Century Weekly Market Update Feb 12 - Feb 18

Welcome to the Century Weekly Market Update! We’re excited to bring you the latest news and insights from the supply chain and logistics industry over the past week.

Our weekly market update features a dedicated section on emerging industry trends and a report specifically focused on the frequency and impact of port omissions during blank sailings. These updates provide valuable insights to help supply chain decision makers navigate potential disruptions, optimize their supply chains, and stay informed about the latest industry developments.

Last week, Trans-Pacific freight rates continued their recent pattern of incremental increases as the Red Sea crisis shows no sign of being resolved. The EU passed a new law to bolster domestic clean energy supply chains, Yellow Corp. repaid its controversial US$ 850 Million CARES Act loan, and carriers have begun to resume transits on the Panama Canal amidst relaxing transit restrictions. Additionally, soaring cocoa prices may cause shrinkflation in chocolate bars by the end of the year.

At Century, we're committed to helping our customers stay a step ahead in this rapidly changing industry. Our team of experts is dedicated to providing comprehensive and timely insights to help you make informed decisions and stay competitive.

Emerging Industry Trends

Prelude to Annual Contract Talks Muddled by Red Sea Crisis and Demand Uncertainty

• Mid-size shippers on trans-Pacific trade lanes are anticipating higher rates in their 2024-25 service contracts due to increasing carrier costs, however, negotiations are being delayed due to a fundamental disagreement on supply-demand dynamics and uncertainty caused by the volatile security situation on the Red Sea.
• The largest national retailers, who set the pricing benchmark, are reportedly engaged in negotiations with carriers, aiming to keep rates flat compared to last year.
• Carriers argue that rising costs, particularly due to issues regarding the Red Sea and Panama Canal, necessitate higher rates, whilst NVOs argue that carriers are focused on securing fixed-rate import volumes from major customers and then seeking more profitable rates from mid-size customers.
• Contract rates for mid-size shippers in existing 2023-24 contracts range from US$ 1,350 to US$ 1,500 per FEU to the West Coast and US$ 1,000 to US$ 1,200 per FEU higher to the East Coast.
• Many mid-size importers and NVOs are waiting until after the Trans-Pacific Maritime Conference (TPM) in March for greater clarity on the supply-demand situation before entering serious contract negotiations.
• Shippers are also concerned about space availability and equipment shortages and are seeking flexibility in routing alternatives to mitigate disruptions caused by canal uncertainties and potential labor issues at East and Gulf coast ports.

Port of Los Angeles Reports Increased Volumes Amidst Cargo Diversions from Red Sea and Panama Canal

• The Port of Los Angeles has reported that shippers are redirecting their supply chains to the US West Coast of the United States to circumvent both the security crisis on the Red Sea and the extensive drought conditions at the Panama Canal.
• Some shippers are now opting to transport their cargo to the US West Coast before using intermodal options to ship cargo over to the US East Coast and US Gulf Coast.
• Whilst there has not been a significant surge in freight, the Port of Los Angeles is experiencing increased volumes due to the uncertainties surrounding the viability of the world’s two most important shipping canals as well as seasonal factors such as the Lunar New Year.
• Cargo volumes at the Port of Los Angeles rose by 18% Y/Y in January 2024, reaching 855,652 total TEUs, whilst loaded import volumes were up by 19% Y/Y as retailers sought to replenish inventories and move goods ahead of factory closures during the Lunar New Year.
• The ongoing disruptions in the Red Sea and the Panama Canal are likely to have an impact on volumes at the Port of Los Angeles, however, the port has stated it is currently operating at 75-80% capacity and is capable of handling additional cargo if shippers decide to reroute in its direction.

2024 Warehouse Rents Poised to Continue Climbing Following Record 2023 Increase

• According to data from retail estate giant, Colliers, asking rents for warehouse and distribution space in the US reached a record high of US$ 9.72 per sq ft in 2023, representing a 20.6% increase compared to the previous year.
• While vacancy rates remain historically low, further rent increases are projected, albeit at a more rational pace than the unprecedented surge seen since 2021.
• The New York City metro area, the San Francisco Bay area, and Chicago all experienced increases in industrial real estate lease rates in 2023, whilst rates in greater Los Angeles, Philadelphia, and Detroit saw a decline in rates.
• Although a new supply of industrial real estate entered the market in 2023, and helped alleviate the warehouse space crunch, the construction pipeline has slowed down due to higher costs and cooling demand, thus allowing markets to absorb the delivered space from the end of 2023 and the beginning of 2024.
• Despite the anticipation of rent rates continuing to climb as the supply pipeline diminishes, a modestly positive rent growth aligned with inflation is projected over the next 12 months.

Weekly Blank Sailings Report

Century’s Blank Sailings Report for the week of February 12th – February 18th. Discover the latest insights on the current trend of blank sailings through the most up-to-date carrier data direct from Century.

• Last week saw a total of 701 port omissions, a 16.3% increase compared to the week prior.
• Shanghai recorded the highest amount of port omissions last week with 76, followed by Ningbo with 58 and Qingdao with 43.
• Other ports with notably high omissions last week were Busan with 40, Singapore with 34, and Hong Kong with 31.
• Shanghai recorded the biggest W/W increase in port omissions, spiking up by 85.4%
• Looking towards the coming weeks, Century’s data shows a 8.1% increase in currently scheduled blank sailings for week 8 as factory production levels in China begin to return following its Golden Week.
• Next week’s preliminary data shows notable increases in port omissions to be expected at ports in Shanghai, Ningbo, Yantian, Xiamen, Singapore, Busan, and Vung Tau.

Port omissions data for the most frequently omitted ports during week 7 can be found in the table below:

Our?full Blank Sailings Report for the week of February 12th – February 18th below provides a full list of every current scheduled port omission from Week 7 to Week 17 as of February 19th, 2024. The second tab breaks down this data into an easy-to-read table which shows port omissions by?each location per week so you can see which locations are being omitted the most and which locations are experiencing the sharpest increase in port omissions.

Click here to DOWNLOAD the full Week 7 Blank Sailings Report

Week in review

Trans-Pacific Freight Rates Continue Recent Pattern of More Incremental Increases ??

• Transpacific freight rates on the US East Coast and US West Coast continued their pattern of incremental increases last week as the Global Container Freight Index rose by 1% W/W as the Red Sea crisis shows little sign of being resolved.
• Rates from China/East Asia to the US East Coast increased by 3% W/W to US$ 6,764.
• Rates from China/East Asia to the US West Coast rose by 1% W/W to US$ 4,889.
• Freight rates from China/East Asia to North Europe have continued their decline, falling 2% W/W to US$ 4,587, whilst rates to Southern Europe saw a slight increase, rising 1% W/W to US$ 5,802.

TEU*Miles Have Increased by 16% Amidst Red Sea Crisis Diversions

• The Red Sea crisis and subsequent diversion of shipping routes around the Cape of Good Hope in southern Africa have resulted in a 16% increase in TEU*Miles in 2024 compared to a normal situation.
• In 2023, global TEU*Miles amounted to 860 billion, however, moving the same amount of cargo globally in 2024 while accounting for the diversions around Africa would increase the demand to 994 billion TEU*Miles.
• The impact varies across trade routes, with the Europe-Indian Subcontinent trade being the most affected whilst trade between East Asia and North America is the least impacted due to unaffected routes between these origins and the US West Coast.
• The 16% increase in TEU*Miles also translates to a 16% increase in capacity needs, which is currently being addressed by carriers through the utilization of their pre-existing overcapacity stemming from an extremely subdued peak season.
• Carriers can increase vessel speeds to deliver more TEU*Miles per year using the same vessel capacity, however, if the anticipated increase in capacity is introduced in 2024, vessels may be slowed down to compensate.

FMC Asked to Evaluate Carrier Red Sea Surcharges During Informal Hearing?

• Stakeholders in the ocean shipping industry have urged the Federal Maritime Commission (FMC) to intervene and prevent further disruptions caused by the Red Sea crisis.
• During an informal hearing, stakeholders expressed concerns about the transparency and validity of surcharges imposed by carriers, calling for the FMC to investigate their correlation with actual costs as some have exceeded US$3,000 per container.
• Since the beginning of the crisis in mid-December 2023, rates for shipping from Asia to the US West Coast have risen to US$ 4,889 per FEU whilst rates to the US East Coast have reached US$ 6,746 per FEU, 195% and 169% higher than at the end of Q4 2023, respectively.
• Shippers are also worried about potential congestion in the coming weeks and emphasized the need to address equipment availability for timely container movement.
• The FMC has acknowledged these concerns and emphasized the importance of ensuring compliance with shipping laws and maintaining a competitive marketplace, stating its intention to ensure any Red Sea-related fees charged to shippers are reasonable, not deceptive, not unfair, and not unjust or discriminatory in their methods to apply tariffs or serve as contracts.

Carriers Have Begun Resuming Panama Canal Transits as Disruptions Ease

• Carriers have begun resuming transits through the Panama Canal for some services in light of the general easing of disruptions on the waterway which have persisted for almost a year due to critically low water levels.
• The EC2 service by Hapag-Lloyd and ONE's east and westbound sailings on the EC2 service have seen full restoration of Panama Canal transits, whilst the EC6 service by THE Alliance has also switched back to using the canal, instead of the Cape of Good Hope, depending on vessel bookings.
• The situation on the Europe-Latin America trade is relatively stable, with most canal transits pre-booked, whilst forwarders in Brazil have reported smoother cargo shipments between South America and North America's East Coast in recent months.
• Whilst disruptions have eased, there are still vessels waiting to transit, and so some carriers will continue to leverage alternatives such as the Panama Canal railway or truck moves between terminals.
• The Manzanillo International Terminal on Mexico’s west coast has offset the drop in calls by THE Alliance carriers through increased inter-terminal moves.

Panama Canal Restrictions Unlikely to be Updated Until April 2024

• The Panama Canal Authority (PCA) has announced that it will maintain its transit restrictions on the Central American waterway until at least April due to the persistence of low water levels at Lake Gatun in the center of the canal.
• Increased demand for Panama Canal transits, driven largely by the current security crisis on the Red Sea, has led to shippers seeking alternative routes through Panama but without success.
• Currently, 24 vessels are allowed to transit daily, up from 22 in December, however, this is still far below the canal's regular capacity of between 36 to 38 vessels per day.
• Water levels at Lake Gatun are currently 4.1 ft (1.28 m) below the average of the previous five years, however, rains are anticipated to arrive in May and thus daily transits will gradually increase accordingly to around 36 vessels.
• If rainfall falls short of the levels anticipated, further restrictions on daily passage or vessel draft may be imposed.
• The vessel queue outside the Panama Canal has decreased since December of 2023, with 49 vessels in line as of mid-February 2024 compared to 63 last December.

Over 100 International Trade Groups Have Called for Maritime Security in the Red Sea

• Over one hundred industry trade associations, including the American Apparel & Footwear Association, International Apparel Federation, and National Retail Federation have formed a global coalition to protect commerce in the Red Sea.
• The coalition, which represents the agriculture, apparel, energy, medicine and retail sectors, have released an open letter urging governments to cooperate in safeguarding the Red Sea and address the costly and time-consuming rerouting of shipments around southern Africa.
• Emphasis has been put on the ongoing global consequences of the disruptions in the Red Sea which are affecting shipping lanes and exacerbating port congestion, equipment shortages, and freight rates.
• The coalition also called for a zero-tolerance approach to deter potential security threats to commercial vessels and protect seafarers worldwide.

Yellow Corp. Repays Controversial Pandemic-Era US$ 850 Million CARES Act Loan

• Yellow Corp. has repaid its controversial US$ 700 million government loan received through the CARES (Coronavirus Aid, Relief, and Economic Security) Act along with reimbursing US$ 151 million in interest just six months after filing for chapter 11 bankruptcy.
• The US Treasury has received a 29.6% equity stake in Yellow, currently valued at around US$ 72 million.
• Yellow applied for the loan in April 2020 to mitigate the economic impact of the COVID-19 pandemic, however, a Congressional Oversight Commission report stated that the loan was outside the intended scope of the program and an imprudent use of funding.
• It has been deemed that Yellow's financial position at the time of the loan posed a significant risk of loss for taxpayers.
• Yellow’s prolonged feud with the International Brotherhood of Teamsters union, which led to the loss of major clients due to anxieties over strike action, and ultimately a decline in revenue, is being touted as the key factor behind Yellow’s failure to successfully leverage its CARES Act loan.

EU Passes New Law Set to Boost Domestic Clean Energy Supply Chains ?

• The European Commission has reached an agreement on the Net-Zero Industry Act (NZIA), which aims to bolster domestic clean energy technology manufacturing with a view to supporting the EU's climate goals.
• The NZIA is part of the Green Deal Industrial Plan and sets a target for the EU's manufacturing capacity to self-supply at least 40% of its domestic demand for net-zero technologies by 2030.
• It aims to attract an increase in clean energy investments through simplifying the permit process for projects related to solar panels, wind farms, fuel cells, electrolysers, batteries, and sustainable alternative fuels.
• The legislation establishes Net-Zero Acceleration Valleys, which member states can use to cluster clean energy projects and streamline the permitting process through arranging environmental assessments which as simultaneously applicable for multiple projects.
• Approval from the European Parliament and European Council is still required for the NZIA to pass into EU law.

Zim Launches US Gulf-South America Standalone Express Service

• Zim has launched its Gulf Toucan (ZGT), an independent express service operating between the US Gulf Coast and South American East Coast, to capitalize on the growing volumes of industrial and intermediate goods in north-south trade lanes.
• The service will call at ports in Argentina, Brazil, Colombia, Jamaica, Mexico, and Uruguay with stops in Houston, TX, and Mobile, AL.
• Zim aims to provide efficient transit times from Houston to the East Coast of South America and extend its services to Central American, Caribbean, and West Coast South American customers through existing connections within its network.
• The ZGT service, operated by eight 2,800-TEU ships, marks Zim's first self-operated north-south service in the Gulf region and reflects the growing north-south trade through Houston has increased between the US port and Latin America by 33% over the past five years.
• Port rotation is as follows: Buenos Aires – Montevideo – Navegantes / Itapoa – Paranagua – Santos – Rio De Janeiro – Cartagena – Kingston – Veracruz – Altamira – Houston – Mobile – Kingston – Cartagena – Santos – Buenos Aires.

Cocoa Supply Chain Challenges May Lead to Reduced Chocolate Bar Sizes

• Soaring cocoa prices are heavily impacting major chocolate producers as the cost of the raw commodity reached a 46-year high in February 2024, up 65% from a year ago, with consumers likely to feel the effects towards the end of 2024.
• The price hike is expected to persist until the new cocoa growing season in West Africa, the world’s largest cocoa producing region, begins later this year.
• Consumers may not see immediate price increases as chocolates for the upcoming Easter season have likely already been manufactured, however, products that have not yet been produced are likely to suffer from prices rises towards the end of 2024.
• To mitigate these rising costs, we may see producers exploring alternative strategies such as adjusting product formulations, sizes, or ingredients in order to avoid heavily inflated cocoa products being pushed to consumers.
• Hershey recently announced plans to cut jobs due to the cocoa inflation, and other chocolate companies' contracts with growers could be at risk due to uncertainty surrounding the upcoming growing season.

Sources

Freightos

Investors Zim

JOC

JOC

Sea Intelligence

Sourcing Journal

Sourcing Journal

Sourcing Journal

Supply Chain Dive

Supply Chain Dive

Supply Chain Dive

Supply Chain Dive

Supply Chain Dive