Century Weekly Market Update Sep 4 - Sep 10

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 declined for a second consecutive week. Additionally, the Port of LA/LB clashed with the AQMD over a new emissions proposal, while barge rates on the Mississippi River increased amidst a water shortage. Furthermore, key supply chain associations committed to electronic Bills of Lading, Trans-Atlantic Freight Rates Drop Below Pre-Pandemic Levels, and the CEO of Flexport handed in his resignation.

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

Latest PMI Figures Show Manufacturing Has Remained Lethargic Throughout August?? ?

• Despite a marginal uptick in US manufacturing activity in August, muted consumer demand persists, pushing manufacturers to adjust production levels in line with a softer market.
• August manufacturing figures from the Institute for Supply Management’s Purchasing Managers’ Index registered at 47.6%, representing a 1.2% increase from July but still indicating that the industry is in economic retraction as it is below the 50% benchmark.
• Although industry activity remains muted, the Inflation Reduction Act and recent easing of supply chain constraints may spur growth in the latter stages of 2023.
• More manufacturing sectors saw growth in August, with printing, food, beverage, transportation equipment, tobacco, petroleum, and coal all recording growth.
• S&P Global noted that orders are currently falling faster than factories are cutting output, indicating that firms will have to continue scaling back production volumes in the near future.
• The short-term manufacturing woes could soon be buoyed by a raft of policy initiative, such as CHIPS and the IRA, which are intended to encourage greater consumer demand as we head towards the holiday period, potentially shifting the inventory cycle towards restocking soon.

US Logistics Market Likely to See Tactical Mergers and Acquisitions Activity?

• The current US logistics market, characterized by high interest rates and low freight rates, is presenting strategic acquisition opportunities for 3PL buyers to acquire desired assets at reduced valuations.
• The anticipated uptick in mergers and acquisitions are expected to be more of a consequence of US logistics providers struggling to stay afloat post-pandemic rather than a mere change of ownership for new investment purposes.
• Recent acquisitions, such as the requisition of freight broker Ascent Global Logistics by a new private equity firm just two weeks after the acquisition of its customer, forwarder Omni Logistics, by Forward Air, exemplify the opportunistic nature of the current market phase.
• The sale of Ascent Global demonstrates a typical scenario where the previous owner capitalizes on the company’s recent growth, while the new owner seeks increased exposure to the sector.
• It is anticipated that many more mergers and acquisitions will occur in the near future, as the high interest rates make it more favorable for strategic buyers rather than deterring them. This creates a bidding environment with fewer competitors.

Technology Investment Dilemma for Drayage Industry Amidst Challenging Freight Environment

• Drayage carriers are grappling with the prospect of addressing the necessities of technology investment during the current downward freight environment which is awry with challenges
• The decline in the drayage market coincides with the availability of various technology-based solutions that could address longstanding industry issues.
• The CEO of transportation management software company, PortPro, has highlighted how the pandemic exposed the technology gaps between drayage providers and other global supply chain service providers.
• The CEO of PortPro also noted that drayage providers are often run like mom-and-pop businesses, lacking a structural system and having very limited technology capabilities, despite typically generating millions of dollars in revenue.
• Despite the opportunity to accumulate capital during the historic ocean rate highs from 2020 to mid-2022, drayage providers now find themselves in a downward freight environment with reduced revenue and cash flow, making it challenging to invest in the necessary technology to address the revealed shortcomings of the past three years.
• Drayage has historically lagged in technological advancements due to the perceived simplicity of its processes, leading drayage partners to rely on external infrastructure for their operations.
• Numerous digital drayage brokers and marketplaces have emerged in recent years, with varying levels of success, focusing on both niche and macro-level issues. The drayage industry is moving towards a more digitalized future, presenting opportunities for technology companies to offer new solutions to long-standing problems.

Blank Sailings Report

Century’s Blank Sailings Report for the week of September 4th – September 10th. 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 464 port omissions during blank sailings, a 56.8% increase W/W. Ningbo in particular recorded the largest amount of port omissions last week with 50, equating to an 66.7% W/W increase.
• Similarly, Shanghai recorded 48 port omissions, a 100% increase W/W, whilst the ports of Qingdao and Kaohsiung recorded a W/W increase of 150% and a 250% in port omissions, respectively.
• Singapore recorded a 32% increase in port omissions W/W rising from 25 to 33.
• Looking towards the coming weeks, Century’s data shows that an increase of blank sailings for week 38 is likely but will not be as drastic as the W/W jump from week 36 to 37, with the current scheduled port omission count for next week sitting 5% lower at 441.
• Next week’s preliminary data already shows that a ramping up in port omissions should be expected at ports in Busan, Port Klang, Jakarta, Yantian, Xiamen, Shekou, Santos, and Le Havre.

Port omissions data for the most frequently omitted ports during week 36 can be found in the table below:

Our?full Blank Sailings Report for the week of September 4th – September 10th below provides a full list of every current scheduled port omission from Week 37 to Week 45 as of September 11th, 2023. 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 37 Blank Sailings Report

Week in Review

Trans-Pacific Freight Rates Decline for a Second Straight Week

• Transpacific freight rates from both China/East Asia to the US East Coast and US West Coast declined again last week for a second week in a row
• Both weeks of September have now seen freight rates decline after eight weeks of consecutive increases throughout July and August.
• Rates from China/East Asia to the US West Coast decreased by 2% W/W to US$ 1,887.
• Rates from China/East Asia to the US East Coast dipped by 1% W/W to US$ 3,048.
• Freight rates from China/East Asia to Europe saw a sharp decrease, with rates to Northern Europe declining 8% W/W at US$ 1,608 and rates to Southern Europe declining 14% W/W to US$ 2,003.

Trans-Atlantic Freight Rates Drop Below Pre-Pandemic Levels

• Westbound Trans-Atlantic freight rates have now fallen below pre-pandemic levels and are expected to continue in this direction amidst excess capacity and weak US import demand.
• Rates plummeted by 15% last week alone, with little signs of slowing down.
• The Northern Europe-US trade lane has experienced a significant decline over the last year, tumbling from the world’s most profitable trade lane in 2022, peaking at US$ 8,032 per FEU, to rates of just US$ 638 per FEU last week, 57% lower than the same week in 2019.
• Carriers have been struggling to cut costs amidst the dramatic decline in rates, with Hapag-Lloyd announcing reduced capacity and the suspension of its AT3 service.
• Similarly, MSC has shut down its Boston Express service between North Europe and the US as well as two loops between the Mediterranean and the US due to unprofitability.
• The capacity cuts and blank sailings introduced by carriers in response to the declining rates has been far from extreme, with industry analysts stating that carriers are not doing enough to address the obvious supply-demand imbalance.

Port of LA/LB Clashes With Air Quality Management District Over Developing Emissions Rule

• The Port of Los Angeles/Long Beach has warned that the pending proposal from the South Coast Air Quality Management District (AQMD), designed to drastically cut transport emissions, will effectively cap the port’s cargo volumes and accelerate the diversion of cargo to alternative ports.
• The Pacific Merchant Shipping Association has stated that meeting the proposed new emissions may require the use of technology and fuels which are not currently commercially viable.
• The Indirect Source Rule (ISR), slated to be finalized by the AQMD in December 2023, is intended to reduce emissions at participating ports from all sources.
• Stakeholders have commented that the ISR will likely have the unintended consequence of LA/LB being forced to effectively put limits on its cargo volumes in order to meet the ISR requirements, leading to alternative ports accepting the excess cargo.
• The AQMD has stated that such assumptions by stakeholders, especially as the ISR is not yet finalized, are irresponsible. However declining volumes at LA/LB have been a constant issue over the past year, so the port’s concerns over further declining volumes are not unfounded.

Thinning Of US Inventories Yet to Raise Freight Demand

• A raft of targeted replenishment by US retailers looking to run down their overinflated inventories has had little effect on raising freight demand so far.
• Despite the typical period of inventory restocking ahead of the winter holiday season fast approaching, this year retailers are focusing on thinning their inventories rather than replenishing them.
• The strategy topples previous assumptions that such inventory reduction would inevitably lead to increased replenishment and freight shipments in the wake of more closely aligning inventory with sales figures.
• US retailer Five Below averaged a 15% reduction in industry levels per store Y/Y, partly due to the acceleration of inventory receipts in early 2022, putting the retail store chain in a healthy position inventory-wise for the holiday season.
• Current analysis of US data inventories suggest that the soft US import volumes will continue into mid-2024, so the reduced retail inventory and more precise forecasting for replenishment translates into fewer import, domestic intermodal, and trucking shipments thus extending the dreary freight market even further.

Increasing Mississippi River Barge Rates Threaten Delays for Corn and Soybean Season

• The reduced water levels at key sections of the Mississippi River and subsequent restrictions on barge shipments imposed since June are leading to higher barge rates and potential transportation delays, raising concerns of another Autumn shipping crisis.
• As the amount of goods a barge can load is limited, there are growing concerns over corn and soybean supply chains as we enter into the crops’ harvest season.
• Spot rates at St. Louis reached US$ 23.34 per ton by the end of August, representing a 49% increase W/W and an 85% increase over the three-year average.
• Water levels on September 5th, 2023, were recorded at -3.05 feet (93 cm), indicating a drop of more than 20 feet (610 cm) since May. The US Department of Agriculture predicts that the levels are likely to decrease further.
• Conditions on the Mississippi River are similar to those experienced in Autumn of 2022 when low water levels caused traffic disruptions, with barges becoming stranded in sand and mud. There are concerns of similar rate hikes as seen last year, reaching 400% above average rates, and significant delays.

Key Supply Chain Industry Associations Make Commitment to Electronic Bills of Lading

• An alliance of major supply chain industry associations has signed the "declaration of the electronic Bill of Lading" (eBL) to support the global carriers' commitment to digitalizing international trade.
• Key associations including BIMCO, DCSA, FIATA, ICC, and SWIFT all signed the eBL declaration last week following in the footsteps of the major ocean carriers who signed in February 2023.
• The industry's adoption of electronic Bills of Lading is seen as a means to enhance the efficiency, reliability, security, and sustainability of supply chains while reducing the vulnerability to fraud and other illicit activities.
• Despite only 2.1% of container trade Bills of Lading and waybills being electronic last year, a recent McKinsey study estimated a growth of US$30-40 billion in global trade through reduced trade friction and save 28,000 trees annually if the industry achieves 100% eBLs.
• The DCSA has set a target for its carrier members to achieve 100% eBLs by 2030.

Port of Santos Refusing Ships After Reaching 95% Capacity

• The premier port in Brazil, the Port of Santos, began refusing vessels last week after its Brasil Terminal Portuario (BTP) reached its capacity, reportedly operating at 95%.
• The reaching of capacity of the Port of Santos has had a knock-on effect at all ports in Brazil, who have since become pressed for capacity and room to handle the incoming additional volumes which are being diverted from the Port of Santos.
• Last week, BTP was unable to receive two container vessels scheduled for operation, causing both to attempt to divert to alternative terminals at the Port of Santos before also being turned away by Santos Brasil terminal and DP World Santos terminal due to an inability to accommodate them.
• Port of Santos operators have stated that the current situation highlights that the port? no longer has room for contingencies.
• The OECD estimates that, for the Port of Santos to maintain efficiency, the terminal’s occupancy limit is up to 70% for yard and 65% for berth operations.
• Plans to expand the port in 2022 were halted under the former presidency.

Flexport CEO Resigns Citing Differences With Founder Over Strategic Shift

• Dave Clark resigned from his position as Flexport CEO on September 6th, 2023, after one year.
• The freight forwarder announced that founder and Executive Chairman, Ryan Petersen, has resumed the role of CEO following Clark’s departure.
• During his tenure as CEO, Clark focused on expanding Flexport's e-commerce fulfillment and last-mile delivery capabilities through the acquisition of Shopify's logistics arm in June 2023.
• Clark stated that Flexport intends to refocus on growth within the core freight business, and he believes that Petersen is best suited to lead the company in that direction.

ZIM and MSC Agree Cooperation Deal on Container Services linking Asia and Europe

• ZIM and MSC have signed a deal that will see the two carriers cooperate operations for seven container services linking Australia, Asia, India, Europe, and Mediterranean ports.
• The agreement includes vessel-sharing, swap arrangements, and slot charters as ZIM, a small independent carrier, looks to endure the current market downturn and an anticipated 2023 operating loss of US$100-500 million.
• The deal encompasses three services between Asia and the South Pacific, one service between Northeast Asia and Australia, and two services between Southeast Asia and Australia.
• The deal aligns with ZIM’s bid to improve the utilization of its fleet, which is set to grow by 69% upon the receival of its order of new vessels with a combined capacity of 345,000 TEUs.

UPS Unveils its New Shipping Rate and Peak Season Surcharge Increase for 2024

• UPS will implement an average rate hike of 5.6% for Ground, Air, and International services from December 26th, 2023. This rate increase aligns with the announcement made by FedEx a week prior.
• The rate increase for 2024 is 1.3% smaller compared to the increase announced for 2023.
• The upcoming peak season surcharge increases will be higher than those of the previous year. Starting from October 1st, 2023, the fees for various services, including bulky and hard-to-handle packages, will experience price increases.

Sources

?Freight Waves

ISM World

JOC

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JOC

Supply Chain Dive

Supply Chain Dive

Supply Chain Dive

Sea Trade Maritime News