Shipping Outlook July 2021
Recent months have brought little in the way of relief to international shippers. Volumes continue to soar on major trade lanes, consistently outpacing market capacity. Congestion at US ports, airports, and inland points has not improved. New bottlenecks emerge regularly across the US and abroad. The impacts of major disruption, such as the weeklong Suez Canal blockage this spring, and the June COVID closure and slowdown at Yantian terminals, are long-lasting and reverberate throughout the global supply chain.
New Executive Order
A new executive order issued Friday, July 9 by President Biden includes directives to address anti-competitive concerns in the rail and maritime transportation sectors. Protecting access to capacity for US exporters, and unfair detention and demurrage practices, are two areas of focus. The Federal Maritime Commission (FMC) has been prioritizing demurrage and detention issues in recent years, and is likely to increase investigation and enforcement in that area. Potential action on broad issues such as congestion and sky-rocketing ocean freight prices is less clear. The FMC has avoided matters related to free-market pricing, confirming that rates are not within the Commission’s purview. While the executive order highlights challenges of the current ocean carrier structure, there is little hope at this stage that the US government will attempt to regulate ocean pricing levels that have climbed off the charts over the last year due to an extreme imbalance of supply and demand.
Continued Spike in US Import Demand
Capacity challenges persist, especially on US import lanes. Volumes have increased by double-digits every month for the last 11 months, with a 40% year-over-year increase during the first five months of 2021 alone, according to IHS Markit. Monthly comparisons at this stage are problematic given the COVID-induced slowdown of trade during the early months of 2020, but it’s clear that we are still experiencing a record-breaking period of sustained import growth. Projections for the traditional peak season shipping period continue to climb. The latest figures from the National Retail Federation (NRF) project July import growth of 15.1%, 9.4% for August, and 2.5% for September. The next three months are expected to bring even more intense capacity and congestion challenges than we have seen so far in this unprecedented ocean freight environment.
Importers continue to compete fiercely for space on the Transpacific Eastbound trade. Vessels are booked up as soon as they open for bookings about 4-6 weeks before sailing. Premium ocean freight rates have climbed to levels exceeding $20,000 per FEU to east coast ports. Carriers are routinely implementing new surcharges for priority booking release, equipment release, and congestion. ZIM is one of the first to announce a new congestion fee effective for August: $1,000 per FEU to east and gulf coast ports, and $5,000 per FEU to west coast ports, in addition to all other fees and surcharges applicable for ocean freight.
New service announcements by carriers including Wan Hai Lines and Maersk will provide a marginal increase in overall trade lane capacity. Wan Hai’s first east coast service will bring additional 2,800-4,000 TEU weekly capacity to the market. Maersk’s new TPX service will run between China and LAX, and its TP20 service will provide service from China and Vietnam to east coast ports, including a first-in call at Norfolk. Maersk plans to deploy modest capacity on these new services to start, 3,500 TEU vessels and 4,500 TEU vessels, respectively.
Europe to US imports remain very strong, and equipment challenges continue across the continent. Rates on the Transatlantic Westbound trade have increased in recent months to levels as high as $6,000 – $10,000 to east coast ports. Port congestion is an ongoing issue, causing major vessel delays and port call omissions.
The air freight market is relatively stable. Services are gradually coming back online as passenger travel increases. The market out of China and Southeast Asia will strengthen during the peak shipping season, and will remain very tight through the holidays.
US Inland Congestion
In the US, we are still experiencing severe delays due to port congestion, rail congestion, and trucker and chassis shortages. Nearly all ports and inland rail ramp locations across the country have been impacted. Every gateway is dealing with record container volumes, and cargo movement is slower across the board. Trucker appointments at ports and ramps are challenging. At some inland locations such as Chicago and Kansas City, it can take several days – up to 1-2 weeks in some cases – to secure an open appointment at the rail. These challenges are causing an increase in storage and per diem costs, not to mention cargo delays and inefficiencies in the global container positioning structure.
The US trucking market is the tightest it has been in many years. Capacity is a huge problem in every region. Drivers are being aggressively recruited in an effort to try to keep up with record demand. Costs are rising as well as drivers shop the market for higher paying lanes. Truck power is booked up well in advance across the country, at least a full month in most areas.
For US exporters, July 1 brought the start of TSA’s 100% air cargo screening program. All US air cargo, whether moving on freighter or passenger service, must now be screened prior to departure. Previous regulation required only cargo moving on passenger flights to be screened. This change will mean more stringent packing guidelines for air exporters, and potential delays, especially during the startup phase.
Overall, the international freight market shows no signs of slowing for at least the next several months. Current forecasts anticipate a very strong market through at least Lunar New Year 2022 (early February), and possibly well into next year. Forecasting, communication, and flexibility are most critical for managing these conditions. With dynamics changing so frequently in this market, keeping close lines of communication with service providers has never been more important.
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Director, Pricing & Procurement
CV International, Inc.
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Rachel serves as Director, Pricing and Procurement for CVI. Her responsibilities include vendor selection, contract management and negotiation, transportation pricing, FMC compliance, and international agent network management.
Rachel began her career in international shipping with CMA-CGM America. She joined CVI in 2011, gaining experience in various departments with a focus on inside sales and marketing for the company. In 2014, Rachel assumed the role of Manager, Transportation, working on service procurement and development of client proposals. She has served in her current position since 2018.
A native of Norfolk, Virginia, Rachel earned her bachelor’s degree from the University of Michigan in 2005. She holds a Master of Business Administration with a concentration in Maritime and Supply Chain Management from Old Dominion University.
– Rachel Shames, Director, Pricing & Procurement, CVI
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