WEEK 35 TOP 5: DISRUPTION TO SUPPLY CHAIN WATCHLIST No.201

- (Following No.200) Ceasefire negotiations have failed once again, despite some progress with Hamas providing a list of hostage names. Significant dissent persists not only from Hamas but also from Egypt, particularly concerning the Israeli military presence along the Philadelphi Corridor, which borders Egypt. A senior Egyptian official reiterated Cairo's strong opposition to an IDF presence along this route, following the Israeli Security Cabinet's decision to maintain their position in the corridor.

The Greek-flagged oil tanker SOUNION, abandoned after being attacked, has been reported to be on fire with multiple explosions. According to the UKMTO report, an allied warship confirmed SOUNION was ablaze but noted no signs of an oil spill at this time. While there have been no vessel attacks from Houthi forces this week, two vessels reported suspicious activities involving unmanned surface vessels (USVs) near Al Mukha, Yemen. On August 27, the Kuwaiti-flagged tanker MUTRIBA spotted a stationary USV along with three small boats, one of which approached the vessel before retreating. A day earlier, the Palau-flagged tanker CAROLINE BEZENGI reported a USV traveling accompanied by two small fishing boats. Both vessels continued to their next ports without further incident.

After last week’s 5.6% decline, the Shanghai Containerized Freight Index (SCFI) has dropped further by 4.3% this week, while Drewry’s World Container Index fell by 3%, reaching $5,181 per 40-foot container. According to SCFI, rates for trade lanes have diverged; rates to Europe declined further due to weaker demand, rates to the US East Coast saw a slight decline, but rates to the US West Coast (transpacific trade) experienced a slight increase. Intra-Asia rates have grown, driven by rising demand.

As per Linerlytica, "the outlook over the coming four weeks is mixed, with carriers hoping that the diversion of cargo away from the US East Coast ahead of potential port labor disruptions in October could provide a boost to the market."

Disruption: Iran's retaliatory strike remains postponed; a ceasefire agreement in the near term appears unlikely. If peace talks suspend, an Iranian retaliation becomes more probable; transpacific trade rates are expected to continue rising in the upcoming weeks

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- (Following No.194) With the summer holidays now over and the German trade union ver.di rejecting two offers from the Central Association of German Seaport Operators (ZDS) in the latest round of negotiations, the risk of warning strikes has resurfaced. The union's rejection of the proposals for the 11,500 employees of the German North Sea ports has reignited concerns about potential disruptions.

On August 30, ver.di called for a warning strike affecting employees at the HHLA container terminals in the Port of Hamburg. The strike, announced at short notice, took place during the first shift from approximately 07:00 to 15:00 local time, and resulted in some cargo delays.

The previous contract between Ver.di and ZDS expired on May 31, 2024. Earlier in July, warning strikes called by the union had already led to the suspension of port operations for up to 48 hours. During the summer holidays, labor unions in Germany had agreed to avoid strikes to minimize disruptions to critical public services, including transportation and logistics. However, with that period now over, the threat of strikes has returned.

Disruption: further warning strikes at the ports of Hamburg, Bremen, Bremerhaven, Wilhelmshaven, Brake, and Emden.

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- Typhoon Shanshan, now a tropical depression, continues to disrupt Japan as it tracks eastward across Wakayama Prefecture, with a forecasted second landfall over Mie Prefecture on September 1. The storm has already caused significant supply chain disruptions and widespread power outages, particularly in Kyushu and the Kanto region.

Shanshan has led to the cancellation of thousands of flights by Japan Airlines (JAL) and All Nippon Airways (ANA), while major rail services, including the Tokaido Shinkansen, have been suspended or reduced. Key expressways and ports, such as Hakata (a container and bulk cargo port) and Moji (a bulk cargo port), have ceased operations, impacting the movement of goods and services.

Disruption: Possible flooding and power outages could further disrupt manufacturing and local road distribution.

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- (Following No.200) The Indian dockworker unions have decided to defer the indefinite nationwide port strike planned for August 28, following productive negotiations with the Indian government on August 27. This decision was facilitated by a Memorandum of Understanding (MoU) reached between port management and union representatives, addressing key worker demands.

The MoU includes a fitment benefit of 8.5% on the total basic pay as of December 31, 2021, along with an additional 30% Variable Dearness Allowance (VDA) effective from January 1, 2022. Once the agreement is formally signed, it will officially conclude 32 months of negotiations regarding this five-year wage revision, which will cover the period from January 1, 2022, to December 31, 2026.

Disruption: No nationwide port strikes are currently anticipated

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- (Following No.200) The Canada Industrial Relations Board (CIRB) agreed on August 24 to Labor Minister MacKinnon’s request for binding arbitration following an unprecedented dual work stoppage at Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC). The CIRB also extended the workers' expired contracts and mandated that the railways resume operations immediately. Furthermore, the CIRB has ruled that no further labor stoppages, including lockouts or strikes, can occur during the arbitration process. As a result, the strike notice issued to CN by the Teamsters Union has been nullified, rendering the strike planned for Monday, August 26, illegal. Both CN and CPKC resumed operations on August 26.

The Teamsters Union stated on August 24 that they would comply with the order and instruct their members to return to work. However, on August 29, the Union filed four separate appeals in a Toronto courthouse seeking judicial orders to "quash" the minister's directives and the CIRB's decisions related to CN and CPKC. The appeals argue that the decisions were "ultra vires" (beyond the minister's jurisdiction) and violated the union's freedom of association as enshrined in the Charter of Rights and Freedoms.

The Teamsters and the two railways are scheduled to meet in September for the first time since the work stoppage to discuss a timeline for binding arbitration.

Disruption: No further rail strikes are expected unless the court supports the union's appeal, though a decision on this may take time.