Century Weekly Market Update Feb 19 - Feb 25

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 dipped slightly despite the continuation of the Red Sea crisis. The World Shipping Council proposed a Green Balance Mechanism to bridge the fuel cost gap, the FMC implemented a new rule on detention and demurrage billing practices, and Norfolk Southern Railway cut intermodal service from Charleston and Savannah. Additionally, carriers and shippers have begun using feeder networks to navigate Red Sea port disruptions.

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

Carriers Are Complying with Environmental Regulations but in the Most Cost-Effective Ways Possible

• The implementation of International Maritime Organization’s 2020 regulations in the shipping industry aimed to reduce sulfur emissions by mandating the use of low-sulfur fuel oils (less than 0.5% Sulphur content) such as Very Low Sulphur Fuel Oil (VLSFO).
• The IMO also allowed for an approved equivalent to VLSFO for means of compliance such as cleaning systems for exhaust gas, like scrubbers, which allows carriers to operate fuels oils containing a higher Sulphur content (IFO380), which is also most cost-effective.
• The current trend amongst carriers is an increase in scrubber installations which has led to an increasing share of vessels capable of achieving the cost savings potential of purchasing cheaper regular fuel as opposed to the costlier low-Sulphur VLSFO.
• The current VLSFO price premium sits at US$ 166 per ton. Rough calculations of the per day global fuel consumption across the entire shipping sector estimate that carriers have so far accumulatively saved US$ 13 billion using scrubbers since the IMO 2020’s implementation.
• This indicates that the global shipping industry is motivated by regulatory initiatives which have financial implications, however, it also suggests that the monetary motivation will not always lead to the desired outcome of respective regulations proponents who are aiming for a full conversion to green fuels.
• Carriers are snubbing the switch to low Sulphur fuel in favor of the more cost-effective combination of regular fuel with scrubbers, a solution which is fully within compliance of the IMO’s regulations.

Asian Shipowners Projected to Face €500 million in ETS Charges in 2024

• Asia-based ocean carriers are currently projected to face a bill of US$ 540 million (€500 million Euros) in 2024 for complying with the European Union Emissions Trading System (ETS), a figure expected to rise to US$ 1.08 billion (€1 billion Euros) annually once the mechanism is fully implemented.
• The cost of compliance, assessed per TEU, will likely be passed on to cargo owners through surcharges.
• Non-European Union (EU) companies involved in trading vessels to and from the EU are urged to understand the regulation and implement systems to manage and mitigate their EU Allowance (EUA) liabilities.
• Carriers must surrender carbon credits (EUAs) for voyages liable for 50% of emissions to and from the EU, while port calls and transits within the EU are liable for 100% of emissions.
• Once the ETS is fully phased in, the shipping industry will need to surrender approximately 80 million EUAs, with 40% coming from non-EU companies.
• It is anticipated that Chinese, Singaporean, Japanese, South Korean, and Indian entities will account for significant EUA requirements, with the ETS set to affect about 4,000 Asian-flagged vessels, or one-third of the total 12,500 cargo and passenger ships subject to the EU carbon tax.

Outlook for Trucking Mergers and Acquisitions Activity Lifted by Improving US Economy

• Lower US interest rates and improving market conditions are expected to fuel trucking acquisitions in the US and Canada in 2024 with potential buyers set to have more purchasing power to expand territories, services, and customer base.
• Despite a weak freight market, trucking acquisitions have occurred during downturns in the past; global corporate merger and acquisition (M&A) activity is already increasing, with notable deals in energy, technology, and infrastructure sectors that could extend to transportation.
• However, the truckload and brokerage market may require attractive offers to attract interest from sellers, with 2023 likely a low point for M&A and 2024 expected to be a transition year with improvements.
• The main driver of trucking acquisitions has been service and territory expansion, such as Hub Group's acquisition of Forward Air Final Mile and TFI International's purchase of Daseke, the largest trucking deal in 2023.
• LTL carriers are in demand, but buyers are likely to face premium prices as such trucking acquisitions will be driven by lower interest rates and the desire to expand services and territories. ?

Weekly Blank Sailings Report ?

Century’s Blank Sailings Report for the week of February 19th – February 25th. 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 693 port omissions, a 1.1% decrease compared to the week prior.
• Shanghai and Ningbo jointly recorded the highest amount of port omissions last week each with 88, followed by Busan with 42 and Singapore with 34.
• Other ports with notably high omissions last week were Yantian with 30, Hong Kong with 29, and Kaohsiung with 28.
• Port Klang recorded the biggest W/W increase in port omissions, spiking up by 88.9%
• Looking towards the coming weeks, Century’s data shows a 10.1% decrease in currently scheduled blank sailings for week 9 as factory production levels in China gain traction again following its Golden Week.
• Next week’s preliminary data shows notable increases in port omissions to be expected at ports in Shanghai, Ningbo, Yantian, Kaohsiung, Ho Chi Minh, and Genova.

Port omissions data for the most frequently omitted ports during week 8 can be found in the table below:

Our?full Blank Sailings Report for the week of February 19th – February 25th below provides a full list of every current scheduled port omission from Week 8 to Week 18 as of February 26th, 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 8 Blank Sailings Report

Week in review

Trans-Pacific Freight Rates Show First Signs of Decline??

• Transpacific freight rates on the US East Coast and US West Coast both recorded a slight decline last week, ending a two-month period of near constant increases as the Global Container Freight Index also declined slightly by 3% W/W despite the Red Sea crisis continuing.
• Rates from China/East Asia to the US East Coast declined by 1% W/W to US$ 6,709.
• Rates from China/East Asia to the US West Coast dipped by 2% W/W to US$ 4,809.
• Freight rates from China/East Asia to North Europe have continued their decline, falling 1% W/W to US$ 4,553, whilst rates to Southern Europe saw a larger decrease of 10% W/W, now at US$ 5,224.

World Shipping Council Proposes Green Balance Mechanism to Bridge Fuel Cost Gap

• The World Shipping Council introduced the Green Balance Mechanism to address the cost gap between fossil fuels and green alternatives in the shipping industry.
• The mechanism aims to allocate fees from fossil fuel users to carriers utilizing green fuels, leveling the average cost of fuels based on their Green House Gas (GHG) emission reductions.
• The proposal, submitted to the International Maritime Organization (IMO), will be discussed alongside other pricing mechanisms at the Marine Environmental Protection Committee 81 meeting in March 2024.
• Shipping accounts for 3% of global GHG emissions, with ambitious reduction targets set by the IMO for 2030, 2040, and 2050, posing challenges due to limited availability of low- and zero-carbon fuels.
• To achieve decarbonization, substantial investments in vessels and fuel infrastructure are necessary, estimated to range between US$ 8 billion to US$ 90 billion annually up to 2050.
• While acknowledging that green fuels may increase shipping costs, industry leaders emphasize the importance of ensuring that the transition remains economically viable through regulatory mechanisms like the Green Balance Mechanism.

US Imports from Asia Show Strong Rebound in January Amid Continuing Supply Chain Dynamics

• US imports from Asia rose by 16% in January compared to the previous year, marking the fourth consecutive month of Y/Y increases.
• The 1.54 million TEUs of Asian imports in January was the second-highest total since August 2022, surpassed only by the peak in October 2023.
• The surge in imports comes after a drop of just over 13% in 2023 compared to 2022, as retailers depleted inventories, which had filled up their warehouses to near capacity during the previous two years, following record holiday sales.
• Many factories in Asia closed for the Lunar New Year holidays, which may lead to a drop in imports in late February and March, though volumes are expected to be higher than in the same period last year.
• The outlook for the second half of 2024 remains uncertain due to factors such as the security situation in the Red Sea and drought restrictions along the Panama Canal.

Oakland Port Tackles Vessel Backlog with Rare 'Hoot Owl' Shift

• Oakland International Container Terminal (OICT), which handles over 70% of the Port of Oakland's container volume, aims to clear a backlog of nine vessels within two weeks by implementing a third shift.
• The addition of a "hoot owl" shift (3 am to 8 am) is a rare occurrence but necessary to address congestion caused by several factors including weather-related electrical outages and low productivity.
• Super-post-Panamax ships waiting for berths with suitable cranes at OICT contribute to the congestion; it's the only terminal in Oakland equipped for such vessels.
• Unlike a typical pre-Lunar New Year surge, the vessel backlog is not related to holiday closures in Asia.
• Operational issues have led to higher truck turn times; the average turn time at OICT in January was 94 minutes, 20 minutes longer than the average time at Oakland’s TraPac terminal.

FMC Orders End to Ocean Carriers' Chassis Mandates Which May Affect US Container Transport

• The US Federal Maritime Commission (FMC) has ordered ocean carriers to cease mandating specific chassis usage by cargo owners and their truckers in merchant haulage business, potentially altering container transportation practices in the US.
• The ruling, issued following an appeal by the Ocean Carriers Equipment Management Association (OCEMA), upholds a decision in favor of the American Trucking Associations that ocean carriers violated the US Shipping Act of 1984 by requiring truckers to use designated intermodal equipment providers under merchant haulage agreements.
• The FMC found ocean carriers' practices unreasonable and unnecessary for cargo flow, noting significant increases in chassis rental rates under merchant haulage agreements compared to carrier haulage agreements.
• The ruling's impact is localized to five locations, including ports such as Los Angeles, Long Beach, and Savannah, and rail ramps in Chicago and Memphis, with further examination needed to determine financial damages and compensation for affected parties.
• The decision asserts the FMC's authority beyond port boundaries, emphasizing that activities connected to ocean transportation service fall under its jurisdiction, which could have implications for inland transportation issues.
• Despite arguments from OCEMA regarding potential supply chain disruptions, the FMC rejected claims and emphasized the possibility of a market adjustment period, indicating that competition in chassis supply could mitigate concerns.

Norfolk Southern Railway Cuts Intermodal Service from Charleston and Savannah to Midwest Destinations

• Norfolk Southern Railway (NS) informed the Georgia and South Carolina port authorities last week that intermodal service from the ports of Charleston, SC, and Savannah, GA, to Chicago, Cincinnati, and Louisville will be cancelled from mid-March 2024 due to low volumes.
• A total of just 1,000 import containers moved from Charleston and Savannah to Chicago and Cincinnati combined last year, with 2,500 to 3,000 containers going to Louisville.
• CSX Transportation, NS's rival, already provides service from Charleston and Savannah to the affected destinations.
• The decision is a setback for Georgia port officials who promoted the "Mid-America Arc" concept but did not successfully persuade ocean carriers and cargo owners.
• NS will redirect resources from the canceled routes to high-volume international intermodal lanes, particularly focusing on imports from Savannah Atlanta and Memphis, where import volumes surged last month by 35.7% and 45.6%, respectively, Y/Y.

Georgia Ports Authority Reduces Export Cargo Delivery Window in Savannah

• Exporters will have a reduced window to deliver cargo to Savannah, with the earliest receiving dates (ERDs) changing from nine days before a vessel's departure to seven days starting July 1st, 2024.
• The ERD change was initially planned for March 1st, 2024, but was delayed allowing exporters more time to adjust their warehouse operations.
• The Georgia Ports Authority aims to align export free time with import free time, impacting some customers who rely on the extended timeframe.
• Implementation of the ERD change was postponed until July to coincide with the opening of over 90 acres of new container storage space at Savannah’s Garden City terminal.
• This additional storage space is designed to accommodate export cargo and imported loads, providing more flexibility for cargo flows.
• Despite some exporter frustration, a seven-day ERD window is consistent with industry standards, with most US ports setting ERDs between five and 10 days before vessel departure.

Red Sea Disruptions Cause Havoc for Shippers: Space Constraints, Surcharge Surge, and Lengthy Transits

• The transit time from India's Nhava Sheva port to Rotterdam has increased from 23 days to 33 days on average due to the disruptions, leading to a backlog of cargo and space constraints for shipping lines.
• Carriers on the India-Europe trade lane have faced capacity crunches, with intermittent void calls and fewer westbound sailings, resulting in challenges in securing bookings and slot confirmations.
• Rising rates and surcharges on export containers have been observed, with significant increases in charges such as the bunker recovery charge, Emissions Trading System charge, contingency adjustment charge, and various terminal handling charges.
• Mediterranean Shipping Co. will charge US$ 3,250 per FEU on a Nhava Sheva-Antwerp transit from March 1st, 2023, up US$ 1,000 from January 8th, 2024, while Hapag-Lloyd added US$ 500 per FEU on February 11th, 2024.
• Xeneta's average spot rate from the Indian west coast to North Europe rose to US$ 3,474 per FEU this week, up from US$ 806 per FEU on December 30th, 2023.
• Schedule reliability data for the India-Europe trade lane has shown a decline, with reliability dropping to 59% in December and expected to deteriorate further with the release of January's data.

Carriers and Shippers Use Feeder Networks to Manage Red Sea Port Disruptions

• Ultra-large container ships (ULCS) diversion from the Red Sea is causing delays for Saudi and Egyptian importers, who must now rely more on feeder networks.
• The distance between Jeddah, Saudi Arabia, and Hodeida, Yemen, necessitates feeder sailings for cargo safety, albeit at higher costs and reduced capacity.
• About 30% to 40% of container capacity in the Red Sea is currently missing due to ongoing security concerns.
• Some smaller carriers are taking calculated risks by continuing operations in the Red Sea, capitalizing on high premiums despite evident risks.
• Due to the significant impact on cargo delivery to Saudi Arabia, cargo owners seek alternative transportation routes through the United Arab Emirates.
• ULCS voyages from Singapore to Damietta via the Suez Canal now take about 35 days, compared to the usual 20 days, increasing costs and transit times.

Federal Maritime Commission Implements New Rule on Detention and Demurrage Billing Practices

• The Federal Maritime Commission (FMC) introduced a new rule on detention and demurrage billing practices in compliance with the Ocean Shipping Reform Act of 2022, aiming to address major issues faced by shippers during the pandemic.
• Ocean carriers collected approximately US$ 6.9 billion in detention and demurrage costs from 2020 to 2022, as highlighted in the FMC's final rule released on February 23rd, 2024.
• The rule clarifies who can receive detention or demurrage invoices, specifying that they can be issued to the person for whose account services were provided, the person who contracted with the billing party, or the consignee, but not both.
• Detention and demurrage invoices must be issued within 30 calendar days, with parties having the same period to request fee mitigation, refund, or waiver, and the billing party must attempt to resolve disputes within 30 days, unless both parties agree otherwise.
• The majority of the new rulings will take effect on May 26th, 2024, with further details on invoice content pending approval as the FMC gathers additional information.
• Stakeholders, including the Harbor Trucking Association, welcome the standardized billing practices, anticipating efficiency gains and an end to unfair charges.

New Short-Haul Rail Project Boosts Containerized Exports from Northwest Seaport Alliance

• A short-haul rail project, launched to facilitate containerized exports through the Northwest Seaport Alliance of Seattle and Tacoma by reducing inland transportation costs, moved its first loads this week.
• Tri-Cities Intermodal, in collaboration with Ag West International, Union Pacific (UP) Railroad, Evergreen Marine Corporation, and the Port of Walla Walla, initiated the project.
• The initiative aims to save exporters, such as Ag West International, approximately US$ 200 per container move by replacing trucks with short-haul rail transportation from eastern Washington state to Tacoma.
• The first shipments of hay were loaded into Evergreen containers at the Port of Walla Walla and transported by UP to the Pierce County Terminal in Tacoma for shipment to Qingdao, China, this week.
• The project aligns with UP's intermodal network serving the Pacific Northwest and is expected to remove "thousands of trucks" from highways annually, contributing to regional logistics growth.

Sourcing:

Freightos

Journal of Commerce

Journal of Commerce

Journal of Commerce

Journal of Commerce

Journal of Commerce

Journal of Commerce

Journal of Commerce

Journal of Commerce

Journal of Commerce

Sea Intelligence

Supply Chain Dive