Century Weekly Market Update June 3 - June 9

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, trade lanes from China/East Asia to Europe and the North American East/West Coast have all recorded W/W increases as the Global Container Freight Index rose by 16%. A strike looms involving CBSA and may lead to disruptions in the coming weeks, along with continuous challenges surrounding decarbonization efforts in the shipping industry. Additionally, the siracha supply chain is feeling the heat as a shortage ensues!

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

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Rapid Surge of Importers Capitalizing on Fixed Rates in Trans-Pacific Shipping

• Importers are capitalizing on fixed rates from newly signed annual service contracts, resulting in a surge in carrier-direct bookings in the eastbound trans-Pacific route.
• Direct bookings with carriers have increased to 56.3% in April 2024, compared to 50.3% in January 2024, and 48.2% in April 2023.
• While direct bookings rise, spot rates are also increasing significantly, posing challenges for importers.
• Fixed rates in 2024–25 service contracts range from US$ 1 ,500 to US$ 1,700 per FEU, offering potential cost savings.
• Importers may avoid premium spot rates amidst vessel space and equipment shortages by booking cargo directly with carriers at fixed rates.
• Given current market fundamentals, Sea-Intelligence Maritime Analysis CEO stated importers should expect higher freight rates and may need to adapt by booking shipments well in advance and adopting a blended approach to rates.

An Unexpected Surge in Asia-Europe Ocean Trade

• Stakeholders hold divergent views on the duration of the unexpected surge in demand on the Asia-Europe ocean trade, with predictions ranging from the end of peak season to Lunar New Year in January.
• Average spot market prices are now well over US$ 6,000 per FEU on some rate indices, with the Shanghai Containerized Freight Index showing a 12.6% increase in spot ocean rates ex-Shanghai W/W, marking the 10th consecutive week of rising rate levels.
• Hapag-Lloyd anticipates a return to normal later in the year, while some forwarders and shippers foresee a longer duration of high demand and trade lane disruption.
• Due to terminal congestion, Maersk anticipates significant delays in its vessel schedule, necessitating the cancellation of two westbound sailings from China and South Korea scheduled for early July 2024.
• The continuation of high-rate levels is evident, with port congestion in La Havre, Durban, Laem Chabang, and Singapore causing delays and equipment shortages for Asian exporters.
• Importers are restocking early, contributing to the strong cargo demand and firm rate levels expected to remain until the end of the peak season.
• However, once regular Red Sea voyages resume, container shipping's overcapacity issue will resurface, leading to a potential plunge in rates, as noted by industry analysts and freight forwarders.

Manufacturing Growth Plateaus Due to Uncertainty Surrounding Interest Rates

• Manufacturing growth has plateaued, with the Institute for Supply Management’s May Purchasing Managers’ Index (PMI) registering at 48.7%, and contraction territory below 50.0.
• PMI is an economic indicator used to measure the health of the manufacturing sector; reading above 50 indicates expansion in the manufacturing sector, while a reading below 50 indicates contraction
• The decline in growth is attributed to a lack of demand, with the new orders index dropping to 45.4%.
• Interest rate uncertainty is causing companies to focus more on liquidity and caution with investments, according to the chair of ISM’s Manufacturing Business Survey Committee.
• Backlogs are falling, currently at 42.4%, and without a change in interest rates, there are concerns that the industry could revert to contraction.
• Despite the gloomy outlook from ISM, S&P Global’s PMI for May was more positive at 51.3, buoyed by renewed export orders and optimism about future production rates.
• Manufacturers cited confidence in the future as a factor contributing to increases in employment, purchasing activity, and finished goods stocks, according to the economics director at S&P Global Market Intelligence.

?Weekly Blank Sailings Report

Century’s Blank Sailings Report for the week of June 3rd – June 9th. 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 627 port omissions, a 16.8% increase compared to the week prior.
• Singapore recorded the highest amount of port omissions last week with 64, followed by Shanghai with 53 and Ningbo with 52.
• Other ports with notably high omissions last week were Hong Kong with 33, Busan with 31, and Port Klang with 27.
• Mundra and Piraeus recorded the biggest W/W increases in port omissions, both soaring by 120%.
• Looking towards the coming weeks, Century’s data shows a 14.5% decrease in currently scheduled blank sailings for week 24.
• Next week’s preliminary data shows notable increases in port omissions to be expected at ports in Jakarta and Laem Chabang.

Port omissions data for the most frequently omitted ports during week 23 can be found in the table below:

Our?full Blank Sailings Report for the week of June 3rd – June 9th below provides a full list of every current scheduled port omission from Week 23 to Week 33 as of June 9th, 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.

Century consistently strives to enhance customer satisfaction by proactively addressing challenges in the shipping process. In our commitment to securing space for our valued customers amidst ongoing carrier constraints, our dedicated operators diligently undertake additional measures. After working through meticulous analysis of Carrier Booking and the Actual Shipped Ratio, we found that our teams are currently, on average, making two carrier booking requests per container in order to help ensure our customers' cargo flows as smoothly as possible.

Click here to DOWNLOAD the full Week 23 Blank Sailings Report

Week in review

Many Trans-Pacific and Suez Routes See Significant Rate Increase

• Trade lanes from China/East Asia to Europe and the North American East/West Coast have all recorded W/W increases as the Global Container Freight Index rose by 16% W/W.
• Rates from China/East Asia to the US East Coast grew by 12% W/W to US$ 7,516.
• Rates from China/East Asia to the US West Coast grew by 17% W/W to US$ 5,888.
• Suez routes, China/East Asia to North and South Europe saw significant rate increases W/W; 23% and 24% respectively.
• Trans-Atlantic routes saw the least significant changes in rates W/W, all changing by 3% or less. ?

New Ocean Service Launch Impacts Rates from India to the US

• Due to oversupply following the launch of a new service by Ocean Network Express (ONE), ocean rates from India to the US East Coast are declining by US$ 200 to US$ 300 per TEU and US$ 300 to US$ 400 per FEU M/M.
• Current carrier spot quotes for the trade lane are around US$ 1,600 per TEU and US$ 1,800 per FEU, nearing early-December 2023 levels before the Red Sea crisis-induced rate hike.
• Platts data shows India-USEC spot rates at US$ 2,000 per FEU as of June 7th, 2024, a 3% W/W decrease.
• Carriers like Hapag-Lloyd, CMA CGM, MSC, and Maersk are planning peak season surcharges ranging from US$ 500 to US$ 750 per container on loads from India to the East Coast, set to start mostly from June 15th, 2024.
• Despite declining rates to the US East Coast, rates from India to the US West Coast are rising due to schedule disruptions and port congestion, with average rates now at US$ 3,525 per TEU and US$ 3,900 per FEU.

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CBSA Strike Looms and May Cause Border Disruptions

• Negotiations between Canada Border Services Agency (CBSA) workers and the government, will now be mediated until June 12th, 2024, aiming to secure a fair contract.
• Strike actions, involving over 9,000 workers, and all strike-related activities are halted as discussions persist, however, the union representing Canada’s border agents plans to begin job action unless a new labor deal is reached prior to the deadline.
• Both union leaders emphasize the importance of fair wages, retirement benefits, and improved working conditions for CBSA employees, however, efforts are focused on avoiding disruptions at Canada's borders.
• While Canada’s border cannot be shut down due to many border agents being essential workers, shippers moving freight between the U.S. and Canada on trucks may face lengthy border delays.
• If a strike ensues, shippers can expect delays due to longer processing times at Canadian border crossings, with wait times of four to five hours predicted, especially impacting freight traveling into Canada by truck.
• Shippers are advised to prepare for potential disruptions by oversupplying vendors and clients, consider alternative shipping options, and plan more shipments outside of peak travel times.

ILA-USMX Negotiations Stalled Over Automation Concerns in US Ports

• Negotiations between the International Longshoremen’s Association (ILA) and United States Maritime Alliance (USMX) have halted due to ILA concerns about the introduction of automated technology in some US ports.
• ILA discovered an auto gate system at APM Terminals’ port of Mobile, Alabama, suggesting similar technology may be present at other ports.
• The use of auto gates violates the current contract, which runs until September 30, and could lead to significant disruptions in the six-year work cycles for about 45,000 dockworkers along the US east coast and Gulf ports.
• ILA President has warned of a strike in October 2024 if the contract violations persist, claiming the ILA claims the use of auto gates is an attempt to eliminate American jobs through automation.
• With potential work stoppages looming, some US retailers are considering contingency plans, emphasizing the need for preparedness during the current ocean contract season.
• ILA has a history of challenging master contract violations, including lawsuits against companies like Hapag-Lloyd and OOCL for contested labor models at specific terminals.?

Implications of Ocean Freight Disruption for Shippers and Freight Forwarders

• The Global Xeneta Shipping Index (XSI?) saw a slight decrease in May, indicating long-term contracts may not reflect current market chaos.
• Despite the high number of contracts held, some contracted shippers and freight forwarders are still forced onto the volatile spot market, paying premiums for container space due to limited container capacity.
• The discrepancy in market experiences is stark, with larger shippers likely securing cargo movement on long term contracts, while smaller players face uncertainty.
• Freight forwarders have witnessed a notable increase in rates compared to shippers, revealing the evolving dynamics of carrier prioritization.
• The widening gap between long- and short-term rates poses a significant risk of cargo being rolled, particularly for smaller shippers and freight forwarders as the carriers want to maintain strong relationships with their biggest customers.
• The current disruptions in ocean freight container shipping, exacerbated by the Red Sea conflict, underscore the importance of understanding market data for effective navigation.

Retailers May be Losing Sales Due to Poor Inventory Management

• Out-of-stock items represent a substantial issue for retailers, contributing to nearly US$ 1 trillion in lost sales annually, according to a study by the IHL Group, highlighting the significant financial impact of inventory inaccuracies.
• Approximately 58% of retailers struggle with inventory accuracy, reporting less than 80% accuracy, which means that there is a notable chance of products not being available when customers place orders.
• Companies with modern inventory-control systems can track their stock, reducing the likelihood of accidental over- or underselling.
• A data-driven approach allows synchronization of sales channels with inventory levels, aiding in spotting trends and managing stock effectively, especially during high-demand periods.
• Integrating modern inventory systems with legacy systems requires a comprehensive plan, including staff training and reliable partners, to ensure consistent and accurate data flow across all platforms.
• Accurate data flow guarantees that customer engagements are always guided by the most current information, facilitating better decision-making and service delivery.

Google's Shipping Optimization May Double Carrier Profits with Fewer Vessels

• Google researchers have developed an optimization plug-in for shipping lines, claiming it could double profits, deliver more containers, and require fewer vessels by considering multiple variables simultaneously.
• The Shipping Network Design API aims to optimize network design, scheduling, and container routing simultaneously, rather than sequentially, offering definite dates for container pickup at ports.
• The inclusion of transit times alongside other variables significantly improves solution quality, leading to better profitability outcomes.
• Profit maximization, rather than speed or minimizing vessel usage, is the key optimization outcome, resulting in more containers shipped using fewer vessels.
• Google's approach addresses an age-old problem faced by liner carriers, optimizing vessel deployment to maximize yields and profits.

SEKO Logistics Challenges CBP Suspension Amidst Trade Compliance Dispute

• SEKO Logistics has been conditionally reinstated by US Customs and Border Protection (CBP) to participate in the Type 86 program after being suspended for alleged violations.
• The Type 86 program enables consignees to submit data through their customs broker to CBP, utilizing the de minimis rule for duty-free import of low-value packages.
• Despite the conditional reinstatement, SEKO filed a complaint against CBP seeking unconditional reinstatement and clarification on the conditions placed on the company.
• The suspension has negatively impacted SEKO's business reputation, leading to "drastic harm" and speculation about its trade compliance performance.
• SEKO alleges that the saga over its suspension began almost a year ago when CBP initiated an audit of its Type 86 entries but provided insufficient clarity on the violations.
• SEKO argues that participating in the Type 86 program provides more information to CBP compared to de minimis entries, yet the suspension has led to lost shipments and reputational damage.

?Challenges Arise Surrounding Carbon Tax and Decarbonization in Maritime Shipping

• Global maritime regulators have yet to approve a carbon tax to incentivize the use of zero-carbon fuels, potentially burdening ocean carriers with increased costs.
• Carriers' inability to pass along higher zero-carbon fuel costs may lead to higher expenses and further consolidation in the industry, impacting choice for shippers.
• The lack of consensus on a carbon tax was evident at the International Maritime Organization's (IMO's) Marine Environment Protection Committee (MEPC 81) meeting, making it unlikely to be implemented in the short term.
• Instead, a fuel standard imposed on shipowners, similar to the low-sulfur fuel requirement in 2020, could be the primary route to achieve decarbonization.
• There is debate over how much of the higher zero-carbon fuel costs will be shared along the supply chain versus disproportionately falling on carriers, with some believing it will eventually be passed on to cargo owners.
• Despite commitments from companies to reduce emissions, there have been few takers among beneficial cargo owners (BCOs) for zero-carbon products offered by ocean carriers and freight forwarders.

Siracha Shortage Highlights Need for Sustainable Supply Chains

• A shortage of sriracha sauce due to supply issues highlights the urgency of sustainable supply chains in the face of climate change.
• Huy Fong Foods, the major manufacturer of sriracha sauce in the US, faced repeated production halts due to chili supply issues affecting product quality.
• The shortage underscores the importance of diversifying sourcing partners to mitigate supply chain disruptions, especially for seasonal products.
• While Huy Fong struggles with sourcing jalapenos, other sriracha brands are attempting to fill the void in the market.
• The impact of the shortage extends beyond consumer inconvenience, potentially influencing long-term market dynamics and consumer buying habits.
• The history of Huy Fong's supply chain challenges, including a legal dispute with its former jalapeno supplier, illustrates the complexities and risks inherent in supply chain management.

Sources

JOC

JOC

Supply Chain Dive

Freightos

JOC

PSAC

Supply Chain Dive

The Loadstar

Xeneta

Supply Chain Brain

JOC

JOC

JOC

Supply Chain Dive