipments with a view to long term cooperation.”

“Overall I am happy with our capabilities in this part of the US, including many of the strategic East Coast ports, which have been exemplified by the client review, which recognised our ability to anticipate and overcome hurdles, quickly embedding efficient processes.”

To discuss US trade opportunities, or to learn about our in-country capabilities and support, please EMAIL Andrew Smith, Chief Commercial Officer.

Panama COSCO ship

Panama Canal situation may trigger wider supply chain issues

Nov 22, 2023 | , ,

Following the driest year and October on record, the Panama Canal Authority (ACP) has been steadily cutting daily vessel transit numbers and draught levels across the canal, with some restrictions possibly staying in force until 2028, with wider supply chain ramifications.

With each transit of the Panama Canal consuming a large amount of water, drought has forced the ACP to reduce draught limits on its larger locks by six foot as well as cutting daily transits from 40 to just 18 from February next year.

Container ships sailing from Asia to the U.S. East and Gulf Coast ports typically need more than the current limit of 44 feet of draught when fully loaded. 

Down from 50 feet at the beginning this year, the loss of six feet of draught is equivalent to 2,100 teus, which means that vessels sail with fewer containers, or unload containers and rail them across the isthmus for reloading to a vessel on the other side.

Maersk warned shippers to prepare for transit issues at the waterway, but said advanced planning was currently enough to mitigate potential delays, while CMA CGM looks set to become the first major carrier to apply a new Panama Canal surcharge, in response to the ongoing capacity reductions.

The French carrier’s latest customer advisory relayed the issues they faced, but gave no indication what level their surcharge would be set at. Expect other carriers to follow suit.

Limits on transits and draughts, will remain in place at least until after June 2024. However, the ACP says it sees no significant relief until 2028, and that’s if the government of Panama addresses years of underinvestment, stimulating some carriers to question the long-term viability of the waterway.

The Panama Canal’s operating restrictions that were first implemented in July, initially had a limited impact on container shipping operations as carriers had yet to get aggressive in blanking capacity to match weak demand. 

However, lighter loadings mean empty holds where 2,100 x 20’ containers should be and is pinching the bottom line of carriers, as inflation is pushing their operating costs up. 

Unlike the Panama Canal the Suez Canal has no locks or changing water levels which means it can handle the largest ships all year round - subject to effective piloting, as evidenced by the Ever Given grounding in March 2021.

With the Panama Canal’s ongoing restrictions and the growth in trade to the U.S. East Coast from Southeast Asia and the Indian Subcontinent accelerating, we are likely to see more services diverted or restructured to route through the Suez Canal.

If you have concerns or questions about any of the issues raised in this article, we can review your situation and explain your options, including alternative carriers, ports and routes.

Whatever your challenges, we leverage long-term ocean carrier relationships to deliver cost-effective, resilient and reliable ocean solutions.

EMAIL Andrew Smith, Chief Commercial Officer to learn more.

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