Global Logistics - Weekly Recap

The September Logistics Manager's Index report contained some interesting information. It contained a lot of crucial information on the current state of the logistics industry. A particular thing that caught my attention was the transportation metrics over the past two years. This summer, everything transportation-related altered course. It is clear that the logistics industry is experiencing sustained growth as a result of the high levels of inventory and the associated levels of cost and utilization associated with holding them. Meanwhile, transportation metrics continue to slow, with capacity growth reaching the second-highest level and price contraction reaching the third-fastest rate in the index's history.

The chart looks like someone in distress or is it the fat tail risk for container carriers? Time will tell. The rate structure has literally collapsed, but they are still minting money. Despite increasing blank sailings, etc., they haven't been able to stop the bleeding. The trend is your friend, until the end when it bends. RFQs can wait till then.....

Whenever CEOs of container shipping companies tell the public that tough times are ahead, I find it a little humorous. They are really not new to boom and bust cycles. Covid presented them with a golden opportunity to charge astronomical rates due to a sudden spike in demand supply-side shocks which tightened space availability, and labour issues which all added up but as we have seen before, even during the post-world war era, they settle down and demand slows down.

To make matters worse, owners embarked on a shipbuilding and order placement spree unprecedented in history (see the chart from Alphaliner). In a slowing economy, what can you expect when excess capacity is brought to the market in the next two years? In other words, this is something we have seen in the past century, the same cycle. Unless of course, they bet all their money on pandemic-induced demand lasting indefinitely. Yet, some owners have managed to recover their losses from the previous decade during the current period. It is unfortunate that some small shippers failed to weather the current rate cycle...

Sea-Intelligence sees high container capacity reductions. In the weeks following Golden Week (weeks 41-43), carriers are taking out significant levels of capacity per week, as shown in the following figure of Sea-Intelligence for Asia-North America West Coast (Container News)

Labour disputes: (i) UK ports: Strike at Felixstowe port (48% of UK's container imports) involving 1,900 workers ended on 5 Oct. In Liverpool port (10% of the UK's container imports), more than 560 dockworkers will go on a second strike from 11-17 Oct. (ii) US railroad: An official strike has been averted but uncertainties remain. Current railroad transit has taken a longer time with fewer trips. (CS)

A new sea-air cargo service has been launched by Scan Global Logistics (SGL), via an undisclosed Pacific island gateway. According to Sam Whelan of The Loadstar, ocean freight is shipped from Asian origins to this "secret" SGL hub in the Pacific, where it is loaded onto regular passenger flights to multiple US destinations.?

In general, I am very skeptical about Sea Air shipments because there are so many things that could go wrong, especially when the cargo has to be reworked to conform to air cargo specifications. Usually, it is best to stick to one mode of transportation and cargo handled as little as possible. Scan Global is known to deliver a reliable rail connection between the Far East and Central Europe, but cargo insurance has been a problem ever since the Russian-Ukrainian conflict began.

Air cargo spot rates keep falling with no sign of a peak season turnaround. Air freight spot rates fell 9% YoY in September as capacity growth continued to outpace demand, according to a news release from Clive Data Services last week. The fall in rates will likely persist, even with the busy holiday shipping season approaching, said Niall van de Wouw, chief airfreight officer at Clive parent company Xeneta, in a statement. This is because COVID-19 restrictions continue to be lifted globally, introducing more flight capacity in the process. “Shippers who have held their nerve and not shipped their peak season goods early by air are likely to find themselves in a stronger buying position,” van de Wouw said.

Deutsche Post DHL will raise its outlook for operating profits after consumer e-commerce demand picked up in the third quarter of the year. The express and postal giant said that third-quarter earnings before interest and tax (EBIT) are expected to reach €2bn compared with €1.8bn last year. Against the backdrop of overall macroeconomic uncertainties, transport volumes in the B2B business reflected a softer demand. (Aircargo News)

China - It is expected that Xi Jinping will receive his unprecedented third five-year term as the supreme leader at the week-long, closed-door congress, which kicks off on Sunday. The economy has suffered under Xi's zero-COVID program: growth will miss a 5.5% target after repeated lockdowns. Gross domestic product is due to be released on Tuesday after growth slowed in the second quarter.

Strong Dollar Pressures U.S. Manufacturing Rebound - WSJ

As I mentioned last week, a rising dollar could damage the commodity cycle, and it was evident in commodity index excess returns. Generally speaking, a rising dollar or even at current levels is not good for commodity markets, energy markets, and emerging markets for capital outflows. Frontier markets are another story, and countries trapped in USD debt are a disaster, as my own island of Sri Lanka has experienced. Dollar and oil divergence since the middle of last year has confused many, as the War began only in 2022. Since the middle of 2021, the USD has been going one way and crushing every other currency in sight. Normally, this is negative for oil, but due to the Russian war, supply-side restrictions, and OPEC's rather embarrassing performance, prices have remained elevated.

Amazon.com to invest over 1 billion euros in European electric van, truck fleet. Amazon.com Inc said on Monday it will invest more than 1 billion euros ($974.8 million) over the next five years in electric vans, trucks and low-emission package hubs across Europe, accelerating its drive to achieve net-zero carbon. The retailer said the investment was also aimed at spurring innovation across the transportation industry and encouraging more public charging infrastructure for electric vehicles (EVs). The U.S. online retailer said the investment would help its electric van fleet in Europe more than triple from 3,000 vehicles to more than 10,000 by 2025. (RTRS)

According to 捷普 's 2022 Sustainable Packaging Survey, 31% of respondents from food and beverage companies said their organization has at least piloted sustainable packaging options, while 47% said they are actively learning and have made good progress on their solutions. Flexible, recyclable hybrid packaging could be an innovative addition to their #SustainablePackaging portfolios.

On a lighter note...