Compiled by Bruce Abbe, SSGA Strategic Adviser for Trade & Transportation

Sky rocketing rates and demand for container imports to the US leading to service challenges on the Trans Pacific

The transportation news media over the past week has continued to cover the latest trends in container shipping, most notably the ongoing surge in demand and sky rocketing rates for high value imports on the Trans Pacific trade lanes coming into the U.S. While U.S. exports haven’t yet seen the rate increases, that surge had led to extraordinary pressure on ocean carriers to get containers back to Asia – China in particular – and it is starting to have a downstream impact on service for exporters.

Import surge creating imbalances
Two industry experts told Freightwaves news site last week that bookings of imports into the U.S. are up nearly 90 percent, year-over-year compared to 2019. The combination of projections of reduced trade due to COVID-19 leading carriers to cancel sailings early in the year – when, in fact, there was a surge in demand for personal protection equipment, E-consumer and health products – has led to the high rate increases and bulge in demand during the fall peak season.

The ocean carriers are reaping high profits now on imports, but the two experts predicted the current freight boom will be followed by a ‘substantial dip.’ Go here for the full story.

Container shortages rising – Freight forwarders advised the Journal of Commerce (JOC) that container shortages are “intensifying” across much of Asia due to the demand in China for shipping “high-yield” trans Pacific freight to North America. While there are struggles to find containers in some locations, there are reports of carriers loading empties on ships in various locations to reposition them to China. Go here and here for full related JOC stories.

US exporter shipment schedules pinched
The drive by ocean carriers to get containers back to China has even started to affect U.S. export shipping schedules.

At least one Specialty Soya and Grains Alliance (SSGA) exporter reports his company has had containers sitting at ports ready to be loaded for shipment to a non-China Asian destination rolled to a later vessel because the carrier is loading empties for direct voyage to China. That will mean at least a two-week delay in a food ingredient delivery to a customer. Needless to say, the shipper is not happy.

Will governments intervene?
The imbalances in service, high rates and space shortages following earlier cancelled sailing by the ocean carriers has now caught the eye of government regulators.

Chinese regulators were first reported to look into what has been going on, and reportedly suggested it’s time for the ocean carriers to add more capacity back into the trade lanes and “less aggressively” raise rates on the trans-Pacific. Go here for a more detailed story by JOC.

The volatility in rates and service has also caught the eye of the U.S. Federal Maritime Commission (FMC).

Hellenic News reported late last week that the FMC is reviewing ocean container shipping for possible non-competitive practices after east bound trans-Pacific rates recently hit record levels. The impact of cancelled or “blanked” sailings is a key focus of FMC. Globally the carriers reportedly cancelled more than 400 sailings between February and May in the early stages of the pandemic. Go here for the full story.

Freightwaves also provided more insights after reporting that China’s ministry of Transportation and Communication questioned ocean carrier representatives on Sept. 10. That meeting caught the industry by surprise, noted one expert. At least one ocean carrier has announced it is withdrawing a planned general rate increase (GRI).

One expert told Freightwaves that, unlike years past, when high rates led to over-capacity then lower rates, things may be different now for two reasons. The dozen leading container ocean carriers are now operating in just three major vessel-sharing alliances. That means it’s easier for the carriers to engineer capacity cuts, he speculated. The second reason, he said, is the practical reality that it will be difficult for the carriers to “stop blank sailings.” While the carriers might need to find some way of meeting new stringent rules if the Chinese institute the, it will be difficult for the carriers to give them up, “…because you’re talking about taking away the only thing that has worked for the carriers in the past 10 years.” Go here for the full story.

Katie Farmer named president and CEO of BNSF Railway

Congratulations to Katie Farmer, who last week was named president and chief executive officer of BNSF Railroad, succeeding the retiring Carl Ice, who had been with BNSF for 42 years of his career.

Farmer becomes the first woman to head a U.S. class one railroad, and a key railroad serving many export shipper members of SSGA.

“I have had the pleasure of working with Katie and am impressed,” said Bob Sinner, chairman of SSGA’s Competitive Shipping action team. “Katie is customer-focused and has taken the time to listen and consider alternative solutions to our container issues in rural America. Her new promotion is well-deserved and SSGA looks forward to working with Katie.”

Farmer is a longtime member of the BNSF leadership team, most recently serving as executive vice president of operations.

During his tenure, Ice led a team that orchestrated the merger and integration of the Burlington Northern Railroad and Santa Fe Railroad in 1995. Since then, the company grew to become the largest class one railroad in North America. Ice will retire at the end of 2020, but remain on the BNSF board of directors.

Go here for the BNSF announcement.

Largest container ship yet calls on East Coast ports

While it may not be as big as the huge 18,000 twenty-foot-equivalent (TEU) container ships or the mammoth 24,000 TEU ships that are starting to ply the Asia-to-Europe trade lanes, the CMA CGM Brazil at 15,072 TEU’s is no small potato among container vessels.

Last week the Brazil became the largest container ship to call on East Coast North American ports, and it made the news and captured public attention at each stop.

Halifax, Nova Scotia was the first stop, steaming in after departing from the Port of Colombo.

New York-New Jersey was the second stop on Sat., Sept. 12, where photos captured it steaming under the Bayonne Bridge to dock at APM Terminals.

The Port of Virginia in Norfolk was next, followed by Savannah on Friday morning. It pulled into the Port of Charleston Sunday, and was set to leave late Monday, for a return voyage to Shenzhen, China.

Go here and here for more coverage of the New York and Charleston news.

By Bruce Abbe, SSGA Strategic Adviser for Trade and Transportation

Major transportation legislation awaits action in Washington

As the country closes in on one of its most contentious national elections a little more than two months from now, a number of key issues await action in congress and will require bipartisan support to get approved. Among them are transportation and infrastructure bills that are critical for agriculture and trade.

The Specialty Soya and Grains Alliance (SSGA) recently joined with a host of other mainstream national and state agriculture organizations in joint communications to Congressional leaders urging passage of a Highways omnibus bill as well as a 2020 version of the Waterways Resources Development Act (WRDA).

Highways bill
On Aug. 6, more than 100 ag organizations, including SSGA and the National Grain & Feed Association (NGFA), sent a joint letter to the U.S. Senate Commerce Committee urging the Senate to move forward on a highways transportation package that spelled out a number of key concerns and needs of ag shippers. Funding for the current highway bill expires on Sept. 30.

The ag working group letter identified a number of key needs for agriculture shippers. The Agriculture Exemptions to Hours-of-Service rules, first approved in in 1995, “remain vitally important for the food and agriculture industry.” The coalition urged incremental changes to the hours-of-service ag exemption and further clarifications in the related eligible agriculture commodity definitions to enhance the needed flexibility the rules offer, including adoption of a 10% “load-shift” tolerance for truckers hauling bulk good and maintaining current trucking minimum financial responsibilities for insurance purposes.

Go here to view the joint letter.

The full U.S. House approved its version of the highway bill, H.R. 2, the Invest in America – Moving Forward Act of 2020, and reported it to the Senate on July 20. The vote was 233-188.  Go here to view a summary overview, details and actions from Congress.

Waterways bill
On July 29, the U.S. House of Representatives unanimously passed H.R. 7575, the Waterways Resources Development Act (WRDA) of 2020. SSGA joined more than 20 other national agriculture organizations in supporting passage of the bill.

The House bill included two key priorities for agriculture and other waterways, ports and inland river shippers – full use of the Harbor Maintenance Trust Fund (HMTF) dollars (rather than holding or diverting them for other uses) and an increase in the federal share of funding for inland waterways projects.

The legislation, still awaiting consideration in the Senate, would allow access to the current $9 billion plus balance of unused HMTF funds. The bill also would change the cost-share formula now used for funding inland waterways projects from the current 50% general revenue dollars and 50% Inland Waterways Trust Fund (IWRF) dollars, which are raised from barge fuel taxes paid by commercial uses of the inland waterways, to 65% general revenue and 35% IWTF.

Go here for coverage from NGFA, and here for a more detailed report from the National Association of Counties.

Go here to view the agriculture organizations joint letter.

Shippers eye Port of Montreal shutdown as longshoremen launch general strike

The Port of Montreal is a key gateway for North American trans-Atlantic container shippers, including U.S. ag exporters in the Upper Midwest that have access to rail service to Montreal by Canadian Pacific and Canadian National railways.

Now, a rolling series of strikes by union longshoremen at Montreal has gotten more contentious. On Aug. 10, the port shut down 1,100 workers of the Canadian Union of Public Employees and 150 workers from the International Longshoremen Association joined in a general, indefinite length strike when negotiations broke down. The CUPE has held a series of temporary strikes over the past six weeks.

According to reports, some ocean carriers have begun diverting incoming container ships to other east coast ports, while keeping an eye on the negotiations. Hapag-Lloyd is reportedly shifting the port call of its Detroit Express vessel from Montreal to Saint John in New Brunswick, and at least two MSC vessels skipped Montreal, going from Halifax direct to New York-New Jersey.

Go here for more detailed coverage.

Compiled by Bruce Abbe, strategic adviser for trade and transportation

There are some hopeful signs emerging that the third quarter of 2020 could see the start of a turn-around for container shipping volumes off the U.S. West Coast after a dreadful first half of the year that saw unprecedented declines at the ports.

Yet those positive signs are mired in uncertainty over fears that the U.S. and other parts of the world could see a second wave of a pandemic-driven economic setback, as well as a resurgence of trade wars leading up to the election.

Freightwaves reported last week that blank sailings (cancelled previously scheduled container ship services) projected for the third quarter are down from the brutal first and second quarters, citing Denmark-based eeSea consulting firm. While blank sailings made up for 14% of total planned sailings in the second quarter (105 for April-June), they’ve represented only 3% so far for the third quarter, eeSea reported, saying only 26 had been announced for the third quarter on the West Coast.

Those totals contrast with recent announcements from two of the three major alliances (The Alliance and 2M) of 75 blank sailings for the third quarter globally. The Ocean Alliance has not yet announced its plans for the third quarter.

One additional sign of container shipping volumes turning around (though one not favored by shippers) is the strength of the spot shipping rates on the Trans-Pacific. Rates reportedly are at a 2 ½-year high.  Ocean carriers put through two general rate increases (GRIs) in June. Reduced capacity due to blank sailings are the key factor in higher rates, along with some return of import and export demand.

American Shipper also documented how blank sailings have sent shipping rates on a steep climb of late.

May volumes down sharply
May figures are in, however, and the numbers were abysmal for the West Coast ports for the first part of the year.

The Northwest Seaport Alliance ports of Seattle and Tacoma reported a drop of overall container volumes of 18.8% for the first five months of 2020, compared to 2019 – 1,277,227 TEUs (20-foot equivalents), the lowest since 2009 – thanks to 46 cancelled sailings. The carriers have announced 17 more blank sailings. While some ag exports remain strong from NWSA, a major contributor to the decline is reduced demand for potatoes shipped from Idaho and eastern Washington to serve food service industries overseas.

Southern California’s Los Angeles/Long Beach big port complex reported container volumes down nearly 14% for the first five months. The Port of LA’s numbers were down 19%, due, in part, to some shifting of service around San Pedro Bay to Long Beach terminals. Together the ports handled 5,901,270 TEUs, down from 6,782,331 over the same period last year.

Port of LA Executive Director Gene Seroka said he’s worried there could even be a permanent loss of import volumes to the tune of 15%, citing the effects of the trade war as well as less consumer spending and less U.S. manufacturing due to the pandemic. Canceled sailings delivered a blow to the port, according to Seroka, Freightwaves reported.  However, he added that canceled sailings estimates have begun to ease at the port for June and looking ahead.

Both Seroka and NWSA Executive Director John Wolfe have expressed concerns about the lingering effect of the trade war on container volumes at the West Coast gateways in comments during recent stakeholder virtual meetings.

The Port of Oakland reported in a June 11 news release that loaded container volumes were down 12.7% in May, with imports down 14.6% and exports down 10.7%, in line with expectations.

Second wave worries
While projections for blank sailings in the third quarter – normally the peak container shipping season as U.S. retail importers stock up for the fall and upcoming holidays – now appear to be improving as the economy opens up, there are also worries about the potential impact of a second wave of COVID 19 on the global economy and ocean shipping if personal protection measures fail to keep the virus in check.

According to news reports, global virus infections remain near all-time highs, and the chief economist of the global Organization for Economic Co-operation and Development (OECD), Laurence Boone, warned a second wave of the virus would produce a “double hit” to the economy, raising forecasts of a drop in GDP from 6% to 7.6% for the year. The OECD forecast for the U.S. was a GDP plunge of 7.3% for a single hit of the virus business impact to 8.5% with a second wave hit.