Shipping Logistics

Market Update Q2 2024: No.4

May 23, 2024

All,

"If it was easy everyone would do it" - waves of adversity continue to arrive and seems the entire year has had one thing or another to manage through (Red Sea etc.). On that note, thanks to everyone for collaborating with us through the chaos and we know you are all having to work extra hard just like we are......Just don't forget that working together we will be better able to manage the cargo and crap. We are here for you so do not hesitate to reach out even just for a chat.

Supply

• Ocean carriers are manipulating the supply ratio by curtailing capacity to keep rates up - some of this is legitimate need to tweak services to make up for the Red Sea situation (which many may have forgotten is still happening), repair vessels etc. but it is also a cost savings and market maneuver.
• Check out the attached blank sailing schedule as usual.
• Slow steaming and the very long transits around Cape of Good Hope do in many ways take TEU capacity out of the market by limiting container turns, availability and schedule integrity.
• You actually do need to add geopolitical tensions and yes, weather, to the list of issues as well.

Blank Sailing

Please refer to the attachment for blank sailings and vessel schedule ex China.

Demand

• Demand has been up YOY all year so demand is there (1H I believe was around 11-14% depending on port etc.) and several months ago during the Red Sea crisis we noted that with the routing changes and slow steaming sucking up much of the excess capacity that any disruption would result in significant rate increases.
• Demand forecast continues to track with 1st half so YOY demand of 11% is "expected" to last the year (I am not convinced nor necessarily agree but that is the projection)
• The 1H demand and forecasted demand is a part of this but not the cause of this spike - causes are below.

Geopolitics and Reactionism

• Due to the potential strikes on the east coast ports, companies are booking more freight earlier to compensate for the potential supply chain issues.
• In addition to the USA, South American countries have also implemented up to 100% tariffs on Chinese goods which is shifting some demand - also South America is congested and having their own vessel space/integrity issues.
• Biden’s announced increase on 301 tariffs, for certain steel goods, is prompting heavier demand as many US retailers are ordering holiday goods earlier, due to the combination of the aforementioned.
• This is an overreaction to the announcement in my opinion as the main target is Electric Cars and not the previous metal articles that have already been assessed major tariffs. The filing is not anywhere near done yet, nor is it in effect until probably 2025 but the announcement has caused quite a stir. Not only here but also in China who has also taken some retaliatory actions by selling bonds and I'd expect more actions to be forthcoming as we begin what may become a real trade war.
• Still undecided is how the Chinese Govt will respond with dropping the VAT export rebate tax for Chinese producers which would be increasing cost of goods an additional ~8%.

Where this is going

• Expect ocean freight rates to either stay at the current levels or continue to increase through at least June and stay high possibly through the summer depending on multiple forward looking economic factors that we will get in Mid-June
• In late April and early May 2024, spot rates for shipping containers from Asia to North America soared to two and half times - roughly $2-2500 in a matter of 3-4 weeks, June will add another $1000 for a general $3500 swing in 6 weeks - that's double the rates in March.
• Bookings are now 3-4 weeks in advance on average.
• Carriers are restricting contract rated space (case by case) based on internal factors and offering spot rates and "premium" guaranteed equipment/space service for an additional $1000 or more on top of the current spot pricing.
• Carriers are also restrictive on overweight, rail shipments and especially overweight rail.
• We are basically seeing the Covid playbook all over again on a lesser scale so far

Rail services seem to struggle every year and this year is no different, although with the spike I'd expect a minimum of 7 days delay, most likely more and ongoing through the summer at least.Also and as mentioned before carriers are being much more stringent in their weight requirements, mostly for any rail destinations so the days of heavy/super heavy rail cargo are going to disappear or become very expensive.

Author

Matthew Crocker / CCO