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.
The great ocean freight tsunami that swamped the maritime industry from the fall of 2021 through spring 2022—and threw ports and containership lines for a loop—has subsided. In its place has emerged a market slowly returning to some semblance of pre-pandemic normal while facing the prospect of a recession on the near-term horizon, rapidly softening demand, and plummeting rates for container cargoes that have yet to hit bottom—and are foreshadowing rate wars of past years.
“Spot rate levels are back to pre-pandemic levels,” observes Lars Jensen, chief executive officer of consulting firm Vespucci Maritime. He cites two principal reasons. One has been the recovery of ports from congestion bottlenecks through the first half of last year. “High rate levels were partly a function of vessels trapped by congestion. As those eased, more capacity was released into the market,” he notes.
The second was a sudden sharp drop in demand starting in September, “where [the market] collapsed, especially in Asia-to-North America and Asia-to-Europe lanes,” driven by inventory corrections on the part of importers in the U.S. and Europe, he says. It’s a cycle that’s typical of a market bracing for uncertain economic times, and shippers consequently dialing back ordering and more aggressively managing inventory levels.
Yet there could be a silver lining on the other side, Jensen notes. “Every time an inventory correction occurs, once addressed, you get a wave of cargo on the back side. Consumers regain confidence, and importers need to bring business back to normal levels, which leads to a surge in cargo,” he explains.
Betting on how deep the decline will be and when the rebound will begin is the challenge for shippers, ports, and vessel operators alike. Ship operators are likely to cancel more sailings in response to weaker demand and the diminished need for capacity. “One scenario is that we are heading into a recession that is short-lived,” Jensen says. In that case, he sees a market continuing to collapse in January and February, then rebounding sometime in the spring.
“If we are heading into a deeper and longer recession, then cargo going back to the normal surge will be late in the year,” he predicts. “That will leave a relatively depressed [ocean freight] market for [most of] 2023.”
PORTS: A RETURN TO NORMALCY?
Ports are feeling the impact as well, although in different ways. The double-digit surge in cargo experienced in 2021 has been considerably dialed back. In October, the Port of Long Beach (POLB) saw a 16% decline in container volumes compared to the previous year. Yet for the first 10 months of 2022, the port was tracking 1.5% ahead of 2021. Mario Cordero, POLB’s executive director, says he expects the full year 2022 to be flat. “For me, that’s not a bad number given that 2021 was a record year of unprecedented surges.”
He sees the port “on the cusp of normalization.” Where in January 2021, there were nearly 110 containerships anchored outside the port waiting to unload, “today there are zero vessels at anchor and backed up,” he notes. Container dwell, the amount of time a container sits in the port, is down 93% from the worst congestion in November 2021. Today, only 3% of containers dwell in the port more than a few days. On the rail side, “back in July, we had 13,000 rail containers that were dwelling at the terminals nine days or more. That number today is less than 350,” he reports.
Cordero is optimistic as he considers lessons learned from the past two years. “Anytime you move 20 million containers in a gateway, you need to transform your operations,” he says. Looking ahead, Cordero and his team are focused on improving and expanding the port’s infrastructure and increasing productivity and velocity. Over the past decade, the port has invested some $4 billion in its infrastructure. Over the next decade, the port’s plans call for $2.6 billion in capital expenditures, “a lot of that directed toward rail improvements and expansion,” Cordero notes.
One particular issue somewhat unique to Southern California ports is meeting upcoming goals for emissions reduction, notably a zero-emissions goal for trucks by 2035 and for cargo-handling equipment by 2030. “Both of these objectives are very challenging,” Cordero says. The port is getting a helping hand from the federal government, having recently won a $30 million grant to replace diesel-powered yard tractors with zero-emission electric models. “We’re moving ahead with electrification in a socially responsible way sensitive to the importance of the job market.”
DIVERSIONARY TACTICS
The 2021/2022 port congestion issues, particularly on the West Coast, also caused shippers to take a more in-depth look at their supply chains—and where they have import ocean cargoes landing in the U.S. One outcome was a marked diversion of ocean container cargo from West Coast to East Coast ports, a surge that led to congestion issues there, particularly in Savannah, Georgia. Another factor was concern about rail labor contracts and fears of a looming strike, which Congress averted. Some believed that trucking—and to some extent, westbound rail service—would be easier to find from East Coast ports and would reduce their risk of exposure to potentially strike-affected rail service from the West Coast.
A recent survey of shippers by investment firm Cowen & Co. found that while a majority of shippers likely will move much of their freight back to the West Coast, a small but significant portion of that volume will never return. “We believe there may be a [roughly] 10% permanent shift of freight to the East Coast … creating long-term opportunities for Eastern transportation companies,” the report said.
Among the motives the report’s lead author, Jason Seidl, cites for the shift are: the impact on Southern California truck capacity from regulations related to California emission requirements and the impact of AB5, the law that restricts businesses from classifying workers as independent contractors rather than employees; the opportunity for (and increasing interest in) reshoring to Mexico and the benefits associated with potential shifts; reduced political risk; the lower cost of transportation; and the further technology enablement of the supply chain.
“A LITTLE BIT OF BREATHING ROOM”
East Coast ports have been adjusting to the shifts in business as well. Beth Rooney, director of the Port of New York & New Jersey, noted that of the port’s 10.5% growth in the past year, roughly 85% of that was cargo diverted to New York/New Jersey from West Coast ports. “It has been an interesting evolution,” she says. “All the East and Gulf Coast ports benefited from those shipper decisions.”
In her conversations with the maritime community about freight diversion, she says, she’s found “it’s more a function of anxiety, what is going to happen with [West Coast longshore] labor negotiations, rail congestion concerns, what’s happening on the drayage trucking side,” and the prospect of California ports losing some 25% of their drayage capacity on January 1, when new laws kicked in.
More than anything else, shippers are searching for reliability, consistency, and peace of mind, Rooney observes. And that presents opportunity. “We won’t have another 18% increase like we had in 2021, but I don’t think we are going to be flat or losing ground in 2023,” she notes. “We will get close to what we have been, which is 2% to 2.5% compound annual growth.”
One upside of the softer market, Rooney says, is that “we have a little bit of breathing room. We handled volumes we were not expecting until the 2027 or 2028 time frame [last year].” The slower pace makes this a good time to continue to work on developing capacity and improving fluidity, she oberves.
She also cites the need for increased creativity and innovation. “We are operating as a supply chain participant pretty much the same way as when container shipping started in 1956. And it’s not unique to us. It’s a national issue.”
A MATTER OF CAPACITY
For their part, vessel operators are watching the market and reacting swiftly to address declining demand, rationing capacity to match. That could lead to more blank (canceled) sailings and other adjustments.
“Our aim is to focus on improving service levels and vessel schedule integrity, which has been impacted by record cargo volumes the past two years,” says Narin Phol, Maersk North America regional managing director based in the U.S. As for capacity, Phol believes that “current fleet capacity will stay the same. And as we retire old tonnage, we will replace it with new, green methanol-fuel ships. We have 19 green methanol ships on order.”
Vessel operator Hapag-Lloyd has also put plans for further expansion on hold. Over the past two years, the containership giant has placed orders for 22 new vessels “with a capacity of more than 400,000 TEUs [20-foot equivalent units],” notes company spokesman Tim Siefert. “We have no plans for [additional] newbuilds at the moment.”
Will rate wars of the past return? “We cannot speculate,” Siefert says. “As usual, it is hard to foretell rate developments in the market when they always depend on the supply and demand balance,” he explains. “A crucial point will be the influx of capacity over the next [several] years. At the same time, we will see more scrapping and fleet modernization programs on the back of environmental obligations.”
Vespucci Maritime’s Jensen says that while there hasn’t been much scrapping over the past two years, he expects it will pick up. “In a market where you had $20,000 per-container freight rates, it doesn’t matter how rusted or leaky your ship is, because someone will pay you for it,” he says.
Yet between a looming recession, declining demand, new environmental obligations, and operational changes such as fewer vessels in service and slow steaming (the practice of deliberately reducing ship speeds to minimize fuel consumption and carbon emissions), capacity eventually will come out of the industry. He cites consensus estimates of about a 10% capacity reduction over the next year. New capacity is not expected to come on-stream until later in 2023 or 2024.
At the end of the day, Jensen says, vessel operators are watching closely how deep a “hard landing” will be for the market and how low rates will go ahead of a rebound. “The rule of thumb was if a freight rate goes so low [that] the carrier becomes cash-negative, they’d step away from the brink” to stem potential losses, he says, adding that excessively low rates and negative cash flow would push them toward bankruptcy.
But vessel operators, reaping the benefits of two years of record profits, are in much better shape today than in the market downturns of the past. “They are all sitting on massive coffers of cash,” Jensen says.
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.”