MARKET UPDATE – December 2022

The easing of supply chain pressures, attributable to many factors such as global inflation, the ongoing conflict in Ukraine, and the majority of the world, including China, entering a post-Covid new normal, has led to container freight rates returning almost to pre-pandemic levels. This suggests that ocean carrier profits in 2023 may be a lot weaker than they have been over the previous three years. In our December Market Update, we examine the outlook of 2023 for the container freight industry and what challenges they will most likely have to contend with heading into the new year.  

Our updates are always published with the objective of helping you navigate the ongoing industry challenges and move freight at the right time and cost. We gather market intelligence from our global offices and provide you with a selection of the most relevant news related to ports, ocean freight, world trade and other information that may impact your supply chain operations. 

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CENTURY SPOTLIGHT

With the minor rebound of freight rates from Asia last month proving to be merely a false dawn in hindsight, the outlook for shipping rates in 2023 is not as rosy as it seemed even a month ago. The rampant use of blank sailings following China’s Golden Week provided only a temporary reprieve from the perpetually falling freight rates which, from week 50 to 51, saw Asia-US West Coast and Asia-US East Coast rates drop by 3% and 10%, respectively. The main risks to ocean carriers heading into the new year stem from uncertainty over the availability of Chinese goods and the impacts of dampened consumer spending amid rising inflation and fears over a harsher-than-expected global recession. 

A shift in consumption patterns back towards services has seen a significant reduction in consumer spending away from goods as demand for travel and leisure activities has begun to recover following the sharp drop off caused by the Covid-19 pandemic. The fall in demand coinciding with the significant easing of port congestion in the latter half of 2022 is leading to decreased supply chain disruption and thus limiting the potential for carriers to inflate profits through a deficit of supply. Carrier profits may be challenged as rates normalize back to pre-pandemic levels as soaring fuel prices and general inflation are making operational costs much higher than in 2019.  

Following the limited impact of blank sailings in Q3 of 2022, it seems unlikely that any further attempts to rebalance supply with demand through this method will be successful. Shipping liners face a further risk to their 2023 earnings as the annual contract rates, which are currently much higher than the current spot rates, will be reset at the beginning of the next contract year. All of these challenges combined are making for a not-so-enticing transition into 2023 for ocean carriers, and with diminishing returns on efforts to curb supply, liners will need to promptly produce new solutions to their profitability predicament.

Ocean Update: 

• CMA CGM launched their AMERICAS XL service in December 2022, which offers a direct, weekly connection between the US East Coast and the South American West Coast. The service features 100% CMA CGM operated vessels and offer competitive transit times for the transportation of perishables and fresh fruits between the two continents. Connections to the US Gulf, South American East Coast, Mediterranean and Northern Europe are available via Kingston and Cartagena. The first Northbound voyage departed from Callao on December 20th, 2022, whilst the first Southbound voyage will depart from Port Everglades on January 8th, 2022. Port rotation schedule is as follows: Everglades – Philadelphia – New York – Kingston – Buenaventura – Callao – San Antonio – Guayaquil – Cartagena – Port Everglades.

• The CMA CGM Group has signed an agreement, subject to regulatory approval, to purchase two terminals at the Port of New York and the Port of New Jersey. The acquisition of the heavily automated GCT Bayonne and GCT New York terminals comes as part of the France-based shipping company’s ambitions to expand its capacity in the US, with these new purchases becoming the 6th and 7th CMA CGM terminals nationwide, respectively. The East Coast terminals currently have a combined capacity of 2 million TEUs annually with the potential to handle double if expanded.

• Maersk has added the King Abdulaziz Port to their Shaheen Express service beginning December 2022. The port, located in Dammam on Saudi Arabia’s East Coast, will be a key component of the India-UAE-Saudi Arabia corridor that has been ever expanding in both volume and demand since the implementations of the India-UAE Comprehensive Economic Partnership Agreement in May 2022. The service will include mostly FMCG commodities such as electronics, textiles and perishable foods and will also serve petrochemicals exporters from Saudi Arabia. The weekly service, with a capacity of over 1,700 TEUs, commenced its maiden voyage departed during the last week of November. Ports of call are now as follows: Dammam – Jebel Ali – Mundra – Pipavav.

CENTURY EXPRESS – YOUR TRUSTED NVOCC PARTNER

Century Express holds contracts with multiple ocean carriers and helps you realize schedule flexibility for your shipments. With Century Express as your NVOCC partner, you will have complete visibility of your shipments in VMS® as our NVOCC division leverages VMS® as the operating platform. We also consolidate NVOCC invoicing with your existing invoicing, keeping the number of documents issued for multiple services transparent and at a minimum. We engage with each carrier alliance and other independent carriers to ensure that we can provide choices and backup options to our customers. In addition, you can even leverage our LCL freight forwarding services to explore new sourcing opportunities in countries where you are not currently shipping to/from or have a contracted carrier. Contact your Century Representative today to learn more!

Port Update: 

• Coastal feeder and barge services in South China will be partially suspended due to the quarantine requirements imposed upon crewmembers. From January 1st to 31st, 2023, a portion of the regular coastal feeder and barge services operating between the smaller ports in the Pearl River Delta (PRD) area and larger maritime terminals in Hong Kong and Shenzhen will be temporarily halted and operated as ad-hoc services or extra loaders. Some ocean carriers including CMA CGM and Hapag Lloyd announced they will limit routing and suspend the acceptance of hazardous, reefer and Out Of Gauge (OOG) cargo bound to the South China ports. Normal services are expected to resume after the Lunar New Year in early February 2023.

• In South China, the estimated vessel waiting time is 0-1 days in Yantian and 0-2 days in Shekou, whilst overall yard utilization is at 81% and 85-89%, respectively. In the Shanghai ports of Yangshan and Waigaoqiao, the average vessel berthing time at both is 0-1 day.

• San Pedro Bay twin ports of Long Beach and Los Angeles have announced that they will end the container terminal dwell fee on January 24th, 2023. The decision to end the program, which threatened to fine ocean carriers who left cargo at marine terminals for longer than nine days, comes as one of many signs that port congestion on the US West Coast is easing. Neither of the two ports have collected a container dwell fee since the program was introduced in October 2021, but San Pedro Bay officials have stated that the threat of a fee has contributed to a 92% decline in aging cargo in the past 14 months.

• The Port of Savannah has announced that it will transform its 200-acre breakbulk terminal into an all-container operation and realign its docks in order to better accommodate container operations. The renovations are set to begin in January 2023 to help the port, which just saw its busiest October on record, contend with the recent rising container volumes due, in part, to the re-routing of West Coast bound vessels to the East Coast in response to concerns over congestion and strike-related logistical impacts. Completion is expected by 2026. The transformed ocean terminal will offer 2,800 linear feet of berth space which can accommodate two large ships simultaneously and include expanded gate facilities capable of an annual capacity of 1.5 million TEUs. Breakbulk cargo by Wallenius Wilhelmsen Ocean is to be transferred to Colonel’s Island Terminal in Brunswick.

• Port of Savannah waiting time is 0-2 days on Class 1 and 12 days on Class 2. There are currently 22 cargo vessels waiting at port. Berth capacity remains limited during the port’s major two-year reconstruction project, which is expected to be completed in June-2023. Terminal capacity utilization is currently at 61%. The average dwell for imports is 9.0 days whilst the average Dwell for exports is 7.2 days.

• Terminal utilization at the Port of Charleston is as follows: 41% at WWT, 52% NCT, and 29% at HLT. The port is operating without any berthing conflicts and there are currently no vessels waiting to enter. The average wait for berthing is currently at less than a day.

Please refer to the below illustration of Century’s assessment of the operating status at the major origin ports throughout Asia.

Landside Update:

• On December 2nd, 2022, US President Joe Biden signed the legislation which imposes his originally proposed labor agreement on all rail unions, eliminating any possibility of a national rail strike. The deal had previously been rejected by four of the twelve rail unions due to the omission of paid sick leave. Congress intervened under the Railway Labor Act of 1926 to draft the bill, ratified by The Senate, which forced the acceptation the original deal. The new legislation, now signed into law, covers the 2020-2024 period, after which a renewed round of rail labor negotiations may be launched.

• The truckers strike in the Republic of Korea came to an end after 16 days following a majority of union members voting to return to work. Of the 26,000 unionized truckers in Korea, 13% participated in the vote, resulting in a 62% vote in favor of ending the strikes. Some branches of the Cargo Solidarity Truckers Union had already decided to resume work operations before the vote had taken place. The government’s original offer of a three-year extension to the ‘freight-rate system’, guaranteeing minimum earnings and operations-based subsidies, has now been accepted.

• Trailer owners in the city of Chennai, India began an indefinite strike on December 15th, 2022. The decision by the Tamil Nadu All Sea Ports Contractors Welfare Committee stems from there not being an increase in transport rates for over eight years despite increasing diesel costs. This is the second strike this year following a first in July 2022 revolving around the same topic. Century’s local office is monitoring the developments closely. As the strike is indefinite, shipment delays out of Chennai are expected during the work stoppage, along with some backlog following a resumption of operations in future.

Asia Pacific Local Update:

• The Lunar New Year is fast-approaching and will fall on January 22nd in 2023. Most offices, warehouses, local customs, and factories in China, Hong Kong SAR, and Taiwan, will be closed during the relevant holiday periods, while ports and terminals will continue to operate as usual. Century will have skeleton staff on duty to handle any priority shipments and will send out further advisories to communicate the detailed office closure details.

• The National Health Commission (NHC) of China reported a total of 35,298 active cases, including 1,995 new, on Sunday December 18th, 2022, representing a 7% decrease from last week’s active case numbers. Following the restructuring of anti-pandemic control measures and the criteria for classification of ‘high-risk’ areas, China currently has just 23 areas of the country designated as ‘high-risk’, a 99.5% decrease over the past week. Guangzhou and Beijing recorded 846 and 314 new confirmed cases, respectively, however, both cities have no ‘high-risk’ areas.

• Cross-border trucking between Hong Kong and Guangdong province in China have begun the ‘point-to-point’ system which requires drivers from both sides to declare their planned route in the ‘Kua Jing An’ app before travelling, and then strictly follow their transportation schedule once approved. Cargo deliveries can now reach their end destination directly rather than having to offload cargo at the border as before, increasing the efficiency of same-day entry and exit operations. Following the scrapping of the health code system in Hong Kong in this month, only cross-border movements by drivers based in Guangdong Province will result in truckers being assigned a yellow health code upon return. Two PCR tests and five days of antigen tests are required for Hong Kong-based drivers, which are the testing requirements for all arriving into the city.

Trade and Economic Highlights:

• The EU and Chile have agreed to a new Free Trade Agreement (FTA) 20 years after their first one. The FTA negotiations concluded in Brussels on December 9th, 2022, where the Chilean Foreign Minister and the Executive Vice-President of the EU Commission agreed upon a more far-reaching, ‘Advanced Framework Agreement’ that would slash most tariffs between Chile and its third largest trade partner. Chile mainly exports vegetable products and raw materials to the EU, whilst trade going in the opposite direction is typically machinery and chemicals. The FTA aims to increase the ease of access to the Chilean market for EU companies as well as enable Chilean companies to more easily export raw materials which are critical to the EU’s green power initiative.

• The US Trade Representative (USTR) has extended the current tariff exclusions for 352 products from China. The tariff exclusions were originally implemented in March of 2022 and were due to expire at the end of the year. However, the USTR has extended the exemptions for a further nine months. Exempted products include everything from X-ray tables to baby blankets to laminated bamboo. The impact of the tariffs and tariff exemptions will be analysed during the USTR’s ‘four-year review’ of the Section 301 tariffs that were imposed on products from China in 2018, with the USTR accepting comments on the tariffs until January 17th, 2022, after which the full review process will commence.

Century Solutions:

Besides our suite of tools in VMS® that power your supply chains every day, the following solutions we offer provide you with alternatives to maximize the efficiency in your supply chain operations and mitigate the ongoing industry challenges.

• Warehouse Storage – Besides the normal CFS cargo flow through our warehouse network, we can also work with you to take on dedicated storage space to accept vendor deliveries based on their production schedules. This can help to alleviate pressure at vendor facilities while also ensuring that your cargo can be dispatched as soon as carrier space becomes available.

• Value-added Services – The wide range of value-added services we provide at origin CFS, such as pick and pack, consolidation, labeling, and palletization gives you a one-stop solution for greater supply chain efficiency. Century can build direct store loads from our Asia CFS facilities to bypass transloads/DCs and streamline inbound delivery.

• Origin Trucking Solution – With support from your carriers, we can arrange trucking to alternate ports where carrier space may be more readily available, allowing for greater flexibility in space planning to achieve forecasted departure dates.

• Destination Services – Our physical network in North America extends beyond the primary shipping hubs in California. Our coverage in the Pacific Northwest and the East Coast gives you alternative storage and transload options, as well as other destination services such as pick and pack and cross-dock services throughout the United States and Canada.

• Customs Clearance & Brokerage – Our team of licensed brokers and compliance experts will handle your documentation and clearance process directly with US Customs. As your trusted trade compliance partner, we help you avoid costly delays at the border and penalties for misfiling.

Talk to your Century Account Manager or contact a sales representative today to understand how we can develop a customized solution to meet your supply chain needs! We will continue to work together with your teams to navigate these unique shipping times through every step in the supply chain.