Freight Forward: Diversions and Rates Increase

Welcome to Freight Forward, where each Monday, I’ll recap what happened in supply chains the previous week through JOC.com articles and additional sources and also what to expect for the week ahead.

I’m Cathy Roberson, a supply chain writer and researcher. For this weekly series, I serve as a research analyst for the Journal of Commerce (JOC), for whom I identify trends, provide thoughts and input into stories, and assist with parcel last-mile queries.

Carriers Redirect from Red Sea

• Maersk announced that in the light of the military initiative “Operation Prosperity Guardian,” they are preparing for vessels to resume transiting the Red Sea as soon as operationally feasible, according to a Dec 24 notice. “Please also note that although security measures are in place to enable the transit of the Red Sea / Gulf of Aden for our vessels, the overall risk in the area is not eliminated at this stage. Maersk will not hesitate to re-evaluate the situation and once again initiate diversion plans if we deem it necessary for the safety of our seafarers.”
• The alternative route around the Cape of Good Hope versus the Suez Canal will add about 10 days to a container ship voyage, writes Greg Knowler. And even after offsetting current Suez Canal toll fees of between $400,000 and $700,000 per ship per transit, which will be rising 15% in January, the longer route will still increase shipping costs by 15 to 20%, according to analysts. Two freight-all-kinds (FAK) rate increases in December on both the Asia-North Europe and Asia-Mediterranean corridors have already caused the spot market to spike on Dec. 1 and again on Dec. 15 as carriers withdrew 25% of the available capacity during the month to better match import volume.

• The US announced the creation of a multinational naval force meant to restore security to the region and give peace of mind to a commercial shipping industry chilled by recent attacks launched from southern Yemen, writes Mark Szakonyi and Greg Knowler. Maersk expects it will take a few weeks for the naval force to restore safe passage, CEO Vincent Clerc told CNBC, adding that the announcement was “reassuring.”
• Bency Mathew writes that after holding rates firm at end-November levels into the first week of December, major container lines have pushed short-term contract pricing substantially higher for Indian bookings in the last few days, including a spike of 15% to 30% for loads to the US East and West coasts.

• As of last Thursday, 121 container ships with a capacity of 1.6 million TEUs were sailing around the Cape of Good Hope. According to Kuehne+Nagel, that number is expected to grow significantly as more ships are diverted. With an additional 6,000 nautical miles and at least 10 days tacked on to a standard Asia-Europe transit of about 40 days and carriers speeding up vessels to mitigate the impact on schedules, the costs of diverting are believed to be as high as $2 million per ship.? carriers will pass those costs on to customers, writes Greg Knowler.

• Spot freight rates from Asia to North America have jumped amid the fast-deteriorating security situation in the Red Sea, writes Bill Mongelluzzo, with forwarders and carriers saying shipping lines will likely leverage the market uncertainty when they meet with customers in January to begin negotiating 2024–25 service contracts. “We’ll kick off our service contract negotiations after TPM,” an auto sector importer said, adding that carriers will most likely leverage the rising spot rates and supply chain disruptions to push for higher contract rates than were negotiated in the 2023-24 contracts. ?

• Maersk and CMA CGM have announced up to 200 container ships that will be rerouted away from the Suez Canal and instead use the longer transit around southern Africa’s Cape of Good Hope, writes Michael Angell. In an advisory Friday, Maersk listed 155 ships on multiple Asian services to Europe and the US East Coast that will be diverted due to the “ongoing situation around the Red Sea.” Maersk noted that some diversions are contingent only and subject to change.? Maersk’s announcement follows a service advisory from CMA CGM last Thursday that it’s invoking a clause in its bill of lading to reroute some ships via the Cape of Good Hope because it’s “deeply concerned about the recent events in the Red Sea.”? ?

Other Ocean Freight News

• Via its Terminal Investments Limited (TiL) subsidiary, MSC will acquire a 49% stake in the Adani Ennore Container Terminal (AECTPL) near Chennai, writes Bency Mathew. For MSC, acquiring the AECTPL stake builds on its existing 50/50 terminal joint venture with APSEZ at Mundra Port. “This association will enable us to further improve TiL’s presence in one of the world’s fastest-growing economies and strengthen our offering to customers in the Indian subcontinent,” TiL CEO Ammar Kanaan said in a statement.
• HMM’s creditors have selected the Harim Group-led Pan Ocean-JKL consortium as the preferred bidder for a 57.9% stake in the South Korean ocean carrier in a $4.8 billion deal, writes Greg Knowler.? But after the announcement was made, South Korean media reported strong opposition to the bid from HMM unions that have questioned Harim Group’s ability to finance the deal and manage a global shipping line.
• CMA CGM is launching a direct weekly service connecting Florida to Venezuela, Colombia, Honduras, and Guatemala, the sixth new service to call on Port Everglades over the past year as it expands its market reach amid $471 million in infrastructure updates, writes Teri Errico Griffis.

Chart of the Week

Break Bulk & Project Cargo

Janet Nodar writes that the Biden administration’s goal of 30 gigawatts (GW) of offshore wind (OSW) energy by 2030 is in serious trouble because of rising costs, supply chain bottlenecks, the slow pace of permitting systems, and confusion over local content requirements and significant construction barriers. “We don’t see 30 GW by 2030 being achieved,” said John Murray, a senior research analyst with S&P Global Commodity Insights, a sister company of the Journal of Commerce within S&P Global. “Based on recent industry events, the new offshore wind outlook will be revised downwards by 45% from our previous outlook of 22 GW by 2030,” meaning down by about 12 GW.?

Air

In my Air Cargo Next Column, I write on FedEx’s latest earnings announcement focusing on FedEx Express. FedEx Express revenue for the quarter ending November 30 declined 5.6% YoY to $10.25 billion while operating income came in considerably lower at $137 million compared to $341 million in the same period last year — a drop of 59.8% YoY.? The division is facing headwinds on all fronts. U.S. average daily volumes declined 3.5% due to lower volumes from the U.S. Postal Service and “softer market conditions” while a slowdown of industrial production worldwide has impacted FedEx’s international shipping business, according to Subramaniam. In addition, “the demand surcharges out of Asia are significantly lower year over year. We’ve also seen the product mix-shift from priority to economy traffic,” Subramaniam told analysts on Dec. 19.

With 2024 just days away, FedEx pilots remain without a contract; Mechanics and related classifications at FedEx Express announced just last week that they have launched an organizing drive to join the Teamsters; and FedEx Express’ contract with its largest customer, the U.S. Postal Service, is up for renewal in September 2024.

Freight Forwarding

Deutsche Bahn called for takeover offers for the long-awaited sale of its logistics subsidiary DB Schenker, with interested parties having until mid-January to express their interest, writes Greg Knowler. “The condition for a sale is that it must have apparent economic advantages for Deutsche Bahn in all respects,” DB Group said in a statement.

Inland

• FedEx is keeping much of the trucking volume it gained from bankrupt competitor Yellow, boosting its daily less-than-truckload (LTL) shipments at FedEx Freight by 4.6% in its fiscal second quarter ending Nov. 30 compared with the prior three-month period. Year over year, however, FedEx Freight saw both its daily bill count and revenue drop, with volume falling 5.1% and revenue slipping 3.8% from the same period a year ago, reminders that the distortion caused by the shutdown of Yellow masks an otherwise muted LTL freight market writes Bill Cassidy.
• Yellow sold 23 leased terminal properties to six winning bidders, adding $82.9 million to the $1.9 billion already raised by a real estate auction.? The winners in the latest auction round were Estes Express Lines, Saia Motor Freight Line, R+L Carriers affiliate RAMAR, ArcBest, and Knight-Swift Transportation Holdings. FedEx acquired one terminal, writes Bill Cassidy.

Stopped at the Border

• The US authorities shut down border crossings at Eagle Pass and El Paso in Texas last week so customs officers could instead help US Border Patrol process a flood of migrants in those locations.? Ari Ashe writes that three intermodal marketing companies (IMCs) told the Journal of Commerce they were concerned about their ability to sell rail options to shippers if there is a prolonged closure at Eagle Pass and El Paso. If the border is reopened within 48 hours, the IMCs don’t believe there will be an impact on shippers. But if it takes longer, they worry shippers might rethink how much intermodal they use for their Mexican business in 2024.
• Canadian Pacific Kansas City (CPKC) placed an embargo on empty containers being sent from the US into Mexico through Laredo, Texas, out of concern that its intermodal network could get flooded with boxes because of the border closures in Eagle Pass and El Paso writes Ari Ashe. CPKC’s three primary intermodal partners — Bison Transport, Schneider National, and Swift Intermodal — are exempt from the embargo. All other empty containers will be unable to cross in Laredo without special permission from CPKC, including those sent by Hub Group, J. B. Hunt Transport Services, and STG Logistics, as well as UP-owned EMP and UMAX containers and even boxes owned by retailers such as Amazon and Walmart.
• US Customs and Border Protection reopened the border crossings at Eagle Pass and El Paso in Texas last Friday. Reopening the border crossings doesn’t mean the delays are over for shippers, writes Ari Ashe. UP and BNSF have a logjam of laden containers built up that need to be transported to the US.? “We will restore normal operations as quickly as possible as we work through the five-day backlog of shipments holding to cross the border,” UP said.

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What did I miss? Have a question? Let me know in the comments. I’ll be checking back throughout the week to answer questions, address comments, and share additional insights.

In the meantime, here’s wishing everyone a good freight week ahead and, for US readers.

-Cathy