Ocean rates have been hovering in the clouds for a long time, opening up airspace for new players. This time for Maersk.
Maersk is not just buying everything on its way when it comes to the expansion of its marine fleet, but it is also doing the same in the airfreight sector. It is already a shipping giant, so now the company is planning to expand its presence in the air. This is not something new – back in the day its competitor CMA CGM pushed more into airfreight. Maersk’s ambition is to have approximately 1/3 of its annual air tonnage carried within its own controlled freight network. The initiative is possible thanks to the company’s outstanding performance – with revenues up 68% year-on-year to $16.6bn. Switching to a more promising transportation sector does seem like a wise strategy as congestion continues to saturate the future. The local pain points have proven to have caused damage worldwide so it is no wonder that the US is calling for international support. During the G20 summit, the participants agreed that the key is in cooperation between government and the private sector that can better anticipate and respond to shortages that may be coming down the pike. The concerns are justified because of the alarming delays and moreover, the environmental threat the misfortunate blockages in southern California possess (despite the Port of LA meeting its emission goals earlier than 2023). The conditions are complicated and the government is working closely with the ports to improve cargo velocity. So far, it is the infrastructure improvements that have been the focus of the authorities. California’s agreement with the US Department of Transportation will work on a series of projects amid to improve financial context, facilitate environmental development, etc.
While the big plans are still in the making, the shipping lines continue riding the wave of success. If before the profits seemed only sky-high, now they are cosmic. The recent updates have shown, that the big players are on the way to unimaginable (in the past 20 years) $200bn. Some of them are even expanding – China Merchants Energy Shipping has taken control of Sinotrans Container Lines in a deal worth around $344m. The trend of the lines’ domination is expected to keep up as forecasts assume a relatively more resilient freight rate and current shipping conditions to persist in 2022. Speaking of the former, the forwarders are still trying to negotiate for long-term freight contracts aiming for the predictability. However, the clogged supply chains are making it impossible. At the same time, surcharges keep risingdue to the remaining elevated demand and tight capacity. The new Peak Season Surcharges will be US$1,000 per unit of all types for Europe and America. Paired with disrupted schedule reliability, more and more carriers will show low performance. Evergreen has already set an unimpressive bar – it has managed to get just 13.2% of its ships into port on time in Q3. With hundreds of ships still waiting at berth, the situation will remain troublesome, if not worse, it risks accelerating.
Despite the uncertain future, India is doing much better in the present. Although never-ending congestion has caused severe headaches to the supply chains all over the world, the country seems to have gotten its external trade in control slowly and gradually. The focus on technological advances is its main priority now in attempts to reduce dependency on ships. As for the innovation, is the hyperloop still a dystopian technology? At least, in the Netherlands, it is becoming more realistic for cargo. If it is implemented, it will result in a one-million-tonne reduction in CO2 emissions and could lead to a significant improvement in air quality. In addition, it requires fewer investments than the ones in road. The discussion has been brought to the table by Hardt Hyperloop in light of its collaboration with other companies.
Winter is coming and so is more energy consumption. Rail, being traditionally the go-to alternative method of transporting cargo, has been put under close investigation in the UK as to whether it is that worthy of investment. The concerns have been awakened by the fact that increasing energy costs may discourage freight operators from sending freight by rail instead of reverting to road transport. However, with all the investments being made and overall support of the intermodal shift to rail, the concerns were soon bashed. At the same time, the DB Cargo and DHL back railway focus by planning to transport more parcels by rail. The joint effort will open new possibilities for cargo flows between the companies. In addition, the sector has welcomed a new connection between Italy and Russiawhere all types of cargo can be transported from heavy goods to alcohol. With all the developments, there is should be something to celebrate with, shouldn’t it?
Perhaps, Amazon will not be able to share the festive mood for quite a while. Halloween might be over, but the nightmares are not. The company is bracing itself for several billion dollars of additional operating costs by the end of the year due to staff shortages, decreased transport capacity, etc. Even its recent initiative to invest in the expansion of its own in-house delivery capabilities is worth it. Meanwhile, DP World is setting its own distribution hub with OASIS Group to facilitate trading infrastructure.
Although the week kicked off with rather high hopes regarding plunged leasing and trading prices, it was soon covered in hues of increasing electricity rates and insurance fees. In addition to the already big bills, shippers that are waiting for their cargo to get through the congested ports in California will also face more charges for having their ships at berth. It seems like if anyone ever manages to drag themselves through these blockages, the survivors will end up having empty pockets. Containers are being stuck on top of each other to save space while some players choose non-operational ports to gain more capacity. Big financial expenses are forcing countries to speed up the development of their logistics and transportations sectors. Thus, China is vigorously moving towards Europe, strengthening its connection with the Port of Hamburg and relying on the recent acquisitions. Russia follows suit and embraces the development of rail. Big changes are on the way thanks to its project designed to connect the ports of the Pacific and Indian Oceans with the Northern Sea Route.
Environmentalists have been alarmed by the fire outbreak on the ZIM ship that has sparked concerns about whether it would be harmful to the waters around it. However, despite the incident, green direction has seen a significant breakthrough in the past several days. The contributors are the Port of Long Beach that has reported record reductions in diesel particulates and nitrogen oxides, meeting its 2023 goal, and more companies that are switching to sustainable fuel. As usual, MAXMODAL remains your reliable source of the latest updates. Sign up to stay tuned.
Nothing encourages more to take action than success of the competitors. Following the ambitious plans of China, Russia unfreezes its intentions to become the leader of the Eurasian corridor.
You know it is not a drill when big giants like Maesrk warn that the situation is alarming. This applies to China’s power curbs that continue to hold the industry in fear of the financial losses that they are causing. Power prices may rise to 20% higher than current levels or to pre-approved benchmark prices set by the government. Paired with rising raw material costs, port delays and shortage of shipping containers, this news is suffocating shippers with the already tight belts. With the crippling winter, the country will face the general need for electricity, which will surely have an effect on the supply chains. However, Maersk is not doing that bad on its own despite the disrupted schedules. The new updatesshow that overall, the reliability improved marginally in September 2021 by 0.6% to 34%, maintaining the range of 34% - 40%. This plunge is also followed by the drop in spot rates as soon as everyone has accepted the fact that goods will not be delivered on time for Christmas. Asia-US rates fell by more than 6% on both coasts and Asia-US West Coast prices are now 22% below the mid-September peak. Delays are the new reality that is impossible to escape because although rail and road play a vital role, they are at full capacity and cannot help the marine sector. If it seems like the shippers are already paying a lot thanks to all these constraints, the authorities of the Port of LA and Long Beach do not think so. From now on, they will charge $100 per container for boxes dwelling nine or more days that move by truck and those dwelling six days or more that move by rail. What is the point? The plan is to forcibly unclog the terminals and get containers moving faster, however, experts predict catastrophic consequences. Not only will the ports suffer. In addition to the shippers’ misfortunes, there are now worrying updates on imports. Although the import boom of cargo into the US is now sufficient to keep pace with sales, it is still not high enough to rebuild retailer inventories. It is believed that part of the physical problems in the supply chain in the US is capacity problems in the warehouses while some sectors see rapidly escalating inventories, meaning they need to get more warehousing space leading to shortages.
The motto “if there is not enough space, expand” seems to have been imprinted in the strategies of the players worldwide and Russia is no exception. Following China’s ambitious railway projects, the country has picked up on its abandoned plans regarding the intention to connect the ports of the Pacific and Indian Oceans with the Northern Sea Route.“Siberian Meridian”, includes construction sites such as the Northern Latitudinal Passage, and new thousand-kilometer lines in Siberia and the Arctic. The project has already attracted significant investments and the attention of Gazprom and other hydrocarbons’ majors. It is aligned with Russia’s strategy to strengthen the railway sector. Moreover, it has recently launched the rail freight service connecting Rotterdam with Moscow. Is the new Eurasian corridor on the way? As China moves forward – in all frontiers as it announces the opening of the new shipping route the Yangluo Port and Busan Port – Russia is looking for a New Silk Road alternative route with a potential ally with Kazakhstan.
The alternative routes are as necessary as alternative means of transportation. Especially when the airfreight is still turbulent. Spot prices this week from Hong Kong to Europe rising to $7.24 a kilo, with rates from Shanghai to Europe trailing a little at US$6.59/kg. The calmest direction is still the EU where the demand is steady. However, the debates in the UK over CHIEF to CDS may cause trouble at the customs. Meanwhile, Britain introduces the initiative amid reduce CO2 emissions and bypass highly strained truck networks by carrying packages on commuter trains. Another breakthrough is made by Nokia joining DB Schenker and Lufthansa Cargo’s effort to extend their weekly CO2-free freighter flights. The company will use the world’s only freighter flight running on 100% Sustainable Aviation Fuel produced from renewable waste. The shipping sector has been fruitful for the green results as well. The hard work has paid off in the Port of Long Beach that has reported record reductions in diesel particulates and nitrogen oxides in 2020, meeting its 2023 air goals. The port has never been close to its goal to go emission-free as it is now.
The elevated demand for overland cargo routes and the fact that more ocean freight forwarders are experiencing intermodal shift have pushed Geodis to expand its Southeast Asia road freight network to Vietnam. The decision is justified by the significant upward trend moving via FTL in this direction.
Another link between the EU and China has been strengthened. The Port of Hamburg and the Piraeus Port in Greece have topped the list of the recent Chinese partners.
Lately, China has been confidently expanding in the European direction and now we can see the results – the first container block train has arrived at the Port of Hamburg from Shanghai commemorating the beginning of the significant partnership that goes far beyond collaboration in the transportation sector into education, culture, and science. In addition, the country has marked its milestone in cooperation with Greece thanks to COSCO Shipping that has increased its stake by 16% for the Piraeus Port Authority. The focus on the marine industry is justified by the government’s concern that the railways might not be able to handle sky-high rates. There are now talks that this year will probably be the last year for the Chinese government to subsidize the train services on New Silk Road, but the decision will introduce more opportunities for the launch of the new reefer container and re-shape of goods structure. However, it will also provoke the imbalance of eastbound and westbound traffic, which has already taken place. China Railways has released an official mandate to stop the loading of outgoing trains via the border with Kazakhstan due to the big backlog. Numerous trains are waiting to cross it, and there are no alternatives so far.
France, on the other hand, is pushing towards rail development by drawing the national plan in order to reverse rail’s lost market share during the coming years. The most attention will be focused on three market segments: single-wagon transport, combined transport, and intermodal transport that align with the general European agenda. The coming partnership with Belgium may come in handy. The port of Zeebrugge is planning to expand its inland connections by launching a new direct rail freight connection to Marseille. Strengthening the ports positions by enhancing railway connection is a great move especially when the ports all over the world have been significantly weakened. The latest victim of congestion is the Port of Seattle. The 2M carriers, Maersk and MSC, with VSA partner Zim, will drop it from the schedule for the time being. Meanwhile, container volumes keep rising with China reporting a 10% increase in throughput.The largest increase comes from Beibu Gulf Port with a year-on-year increase of 19.1%, processing 4.19 million TEU. As containers pile up, some companies come up with creative ideas on how to get their materials and goods delivered. One of them is UCC, a Qatari construction company, that has opted to use bulk carriers from China to complete an express mega construction project. The move is another example of the trend of repurposing and strengthening bulk carriers to carry containers that started earlier this year. Among other strategies that companies are trying to use are the attempt to diversify sourcing and add capacity. Retail, construction business and now, pharma have become the victims of supply chain disruptions. The latter claims that the global semiconductor chip shortage is causing delays, order cancellations and other supply shortages for medical device companies.
Can the freeports take the fire on themselves? The areas where tariffs on imports are either substantially cut or waved in a bid to stimulate economic growth can significantly improve efficiency. Thames Freeport will open for business in November and will connect all freeport sites to the consumer markets of London and the South East, creating the infrastructure for an innovative and green trading corridor.
The recent fire on the Zim Kingston has sparked many concerns regarding the possible environmental damage, however, it has been confirmed that the smoke is dispersing. The fire onboard is now said to be limited to a number of hotspots. Additional losses have been taken place – although initial reports indicated that boxship lost 40 containers overboard during the storm, that number has been revised upward to more than 100 boxes. As for the green agenda, it seems like the use of drones could offer an unprecedented opportunity for the logistics industry to cut CO2 emissions for local delivery by half. The problem comes with regulations allowing UAVs to fly beyond visual line of sight and integrate with other air traffic, as well as the need for well-structured regulation that defines the roles and responsibilities of all stakeholders that utilize airspace.
Regulations are often a stumbling stone in the way of development. For instance, Northern Ireland is still under the jurisdiction of certain EU rules, and checks remain in place for goods entering from Great Britain. The issue is taking a lot of time to resolve in the post-Brexit framework. The future of the protocol guiding the UK-EU trading relationship is now under everyone’s gaze.
As stakes rise higher and competition increases, Maersk was reported to cut off some forwarders, focusing on bigger clients to achieve more profit. However, the company has rejected the accusations by diplomatically stating that its rejections to some customers are based on the strategy to enhance the unpredictable reliability of the market. Meanwhile, there are rumors that Maersk is going to acquire Hamburg-based SME freight forwarder, Senator International.
Many experts are testing the waters by voicing out positive prospects about the future as trading and leasing prices in China show a more confident dynamic of decreasing. The recovery still seems distant especially when ports start building “pyramids” of the piled-up containers.
Now when the dynamic of container prices in China for trading and leasing seems to be gradually plunging, it seems like we can start making very cautious statements that the situation is improving. Although it is still a matter of time to see how the market will respond with all the US port congestion and continuous challenges with the rail sector wherethe boom in China-EU rail freight is bringing blockages at key border crossings, there are good signs of the market correction. Average trading prices in China fall by 22% and leasing rates in China went down by 35%. If the prices do not decline further, perhaps, this trend can be considered a response to the upcoming Golden Week in the region. The container throughput has been enormous anyway, having reached 211 million TEU, representing a significant growth of 9.5% in comparison to the last year. The port congestion on the west coast of the northern United States has led to poor liner transportation turnover from the main Chinese ports to the ones in the States. To tackle the problem, the City of Long Beach issued an emergency order allowing businesses to temporarily increase how high they can stack ocean containers. This will apply only to apply to properties that are currently zoned. However, the root of the problem is in the fact that containers have few places to go because warehouses are overwhelmed, so the introduced measure is going to be nothing but a mere Band-Aid.
Meanwhile, on the other side of the world, instead of building “pyramids” of containers, Singapore is using its non-operational Tuas port to ramp part of its capacity while the Port of Singapore is going round the clock. In the big picture, it is obvious that ports are ticking to a more or less similar strategy. What other patterns can we expect in the future? Many experts predict that the government will take a more active role in 2022 because the crisis has reached so far that the private companies will not be able to resolve it on their own. Although the new regulation might involve tightening some areas of liability between parties, they will not govern capacity, equipment, or inventory. It is a pity that it has taken a massive, international disruption for the industry to reset, however, the future is bright according to the majority of the experts as everyone is bracing up to solve such fundamental problems as how we spend consume, and transport goods.
The road freight is in tune with the positive forecasts. At least in Europe. Despite the struggles with labor shortages, Brexit, and supply chain dysfunctions, it is showing signs of recovery. The data shows that it will be back on track by the end of 2021, with an exception of being slightly smaller than it was in 2019, by 1.5%. The latest report also highlights that one of the biggest contributors for improvements should be digitalization including digital forwarders, marketplaces, and TMS providers.
Apart from the big role of digital space, infrastructure improvements will have the back of the railway freight. A recent example is Norway where thanks to continuous development, it has become possible to expand fish industry capabilities by acquiring rail transport options. The new train service launched by OnRail will run along the Nordland railway line, the country’s longest route, starting from Bodø and reaching Trondheim. In addition, the company has ordered a couple of EuroDual locomotives to improve its services.
Are the prospects as promising when it comes to sustainability? The recent fire outbreak on the ZIM Kingston spread over 10 containers and aused serious environmental concerns. Although no damage has been reported, there is fear that the potassium amylxanthate carried in a couple of the overboard containers can form a flammable gas from contact with water. On a positive note, ÖBB Rail Cargo Group has taken another step towards green mobility – it is going to use eco tracking in the Czech Republic. Moreover, the sustainable transport scheme will be implemented on the Brno-Budapest and Melnik-Hamburg intermodal services, which is very vital if we take into account what role rail transportation takes in the nowadays world.
It is not a secret that shipping lines were using the mess in surcharges as a tool to trick their customers to follow the desired contracts and agreements, however, as soon as the tables turned, they flipped off and were quick to penalize the forwarders that have been taking contract rates, of some $4,000/feu from Asia to Europe, and reselling to customers for a price that is more than double. It does not feel good to be on a losing side, especially when some ports are going back to the pre-pandemic levels of throughput with no changes in capacity and elevated levels of worldwide congestion. The pressure from the environmentalists also does not add up to the table, as they demand to speed up the transition to an emission-free future. Will synchro-modality save the game? The transportation industry is becoming more and more like a web, so some experts believe that the key to faster recovery and following agility will be in transparency and cooperation among international terminals.
Embracing the interconnection has a strong potential, especially since one sector is doing better than the others and can become a much-needed catalyst for the change of the weaker ones. The railway industry has welcomed a new freight service launched from China to Russia, new electric locomotives that will be especially useful during heavy train operations, and much more that can be found on MAXMODAL. Sign up for the updates.
So far, the interconnected character of international terminals have been perceived as nothing but the reason of the domino effect and negative consequences, but what if the industry embraces it?
The roaring twenties of the 21st century surely have brought many surprises, and as the congestion crisis unfolds, the masterminds all over the world are preoccupied with finding the way out. It may seem that everything has been tried: around-the clock schedules, expansion of facilities, etc., and yet a new solution has emerged. Barge owners are calling for port operators to adopt “synchro-modality” based on complete reimagining” of how supply chains operate. The crisis has proven the interconnected character of all industry players, thus the focus must be on all stakeholders sharing vital information with each other, so that goods can move faster, more efficiently and as if there is a big wide web connecting international terminals. If we look at the current congestion state, it follows a 50/20/30 rule, in which 50% of capacity moves by barge, 20% by rail, and 30% by road. This would require prioritizing quay capacity, ensuring frequent rail services and ample gate space for trucking. Some companies are already building a system to fit this premise. Meanwhile, developing the routes promising sufficient volumes is another go for the win. The new Hamburg-Shanghai route can be one of such routes. The first eastbound train launched by DB Cargo Eurasia has the potential to keep exported volumes at a high level. However, it will still take time for synchro-modality to take off and the new facilities to have a desired impact on the congested supply chains; for example, the US ports are still struggling in California with $26B worth of cargo. In the meantime, such clogged ports as the Port of Felixstowe are still being omitted. Maersk reports increased consumer demand due to the approaching Christmas and the negative effect the UK bottlenecks are going to cause. At least the rates have plunged by 22% just in time for the new peak season. Moreover, in an attempt to attract large shippers, Maersk is going to handle only cargo from direct shippers, cutting out freight forwarders starting on November 1. Not all it seems – Maersk is seeking revenge because of the forwarders that have been taking contract rates, of some $4,000/feu from Asia to Europe, and reselling to customers for $20,000/feu. The “punishment” has not waited for too long to arrive.
However, if we look at the companies that really use Christmas as the main driver of changes, here comes China United Lines that has launched an express service to the Port of Tilbury to meet shipping demand. It is a big breakthrough because until now most liftings to the UK were delivered to Felixstowe (a new pain point of the EU), Southampton or Liverpool. The step aims to increase capacities, which comes on time with the new dynamic of the European ports – some are going back to the pre-pandemic level of container volumes. The same trend is at ports along the Gulf Coast because of the crisis on the west coast. Unfortunately, it seems like congestion in the UK will not be the only trouble – full customs declaration will come in full force at the beginning of the new year with no mercy for the pleading shippers.
Having identified the shipping sector as one of the main influencers on climate change, the environmental organizations have also granted it certain responsibilities such as a sped-up transition to carbon-free operations. The new deadline is 2030 despite that the big retailers chose 2040. The latter is decided as the most realistic one, according to the players. Nobody is refusing the commitments, however, it seems like the question of the deadlines will be the new stumbling stone between the industry and NGOs.
This week is topped with another railway freight service launched from Jinan, China, to Vorsino in Russia by Ruscon. Covering the all key transport hubs in Russia is the company’s primary strategy on the way to development and expansion. Jinan is an important point where the highways from Beijing and Qingdao intersect.
