Welcome to the July Market Update.

Headwinds are being experienced in some of the crucial trade nodes including Singapore, the Indian Subcontinent and North America, with factors including equipment shortages, congestion, industrial action and schedule disruptions contributing to challenges in maintaining timely and cost-effective supply chain strategies. In parts of Asia and the Middle East the additional complication of the Eid holiday has also contributed to backlogs of cargo. Sea Intelligence data is showing global schedule reliability has fallen to just over 50% - compared to around 65% at the same time last year.

Pricing also is showing signs of turbulence ahead, with some industry experts reporting the gap between spot prices and contract rates is starting to mimic the cost curves seen during the freight pricing squeeze experienced during the COVID pandemic. The Freight and Trade Alliance has noted this places further pressure on the cost of living for Australian households, as traders have little choice in passing on at least some of the rise in shipping costs onto shelf prices for consumers.

What this means for exporters and importers is flexibility and contingency in planning for both schedules and pricing is paramount as you map out the first quarter of the new financial year and start laying the groundwork for the all-important final quarter and the holiday shopping rush. Your Client Service Specialist or Client Success Manager should be your first port of call for the best advice.

In North Asia, rates are continuing to rise, with restorations announced for 15 June and again for 1 July. While we anticipate not all carriers will succeed for all origins, consider this the high tide line for contract pricing and plan accordingly.

Carriers announced a GRI of USD 300 per TEU starting from 1 June. They ended up with 60% of the quantum. Carriers planned another GRI of USD 200-400 per TEU but only made success with 10-15% of the announced quantum. There is a mix of reasons for the rate increases in the traditional slow season – Red Sea crisis which has caused major supply chain disruptions, extended transit time and equipment issues; sudden volume increase ex N Asia to the American market before higher import tariffs become effective; carriers taking advantage of the supply chain chaos for higher profit. Operations at the origin side all the way back from factory to terminal are smooth. There’s been a lack of equipment, particularly in North China due to the surge in demand to ship electrical vehicles which take up a lot of space and disrupted empty container rotation. Sailing schedule integrity has been affected by carriers’ constant blank sailings. Blank sailings will continue as carriers use this mechanism to retain high freight costs in the slow season.

Carriers planned a GRI of USD 500 per TEU ex N Asia to Australia East Coast and New Zealand, USD 250 per TEU ex N Asia to Australia West Coast, effective as of 1 July. Carriers have also announced a GRI of USD 300 per TEU ex Asia to all ANZ ports for 15 July. Carriers are unlikely to make success with the 1 July GRI for containers ex N Asia to Australia East Coast and New Zealand ports, as the booking demand is not as strong as expected. Part of the GRI will go through for containers ex N Asia to Fremantle and Adelaide because the congestion in Singapore and Pt Kelang has increased the carriers' operating costs. The chance of implementing the full mid-July GRI is low, while domestic consumer sentiment is still pessimistic and import activities have remained at the lower end.

Airfreight capacity and freight costs ex South China have been stable. The direct service ex Shanghai is under challenge as the majority of the space is used for E-commerce. The cancellation of Qantas service will put more pressure on the direct service capacity. There is no significant change with space and rates via deferred service.

 For all container types from Northeast Asia to Australia and New Zealand ports, effective 15 June:

• USD 200.00 – USD 300/20’GP
• USD 400.00 – USD 600/40’GP/HC
• USD 10.00 Per CBM/1000kgs or Minimum

From 1 July the Rate Restoration or Peak Season Surcharge for all container types from Asia to Australia and New Zealand ports comprises:

• Northeast Asia to AUEC (MEL/SYD/BNE): USD 500/20’GP USD 1000/40’GP/HC
• Northeast Asia to AUWC (ADL/FRE): USD 250/20’GP USD 500/40’GP/HC
• USD 20.00W/M – 30.00W/M (LCL)
• Northeast Asia to NZ: USD 250/20’GP USD 500/40’GP/HC
• USD 20.00W/M – 30.00W/M (LCL)

From 15 July the Rate Restoration or Peak Season Surcharge for all container types from Asia to Australia and New Zealand port comprises:

• USD 300/20’GP USD 600/40’GP/HC
• USD 15.00W/M – 20.00W/M (LCL)

While this region’s market has been in a relatively steady state for months, the push for price hikes has started to kick in. While we do not expect the full quantum will succeed for all origins and destinations, similar to North Asia, it is wise to plan for the upper threshold in your cost forecasting.

A Rate Restoration effective 15 June was announced for Australia and New Zealand ports, with the specific quantum comprising:

• USD 100.00/20’GP – USD 200/40’GP/HC
• USD 5.00 Per CBM/1000kgs or Minimum

Some carriers announced a GRI of USD 100 per TEU starting from 1 June and implemented half of the quantum, while other carriers reviewed/increased their freight cost even without issuing a GRI notice. The same practice was repeated for mid-June and market freight rates increased by around USD 75 per TEU. The rate increase was a result of severe congestions in Singapore and Pt Kelang. Lack of equipment and space are now starting to affect local operations as well as sailing schedule integrity. Situations will get worse in the coming months if port congestions in Singapore and Pt Kelang don’t improve.

A Rate Restoration or Peak Season Surcharge for all container types from Asia to Australia and New Zealand, effective 1 July, has also been announced:

South East Asia to AU/NZ:

• USD 250/20’GP USD 500/40’GP/HC
• USD 10.00W/M – 20.00W/M (LCL)

Carriers have announced a GRI for 1 July and yet another one for 15 July. A large percentage of the announced GRI will be implemented due to port congestions and badly disrupted sailing schedules in the region.

The other major issue in this region is the congestion in Singapore, with extended vessel wait times for berthing and major schedule disruptions. Container ships are waiting up to seven days to dock with approximately 450,000 TEU of vessels in the queue. The Maritime & Port Authority of Singapore (MPA) has reactivated older berths and yards to alleviate pressure on the congestion, recognising that berthing wait times of up to seven days and vast volumes of containers waiting to hit the docks at this key transshipment node and continue on their way is causing ripples across the global shipping network.

The causes of the congestion are multifaceted and include the ongoing geopolitical situation in the Red Sea and the carriers choosing to divert vessels around the Cape of Africa, adding an element of unpredictability to arrival times. A surge in demand is also playing a role, with many shippers increasing volumes to get ahead of new tariff deadlines or avoid festive season space surges. The congestion also means equipment is becoming scarce, which further affects the availability and cost of space.

What this means for importers reliant on this hub is extended transit times, increased costs (particularly spot rates), schedule disruptions, and additional logistics complexity where carriers choose to use alternative ports to bypass the blockages.

Airfreight from South East Asia remains stable in rates and service.

There is cautious optimism in the USA that the US Federal Maritime Commission (FMC) revised detention and demurrage (D&D) rules, effective 28 May 2024, will resolve the tensions between truckers and carriers in terms of who gets billed for D&D. The new billing, timeframe, and dispute requirements include a stipulation that D&D invoices must be issued to defined parties – the receiver - within 30 days, and billed parties have 30 days to request fee mitigation. Incomplete invoices void payment obligations, ensuring clearer billing and promoting supply chain fluidity.

In not so good news, the International Longshoremen Association (ILA), representing 85,000 port workers, has suspended contract negotiations with the US Maritime Alliance (USMX) over automation disputes. The ILA demands substantial wage increases, citing high container line profits, and is firm on resolving automation issues first. President Harold Daggett warned of a potential strike on 1 October, which could disrupt 36 ports. This tension may shift cargo routing to west coast ports, though significant changes haven't occurred yet.

Meanwhile in Canada the prospect of a rail strike is back on the radar. Recent talks between the Teamsters union (TCRC) and Canadian National Railway (CN) ended without an agreement, and the Union at last reports was preparing to strike.

Some cargo lines are not waiting on tools to be downed to take protective measures to ensure cargos still flow, with shipping lines on the transpacific trade canceling calls to Vancouver and Prince Rupert. Carriers are omitting, blanking, or swapping calls, with 14 port diversions to US gateways confirmed. Several services have announced blank sailings, however Canada's Atlantic coast ports expect fewer blanks, with some services improving schedule reliability despite the disruptions.

Rates are soaring in Bangladesh, with rates between Chittagong and China seeing a 100% increase. As China is the primary suppliers of raw materials to the Bangladesh manufacturing hubs, this is potentially going to flow through into the cost of goods for expert. In addition, rates between Bangladesh and Singapore have risen 50%, adding another cost increase that is of particular concern for the apparel industry.

In addition, there is currently a shortage of 40’ containers in Bangladesh, a side-effect of the ongoing congestion in Singapore and widespread schedule disruptions with hundreds of Bangladesh-bound containers stranded at the transshipment hub. In addition, many containers are waiting at Chittagong due to the backlog from the Eid holiday closures.

This is disrupting export capacity, and MSC and Hapag Lloyd are repositioning equipment from nearby ports, however this is not fully resolving the situation.

Monsoon season is pending in India, which may see heavy rains impacting transportation and logistics, resulting in delays in goods reaching the ports and space constraints on vessels. The best protection is to book space well in advance and ensure your supply chain is not relying on fast, just-in-time strategies. In addition, space is currently tight in India due to overbooking by China.

Please book as far in advance as you can and discuss any volume projections for the upcoming months.

Singapore congestion is also having multiple impacts including challenges in the flow of raw materials causing manufacturing production slow-downs in India, delays in the goods produced reaching their international customers and markets, and the passing on of increased shipping costs to end customers including shoppers and businesses affecting overall importer profitability and local manufacturer competitiveness.

One bright note is that the challenges are driving an appetite for innovation and improvement, including collaboration between Indian and Singaporean authorities to streamline processes and reduce bottlenecks, companies exploring alternative shipping routes and ports, and investments in technology to digitise supply chain and logistics functions, improving real-time tracking and logistics efficiency.

Indian authorities have also approved a $10bn greenfield port project at Vadhavan, 120 miles north of Mumbai, to ease pressure on Nhava Sheva Port and integrate supply chains with alternative multimodal networks. The project, developed by Jawaharlal Nehru Port Authority and Maharashtra Maritime Board, will feature nine container terminals, extensive cargo storage, and a capacity of 23m TEU. Investors like DP World and APM Terminals are partnering in the development, which is expected to become one of the world's top 10 ports.

The market is somewhat volatile in Pakistan and rates remain high compared to pre-pandemic levels due to the global pressures affecting all shippers and carriers. Brief bottlenecks may occur at ports due to cargo surges and seasonal demand, and there are initiatives being implemented to simplify procedures and lessen traffic. Please ensure you are scheduling your shipments well in advance to mitigate the impact of any delays.

For air freight, a decline in consumer demand, partly brought on by financial worries and a change in spending habits, is posing problems for this sector. Despite this, because of lower capacity and greater operating expenses, air freight rates remain high although the restoration of passenger flights means more cargo space is available and this provides some relief for the pressure on prices.

In our May newsletter we advised of the increase of rates from VICT and these rates are now effective as of 1 July, 2024.

The Infrastructure Charge (Vehicle Booking System Charges) will rise from $177.48 (subject to GST) to $194.85 (subject to GST) per full import or export container at the Victoria International Container Terminal.

On 5 June, we also advised in a notice to clients that once DP World completes its landside terminal reconfiguration in the coming weeks, the flow of vehicles through the terminal, particularly higher productivity freight vehicles, should significantly improve. This reconfiguration has been delayed by DP World and is now expected to be completed by mid to late July. We are hopeful to see significant improvements by late July.

More freight capacity is coming for one of the key air routes, with China Eastern Airlines to increase flights to Melbourne from Shanghai Pudong airport and in September add a new flight from Nanjing. These flights will generate 1183 new Victorian jobs, $205 million annual boost to the Vic economy and provide nearly 3650 tonnes of extra airfreight export capacity per year.

One cost increase you won’t see yet, is DAFF Biosecurity Protection Levy Charges that were to come in effect from 1 July have now been deferred to 1 October 2024.

There are a few newsworthy items in the latest federal Budget, handed down in May. They include:

• An extra $100 million for the Department of Home Affairs to strengthen its core functions, particularly Australian Border Force operations. The specific allocation of this funding is not specified, but it is expected that there will be an increase in customs duty collections.
• Nuisance Tariffs: the government plans to abolish 457 nuisance tariffs from 1 July 2024, which serve minimal protective purposes.  AXIMA’s Customs team will be cautious around this date weighing up the advantages of delaying the shipment to take advantage of the duty reduction vs. the costs and your delivery requirements whilst also ensuring compliance. In general, we expect the impact will be minimal as many imported products are covered by Free Trade Agreements or Tariff Concessions.
• Anti-Dumping Commission: the Anti-Dumping Commission (ADC) has not received an increase in funding, despite facing challenges in meeting investigation and review timeframes.   For years now, AXIMA and the industry have been calling on the ADC and ABF to implement a ruling system so that importers through their Brokers have some certainty about whether dumping duties apply to imported goods.
• EU Free Trade Agreement: despite the Treasury’s ongoing optimism about reaching a Free Trade Agreement (FTA) with the EU, recent events, such as the cancellation of a major submarine deal with France, have complicated negotiations.  Any reduction in customs duty depends on concluding a deal with the EU, which may require concessions on both sides particularly, the EU to improve its agricultural market access and Australia to concede the use of certain geographical indicators i.e. Parmesan and Fetta.
• Biosecurity: the budget does not introduce significant changes to the cost recovery model for biosecurity services. Importers and taxpayers will now contribute 92 percent of the annual biosecurity budget.  The proposed biosecurity levy on low-value goods ($AUD 1,000 or less) will be 36 cents per entry and will be imposed on the reporting entity.

Simplified Trade: a modest $30 million over four years is allocated to support incremental improvements to cross-border trade processes.  However, significant changes to customs processes are unlikely given the limited funding and emphasis on incremental improvements.

There are new prices for fees and charges, however, coming into effect from 1 July 2024 for Biosecurity and Imported Food Regulatory Activities

Key indexed charges for biosecurity regulatory activities are:

• FID charge (air): Current price $43 New price $45
• FID charge (sea): Current price $63 New price $66
• In office fee during ordinary hours (per 15 mins) Current price $37 New price $39

 Click here for a full list of all fees and charges.

At least 65 nations are now feeling the effects of the Houthi attacks in the Red Sea as global shipping re-routes and timelines and costs both start to blow out. Overall, the crisis has reduced box throughput in the Red Sea zone by 90%, escalating insurance costs and deterring carriers.

The US Defence Intelligence Agency reports re-routing around Africa adds 11,000 nautical miles and $1m in fuel costs, yet this is cheaper than crisis-condition Red Sea routes. Insurance premiums for Red Sea transits have spiked, making alternate routes financially preferable. There is still no resolution in sight, which means importers and exporters both need to build in considerations around time and shipping costs for forward planning.

With every market experience multiple pressure points around time and pricing, planning for best case scenario means ensuring you have a margin for delay and for shipping costs in your planning. It also spotlights the importance of strong relationships, accurate market intelligence and regular, honest communication between you and your customers, and with your Client Success Manager and Client Service Specialist.  Together we can weather the squalls and ensure your business navigates the challenges.

Best regards,

Matt Ward
COO International – YKGA
AXIMA Pty Ltd
www.axima.com.au

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