Welcome to the February Market Update.

If the first month of 2024 is anything to go by, this year is going to be like a pop quiz on resilience and flexibility. From disruption onshore due to ongoing industrial action at DP World facilities, through to weather impacts in the US and Panama and geopolitical strife in the Red Sea, carriers and shippers alike are facing major headwinds.

This is having flow-on effects for scheduling, equipment availability (including a box shortage emerging across the main ports of China) and rates. We expect rates this year to be in a state of flux, with the balance tipping in the carrier’s favour due to factors including competition for space as cargo routes shift to respond to challenges including carriers avoiding the Red Sea, Suez Canal and the Panama Canal.

There are also movements happening at the corporate level in the sector, such as Maersk and Hapag-Lloyd entering into an operational agreement.

Rather than bunkering down, the coming weeks and months are a time when proactive flexibility and nimble thinking are required. Things shift so quickly, having regular conversations with your Client Success Manager or Client Service Specialist will be crucial for success.

North Asia

You would have received an AXIMA notice on 2 January about the GRI announced by the carriers late last year and implemented in part on 1 January at USD 200 per TEU. A second GRI was also successfully implemented on 15 January of USD 300 per TEU, and the reason it was successful was the combination of the extended industrial action at DP World terminals and the traditional rush for shipping space prior to the Chinese New Year close-down.

The GRIs are continuing to come in for this market, with COSCO announcing a GRI at USD 100 per TEU, starting from 1 February. Carriers will increase the rates from North Asia to Western Australia Ports, as a response to transshipment port congestions at Singapore and Pt Kelang.

On an optimistic note, based on the current performance of the market, there is little likelihood of a new GRI in February from North Asia to Australia East Coast ports.

While landside operations are smooth in most parts of the region, and there is no major port disruptions, the supply of empty equipment is becoming tight as the Red Sea crisis is delaying the return of empty containers and boxes from Europe. There are also flow-on effects from the extended industrial action at DP World terminals in Australia, which has resulted in delayed vessels and interruptions to planned sailing schedules.

To address the capacity shortage overall, some carriers have added extra sailings to the trade lane – so speak to your Client Service Specialist or Client Success Manager if these may be of interest to you. We are also seeing new services continually being launched or restored post-COVID to the air freight routes, and there is currently no shortage of space, although rates are expected to briefly increase immediately before Spring Festival/Chinese New Year.

The major region-wide holiday of Chinese New Year, also known as Spring Festival, starts on 10 February. The next few days will be all haste and hurry to get things made, packed, moved and shipped, and then a hiatus of up to a week when almost everything closes down in the manufacturing and logistics sector, with a period of delay for some days or weeks afterward as the factories ramp up production again and cargo begins to move.

The Spring Festival will see most local shipping company offices close from the afternoon of 9 February, and then re-open after the 17^th. During this period, there will be a skeleton staff for emergencies or urgent matters only – so your first port of call should be your Australia-based Client Service Specialist or Client Success Manager if you have any pressing concerns.

Specific dates for our local offices are below:

·         Xiamen / Shenzhen offices closed: 10-17 February; reopen on 18 February (Sunday)

·         Shanghai & Qingdao office closed: 10-17 February; reopen on 18 February (Sunday)

·         Hong Kong office closed: 10-13February; reopen on 14 February (Wednesday)

South East Asia

Carriers moved swiftly to respond to the Red Sea crisis, with a snap decision to implement a large GRI starting 15 January, and you would have received a notice from us about this on 2 January. The geopolitical situation in the Red Sea has forced shipping lines to re-route vessels or, in some cases, put sailings on hold. Overall, the disruption has substantially reduced the capacity on the trade lanes calling at Sub-Continental ports including India and the Southeast Asia region generally.

A flow-on effect has been major congestion at the transshipment ports also in Singapore and Pt Kelang, with loaded containers sitting at the ports awaiting shipment to Europe, but vessels from Europe are currently delayed due to detours or on hold. We are hearing delays of up to two to three weeks are occurring for transshipment cargo, and COSCO is reporting approximately four-week delays, as is ANL, although both are attributing part of the problem is the ongoing delays at the arrival destination of Australia due to the ongoing problems at DP World terminals.

In addition, there are delays being seen with cargo departing Australia for shipping to SE Asia and to the transshipment ports in the region. Brisbane delays are around two to three weeks, and Fremantle is up to a week approximately. These two ports are the most affected as they are entirely DP World operations. Other ports, including Sydney and Melbourne, will be seeing delays that vary according to the operator, the carrier and other factors, which we explain further below in the section on Australia Ports.

One piece of good news for the SE Asia market is no new GRIs have been announced for February for sea freight, and air freight is moving normally, with no space issues aside from the spike in demand ahead of Chinese New Year closures, everything is working smoothly. Speak to your Client Success Manager or Client Service Specialist if you are considering mitigating the issues with ocean carrier timeframes by switching to air services. Please keep in mind also that most businesses in this region do observe part or all of the Chinese Spring Festival and Chinese New Year close-down.

North America

With drought to the south and deep freeze to the north, the Americas is currently a major bottleneck for both regional and international shipping movements. The dry weather continues in the critical Panama region, and the ongoing scarcity of water means capacity to facilitate vessel movements through the locks continues to be further constrained.

The effect cannot be understated – the Panama Canal and the Suez Canal are the most important shipping arteries in the world, carrying over half of global trade volume.

Due to the water scarcity to operate the locks effectively, the number of vessels in February passing through the Panama Canal is expected to reduce to just 18 per day, or a first-come, first-served basis. This is causing delays as vessels queue for up to seven days, so more carriers are choosing to re-route to the longer trip via the Suez Canal to avoid idling at sea. Maersk has gone so far as to start sending cargo overland to mitigate the Panama bottleneck.

In addition, vessel draft restrictions are in place, which means carriers are having to reduce cargo volumes. Less volume per ship is almost always a trigger for a surcharge, so an increasing number of carriers are introducing a Panama Canal Surcharge and passing this on to shippers.

In the USA, there are rumblings that strike action could be pending at East Coast terminals, and we will keep a careful eye on this evolving situation. What is currently causing disruption and delay across the northern part of the country and in Canada is the severe winter weather being experienced, including snowstorms and blizzards.

Both air and ground transport have been affected, and there may be further slowdowns over the coming days, followed by a period of catch-up while stalled goods get moving again. Regional highways are particularly badly affected by dangerous driving conditions as the maintenance crews prioritise the major national routes and freeways. Flight delays and flight cancellations are also likely due to ground stops and de-icing operations at regional airports.

Taking all of these things – Panama, freezes, and industrial action - into consideration, the bottom line is if you are looking to ship to parts of the world beyond North Asia or South East Asia – speak to your Client Success Manager or Client Service Specialist first so we can work with you on the most feasible plan. 

Australia

Fees and charges are always a vexation for shippers, and right now, there is major advocacy underway from the Freight and Trade Alliance and the Australian Peak Shippers Association to try and get a fairer set of practices, such as a 30-day notice period for the introduction of shipping line surcharges. This recently became law in the US, and we are supporting the FTA and APSA efforts on behalf of our clients to see a similar standard of business practices applied in Australia.

One additional line item that has been foreshadowed with good advance notice is the Patrick terminals intent to increase the Landside and Ancillary Charges, effective March 4^th. Read more here.

DP World, however, are increasing their charges by what the FTA and APSA have deemed unfair and exorbitant. They gave notice last November of Landside Cost increases that were due to take effect on 1 January 2024, but these were pushed back to 1 February 2024 as some compensation to shippers for the inconvenience caused by the cyber-attack on their systems late last year. However, the magnitude of the increases is eye-watering – a Terminal Access Charge rise of 52.52% for full exports and 21.22% for full imports at Port of Melbourne. Industry advocacy to push back against this degree of financial impost continues.

Industrial action and protests at ports

Meanwhile, the Maritime Union of Australia continues its Protected Industrial Action strikes at DP World terminals around the nation, and the situation may continue for some time. The company is currently trying to impose a ruling where workers either work a full day (and get paid) or strike a full day (and do not get paid) to counter the MUA worker’s partial-day stop-work actions. DP World has been insisting it will dock a worker’s pay for the full day if they do a part-day stop work as part of the ongoing strikes.

The situation is, of course, affecting the broader supply chain, with both importers and exporters left in a quandary as to how to reliably ensure the flow of goods to the end customer. The relevant federal Government Minister, Tony Burke, Minister for Employment and Workplace Relations, met with DP World back on 18 January but has said the government will not intervene and DP World must negotiate in good faith with the union. This is similar to the Fair Work Commission decision that the MUA and DP World must come to a reasonable agreement.

We will continue to keep you updated if the situation changes, and your Client Success Manager or Client Service Specialist are only a phone call away if you need clarification, or if you require assistance to manage any impacts on your own shipping scheduling.

In addition, there may be further short, sharp shocks to timelines that affect transport into and out of ports on landside, as pro-Palestine protestors continue to target vessels associated with Israel, such as ZIM Line. While the protest goal is to attempt to prevent docking, the impacts have also affected truck transport accessing terminals. Police are responding promptly to these actions. However, even a half-day or full-day delay is enough to cause headaches, given all the other complexities slowing down supply chains beyond our shores. Most recently, VICT advised that all slot allocations were cancelled over the weekend through to 8 am on Tuesday, which threw schedules into disarray and export cut-off times had to be reassessed. At least four container vessels are impacted by this Terminal shutdown, including APL DETROIT and ZIM GANGES which are in Port Phillip Bay.

Red Sea Hostilities

In December, we saw drone attacks on vessels navigating the Red Sea by Houthi rebels, and this has continued into January, causing consternation around the world. US warships have now moved into the area, and the situation is fast evolving.

The area is now one carriers are attempting at all costs to avoid, however, an estimated one third of all global container traffic transits the Red Sea and the Suez Canal, and it is hard to divert it all and even harder to protect what is carried through the region from attacks.

Major global commodities affected by the hostilities include oil, LNG, metals and agricultural cargo.

The impact on shippers is immediate in terms of delays and increased costs where vessels are diverting to alternative routes. It takes 40% longer to take cargo from Singapore to Rotterdam via the Cape of Good Hope instead of transiting the Suez Canal.

The US Federal Maritime Commission has granted special permission to ocean carriers to immediately increase rates on containers being re-routed via the Cape of Good Hope, waiving the 30-day notice period for an increase of charges, which is now legally required. The case for the increase is, in this circumstance, fairly obvious – longer time at sea, using more fuel, additional crewing time, higher insurance costs, and the cost of chartering all make this a perfect storm for the carriers.

For shippers, it is important to be aware this situation may be with us for some months yet, so now is a good time to consider your timelines and costs and work with contingency in place. Speak to your Client Success Manager or Client Service Specialist to find out what your options are.

Extreme weather events – Top risk facing Supply Chains in 2024

Ultimately, the situation in Panama and the situation in the North American market as a whole comes back to weather – the most uncontrollable supply chain factor of them all. Industry experts have nominated this as the top threat to global supply chains in 2024, and even locally, we are seeing it first-hand with recent cyclone activity affecting Australia’s north and tropical lows, bringing further flooding to parts of SE Queensland and New South Wales.

Making flexibility, resilience and planning for disaster part of our business as usual simply needs to be the new normal – set-and-forget supply chains simply are not fit for purpose in this climate-changing, politically volatile era.

Prepare for rate fluctuations in 2024

Given all of the major disruptions happening across so many parts of the trade lanes and the industry generally, it would be wise to prepare yourself for rate rises as the year progresses.

The carriers are navigating many factors beyond their control (unless someone can make it rain in Panama?), and while we hope there will not be the spiraling price gouging of the early part of the COVID pandemic, we do know that the carriers have been looking to slow the slide of rates downward since the global economy re-stabilised. So, somewhere between what is necessary and what is in their best interests is probably where rates will land.

While 2024 is not off to a calm start, we have all learned valuable lessons over the previous years of disruptions, including the Russian invasion of Ukraine, the Suez Canal blockage, the COVID pandemic and locally the disaster of the Black Summer bushfires. This year, we will keep putting it all into practice and working with you and your teams to develop the most practical and cost-effective solutions to ensure your supply chain success.

Best regards,

Matt Ward

COO International – YKGA

AXIMA Pty Ltd

www.axima.com.au