For container lines and ports, what a difference a year makes
A year ago, maritime operators were laying up ships and canceling sailings. By the close of 2020, ship lines were awash with freight, swamping U.S. ports. What’s next?
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
A year ago, as ship lines entered 2020, they were laying up vessels and canceling sailings in response to soft volumes, while also facing the looming impact of new emissions standards that mandated use of ultra-low-sulfur fuels or equipping ships with exhaust-cleaning systems.
Then the pandemic arrived. Volumes in an already tepid market fell off the deep end. Ship lines parked more vessels. Ports cut operations, sent employees home to work, and took other measures to adapt.
“When production [from Asia] slowed and ship lines canceled sailings, we saw double-digit drops in cargo” from the spring a year ago, recalls Beth Rooney, deputy port director for the Port Authority of New York & New Jersey.
Then just as quickly as volumes disappeared, they returned—with a vengeance.
“As we ended July in negative numbers, and turned the page to August, we went from a double-digit decline to a double-digit increase,” with strong volumes continuing through November, Rooney noted. That reflected shippers who were responding not only to the pandemic’s initial impact but also to concerns over a second wave. “In anticipation of another shutdown, they are throwing as much cargo into the supply chain as they can, creating a ‘just-in-case’ supply chain,” whereas before, the industry convention was to embrace just-in-time practices, which limited on-hand inventories. “The port as a community has had to adjust very quickly.”
“THE WEIRDEST ECONOMY” IN MEMORY
The initial pandemic-driven surge turned out to be the opening act in a historic uptick in ocean cargoes, catapulting 2020 into, in the words of one port official, “the weirdest economy” in memory. What was normally a spring and summer peak season was supercharged by pandemic-related consumer buying of goods of all types, as well as a crush of orders for personal protective equipment and related health-care supplies. Add to that massive inventory rebuilding by supply chain managers who shifted from just-in-time to just-in-case tactics. And then the traditional holiday shipping surge joined the party.
By November and December, demand, particularly in the all-important Asia-Pacific–to–North America trades, was off the charts. Containership lines pivoted and put every vessel they could muster on the water.
The flood of ocean cargo isn’t expected to ease soon. The consensus among industry executives is that the surge in cargo and the dearth of container capacity will continue well into 2021. And as the U.S. copes with a renewed surge in Covid cases, just-in-case supply chain stocking is expected to keep trucks and warehouses full into the spring.
All this has meant historic records—and unprecedented challenges—for many U.S. ports. In October, the Port of Long Beach handled over 806,000 containers, an all-time monthly record, says Mario Cordero, the port’s executive director. “That’s the first time we reached that milestone in our 100-year history,” he notes. “Add to that what L.A. [the Port of Los Angeles] moved and you’re talking about 1.7 million containers” moving through the Greater San Pedro Basin complex. “That’s more containers than most of our major gateways in the U.S. move in a year,” he says.
And the beat played on. November’s volume of 783,523 TEUs (20-foot equivalent units) at Long Beach was a record for that month. In early December, the San Pedro Bay resembled a giant containership parking lot, with some 20 vessels at anchor waiting for a berth.
While the record volumes certainly presented—and continue to present—challenges, Cordero cites several complete or near-complete infrastructure projects that helped ease the congestion. One was the new $1.5 billion Gerald Desmond Bridge, which opened in the fall of 2020 and has three traffic lanes and an emergency lane in each direction (versus two on the old bridge). Some 65,000 vehicles a day cross the bridge, whose raised height also permits larger ships to enter the port’s back channel.
He also cites Phase 3 of Long Beach’s Middle Harbor redevelopment project. Construction on the port’s new marine terminal is scheduled to finish this March, but two-thirds of the complex is already in operation. When finished, the state-of-the-art terminal will be able to process as many as 3.5 million containers annually. “That terminal alone would be No. 6 in terms of [capacity of] U.S. gateway terminals,” Cordero notes.
GOING OUT OF THE BOX
Ports also are taking an out-of-the-box approach to some of the challenges. At the Port of New York & New Jersey, terminal operators have coordinated to extend hours of operation and add Saturday service, notes deputy port director Rooney. And its Class 1 rail providers, Norfolk Southern and CSX, “have been tremendous partners,” she says, noting that they’ve added more trains to the system.
The port also has reached out across the region to help shippers secure more storage capacity. An initial list published in July identified 65 off-port sites with open areas where containers could be parked. Rooney’s staff updated that list in November. “Of the 65 entities that had space [in July], today, there are only three who have space available. That is remarkable,” Rooney notes. And with airline traffic curtailed by the pandemic, the staff has even considered making unused long-term parking space at the Newark (New Jersey) airport available for container storage.
Given the lack of sufficient off-port storage options and warehouses already stuffed to the gills, shippers have been holding containers longer and using them as temporary storage, Rooney reports. “Shippers are parking containers,” she says. “Containers and chassis that are normally on the street for three or four days now are out twice that long. That impacts capacity.”
She is encouraging shippers to be more mindful of the problem—and to be part of the solution. “We understand there is limited warehouse capacity, but keeping those containers on the wheels prevents other containers from moving out of the terminals,” she explains. “If the terminals get backed up to the point where they can’t take any more, then the ships start to line up outside.
“We are imploring shippers that if you have to store your cargo in containers, at least get them off the wheels,” so the chassis can be returned and redeployed, Rooney adds.
WHAT TRADE WAR?
For ocean carriers and port operators alike, 2020 proved to be a year of reckoning—but not for any of the expected reasons. “No one is talking about fuel or trade wars anymore,” says Jim Newsome, president and CEO of the South Carolina Ports Authority (SCPA), who noted that he was pessimistic going into his fiscal year starting in July. Covid changed all that, he says. “Americans spend a percentage of their income, and when they can’t spend it on movie tickets, ball games, travel, or going out to dinner, they buy other things” like home-improvement items, computers and furniture for home offices, home fitness equipment, and other “around the house” items. “It’s been a defined shift in purchasing of goods related to the home. That has really driven the spike in volumes.”
Bryan Brandes, the Port of Oakland’s maritime director, shares a similar sentiment. “We call it retail therapy,” he says. “With people working from home, there’s been a huge demand for supplies for home-improvement projects.” He notes as well that low interest rates have spurred home buying, adding to the demand for construction materials and manufactured goods for the home, from appliances to furniture to housewares.
The shift in purchasing practices, particularly as more consumers than ever have flocked to e-commerce, has placed a premium on warehouse space, adds Newsome. In response to the rising demand, the SCPA recently broke ground on a new 3 million-square-foot distribution center for Walmart at a port-owned site in Dorchester County.
OCEAN CAPACITY: FROM GLUT TO CRUNCH
For containership lines, the bust then boom of 2020 saw the industry navigate new and unfamiliar market conditions as well. Who would have predicted a year ago, that 2020, despite the pandemic, would turn out to be one of the most profitable years in the industry’s history?
“If you look at January of last year, market conditions were weak,” says Lars Jensen, chief executive of Denmark-based SeaIntelligence Consulting. “Demand growth was at zero percent. Carriers were on their heels,” Jensen says, adding that still today “you have an extremely low order book for new vessels.”
On top of that, a 20-year consolidation push had finally reached its endgame, with carriers embracing capacity discipline and increasingly using canceled sailings to control capacity and maintain rates.
“Then you have the pandemic. That accelerated blank [canceled] sailings. They [containership operators] were extremely good at doing that. They removed capacity within a week of the market collapsing,” Jensen notes.
As the rebound gathered pace, carriers, at first hesitant, began releasing more capacity into the market. With surging demand outstripping supply, “by November everything that could sail was sailing,” and with that, “schedule reliability plummeted to lows we’ve never seen before,” he notes. “All the BCOs [beneficial cargo owners] are screaming bloody murder,” says Jensen. He has spoken to numerous large forwarders and BCOs. Their common take on the market situation: “Now it’s a matter of how much of my contract [capacity commitment] I can move and how much more I’ll have to pay to move the rest.”
“ROLLED” CONTAINERS ROIL SUPPLY CHAINS
One illustration of the service challenges presented by surging ocean cargo volumes has been the increasing number of “rolled” containers, meaning containers that were bumped from the vessel they were originally scheduled to be loaded on. According to an analysis by Ocean Insights, a Germany-based ocean supply chain visibility and market intelligence firm, overall container rollover ratios—which it defines as the percentage of cargo arriving at a port for trans-shipment on a different vessel than planned—rose to 28.5% at leading trans-shipment ports in November, up from 22.2% in October.
“Container lines are trying their best to cope with critical box shortages in Asia, but this is putting more pressure on operations and freight rates,” observes Josh Brazil, Ocean Insights’ chief operating officer. “I think what we are seeing is that the cargo pipeline has maxed out ocean supply chain capacity and this is being reflected in heightened rollover levels, which translates into more disruption for shippers and forwarders.”
Carriers’ efforts to normalize operations have met with mixed success. According to Ocean Insights data, the rollover ratio for Maersk, the world’s largest containership line, increased to 35.1% in October from 32.9% in September. Hapag-Lloyd’s ratio jumped to 37.7% for the same month from 34.2% a month earlier. And shipping line ONE (Ocean Network Express) saw its percentage of rolled containers creep up to 39.3% in October from 38.9% the prior month. Bucking this trend, CMA CGM’s rollover ratio dropped from 40.6% and 45.8%, respectively, in September and August, to 31.4% in October.
LINER PROFITS SURGE
Operating challenges aside, ship owners seem reasonably upbeat about their prospects for the near term. In a November interview with Bloomberg TV, Maersk CEO Søren Skou commented that “global supply chains had quite a lot of bottlenecks and they have driven up prices,” as shippers dealt with a whiplash effect of the steep second-quarter decline in cargo, followed by the sharp rebound. The result, Skou said, has been freight costs remaining unseasonably high, particularly in the trans-Pacific lanes. His comments to Bloomberg came shortly after the Copenhagen, Denmark-based company increased its profit forecast for 2020. “We basically have booked all the orders for the rest of the year [2020], and that’s why we are confident raising our guidance,” he told Bloomberg.
At container line Hapag-Lloyd, volumes at the close of 2020 had mostly recovered from the pandemic-induced slowdowns recorded earlier in the year, noted Uffe Ostergaard, who is the company’s president for the North America region. By the third quarter, “global transport volume was still around 3% below where it had been [in 2019, but] it was still a lot better than we expected it to be earlier [in 2020],” he says.
As cargo volume has accelerated, “we have added all the available capacity, both in terms of ships and containers,” he says. “We are focusing on contractual commitments in addition to optimizing vessel capacity and reducing container turn times wherever possible.” He notes as well that through early December, the company had continued to see “a surge in volume … and we don’t think there will be any significant changes until the Chinese New Year in mid-February.”
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”