Compiled by Bruce Abbe, strategic adviser for trade and transportation

Despite chronic over-capacity among the ocean carrier container steamship lines in recent years – made far worse this year due to the economic impact of the global COVID-19 pandemic – new mammoth-sized container ships have gone into service and made their first port calls last week.

A few years back a couple of steamship lines took advantage of incentives and sweet deals to order several huge, 18,000 TEU (20-foot equivalent) container vessels manufactured by Daewoo Shipping & Marine Engineering in South Korea.

Industry observers wondered how ports, land-side infrastructure and need for balance in supply and demand would accommodate the big vessels. Previously, 14,000 TEU ships were – and still are – considered extremely large. That’s the maximum size that can squeeze through the new Panama Canal channel on the way from Asia to the East Coast market.

The orders set off a scramble by the ports to expand their infrastructure with higher- and wider-reaching cranes and deeper shipping channels to accommodate the big ships. Indeed, there have been challenges on land with storage space and added time needed to unload and load the ships.

The ocean carriers advised that the 18,000 TEU ships would serve the Asia-Europe trade routes going through the Suez Canal, with other larger ships to “cascade” down the system to serve the Trans-Pacific and Intra-Asia trade lanes.

Now the first batch of even bigger ships have entered service.

Hyundai Merchant Marine’s HMM Algeciras, a whopping 23,964 TEU containership – the largest in the world – made big news when it arrived at the Port of Antwerp, Belgium on June 12. A couple of days later it called at the DP World London Gateway at Thurrock port before heading on to the Netherlands and Germany and then returning to China and other stops in Asia.

On June 19, another huge container ship made big news on the U.S. West Coast when Mediterranean Shipping Company’s MSC Isabella, with a capacity of 23,656 TEUs, called at the Port of Los Angeles.   APM Terminals Pier 400 at LA handled a record-setting 18,465 containers.

By Bruce Abbe, SSGA strategic adviser for trade and transportation

Last week, two of the three global container shipping alliances announced more planned “blank sailings” in the third quarter of 2020 out through September. While reportedly there are signs that some ocean carriers are bringing a bit more capacity on line, general indications are that the carriers are finding it difficult to match supply with unpredictable demand and are holding onto their newfound ability to maintain higher shipping rates by limiting capacity.

Two vessel-sharing alliances, the 2M Alliance, made up of Denmark-based Maersk and Swiss-headquartered Mediterranean Shipping Company (MSC), and The Alliance, made up of Germany-based Hapag-Lloyd, Japan-based Ocean Network Express (ONE), Taiwan’s Yang Ming, and South Korea’s Hyundai Merchant Marine (HMM) announced they are planning to cancel a combined 75 sailings scheduled for the third quarter.

“Blank sailings” have appeared to be the root of so many of the disruptions and challenges shippers have faced throughout the first half of 2020 as international trade has experienced unprecedented volatility due to the fallout of the global coronavirus pandemic.

A Freightwaves report provides more detail. The 2M cancellations noted more Asia-Europe cancellations, although one service from Thailand calls on the East Coast U.S. The Alliance carriers are major Trans-Pacific service providers. Industry experts are said to expect the Ocean Alliance, the third major alliance consisting of APL (now part of CMA), France-based CMA/CGM, Taiwan’s Evergreen Line, and China-headquartered COSCO Shipping to soon announce their planned blank sailings.

Denmark-based shipping consulting firm Sea-Intelligence indicated that Trans-Pacific ocean carriers cancelled more than 120 sailings since April running into July, according to a Journal of Commerce report.

Sea-Intelligence CEO Alan Murphy explained to Freightwaves the challenges ocean carriers have had trying to predict demand during the volatility of global trade as an outgrowth of the coronavirus – from shutdowns of manufacturing in China, to rapid surge in demand to restock goods, to the current uncertainty over prospect for the economy due to unemployment, business failures and potential declines in spending.

Some positive signs
Murphy projected that ship cancellations in July are likely to be down 10-15% from scheduled — a smaller decline from May and June, which were down 20%. He also noted a positive development that some blank sailings have been “unblanked,” and “extra loaders” or added sailings have also occurred.

Other freight industry reports out the past few days are indicating a strong upturn in trucking volumes that could be a precursor to a stronger recovery underway – another factor in the difficulties of projecting demand in the volatile global economy.

While the ocean carriers are learning the advantages of protecting higher rates, they also need to fill the ships they have moving on the water. So too is there a cost for parking the behemoth container ships too long.

SSGA shippers
Exporter shipper members of the Specialty Soya and Grains Alliance (SSGA) regularly use ocean carriers in all three of the major alliances to serve overseas customers. Much of the disruptions in the first part of 2020 have stemmed from late-changing vessel sailing schedules and inadequate notice time for canceled sailings for inland shippers whose containers take 10-14 days on the railroads to reach the ports on the West Coast.

Also challenging for exporters has been tighter ship space causing container bookings to be pushed back weeks longer than normal, plus longer transit times to reach customers on ships that are making more port stops.

Veteran shipping experts know that ocean-carrier container shipping decision-making is primarily driven by the “head haul,” higher-value consumer products demand. U.S. container exports, with the exception of high-value meat and poultry refrigerated product exports, are the back haul, and container availability depends upon the volume and movement of inbound import containers.

U.S ag exports increase
Despite all these disruptions, it is worth noting that, according to a Journal of Commerce report, total U.S. agriculture exports increased 12.5% in the first quarter of 2020 compared to a year ago. U.S. export to Asia increased 11.6% during the first quarter, with exports to China up sharply after a thawing of the U.S.-China trade war that was at its peak in 2019.

One more worry – as if we didn’t have enough – there are fresh industry concerns that the U.S.-China trade war might heat up again in the coming months during the U.S. election year and concerns that China may not live up to commitments made under the Phase-One Trade Agreement.

SSGA contributes to current global trade feature

By Bruce Abbe, strategic adviser for trade and transportation

The Specialty Soya and Grains Alliance (SSGA) and several SSGA members recently contributed to a prominent feature story that documented how U.S. agriculture container exports grew in 2019 and are continuing to hold their own, even in the current difficult international trade conditions.

The story, “Top U.S. Shippers: Ag exporter grow volumes despite tough market,” appeared May 22 in the online edition of Journal of Commerce (JOC), the leading intermodal transportation and logistics media source and will appear in the upcoming print edition that will feature the JOC’s Top 100 rankings of exporters and importers.

In spite of disruptions and cutbacks in trade throughout last year due to the back-and-forth U.S.-China trade tariff battle, U.S ag exports to Asian nations grew overall in 2019. Total containerized U.S. ag exports rose 6.7 percent, even though shipments to China dropped 4.5 percent, according to JOC. Increases to Japan, Taiwan and South Korea made up for much of the increases, JOC reported, citing bill of lading information from its affiliated PIERS shipping data firm. Those three North Asian nations are major markets for SSGA exporters. Growth in trade with Southeast Asian countries has also helped buoy U.S. exports.

The first months of 2020 have seen ever more trade disruptions, starting with normal import and export cutbacks during January’s Chinese New Year period. That was followed by the roller coaster ride of trade during the COVID-19 global virus crisis. Major reductions in container shipping followed in February due to quarantines of port operations and halted manufacturing in China. A surge in imports of critical goods into the U.S. that were under backlog in late February and early March once manufacturing restarted came next. But that was followed by a rash of canceled blank sailings in March and April as severe cutbacks in import demand emerged as the economic impact on global business operations due to the virus came to fruition.

This time around, the ocean carriers are focused on reducing capacity by canceling sailings and combining cargo on fewer larger ships in an effort to maintain container shipping rates. So far that strategy appears to be working, but it has led West Coast ports to cut back operations, as larger ships tend to have more port stops and longer transit times overseas.

U.S. container exporters continue to be concerned about availability of container equipment at inland locations under the reduced trade scenarios now and looking ahead.

According to JOC, a 25 to 30 percent reduction in trans-Pacific capacity is expected into June.

Short notice cancellations of sailings have proven to be an especially difficult problem for many inland exporters, like SSGA members whose containers travel 10 to 14 days by rail just to get to the ports and longer times on the water to get to customers.

SSGA member insights

JOC contacted SSGA for insights to how our member ag shippers are contending with the current shipping climate. SSGA Trade & Transportation Adviser Bruce Abbe surveyed around 20 member shippers for input, which factored into information provided to JOC.

JOC’s extensive report included this information from SSGA:

“Our shippers and forwarders say their biggest challenge is getting timely bookings and ship space,” said Bruce Abbe, strategic adviser to the Specialty Soya and Grains Alliance, which represents specialty agricultural producers and soybean exporters. “With all of the cutbacks in the number of vessels, and freight getting bumped onto fewer ships in the alliances, we’re seeing larger ships making more port calls, and the transit time to reach destinations on time is becoming an ever-greater problem. More transshipping is causing longer delays en route.”

With canceled sailings and ports of call being shifted, it’s difficult to align production at the export facilities with transportation schedules, an alliance member told Abbe. “How do we guarantee we can get [the shipment] to our customers?” the shipper asked.

Although carriers cancel sailings because of declining US imports, which constitute the headhaul lane in the trans-Pacific, when imports of containers moving to inland population centers decline, there are fewer containers available at urban hubs to be unloaded and refilled with export commodities. That creates equipment shortages for agricultural shippers in the interior of the country.

A survey of ag shippers regarding equipment availability at inland hubs revealed that equipment availability in Chicago, Kansas City and the Ohio Valley continues to fluctuate depending upon import volumes, Abbe said. “Chicago is a moving target right now. One week, one carrier will be short. Next week, it will be another carrier at a different yard,” one shipper said.

Several of members of the Specialty Soya and Grains Alliance reported equipment was difficult to secure in Minneapolis, while another ag exporter cited occasional shortages in Toronto, Abbe said. Equipment availability is sufficient at West and East Coast ports, he added.

Read the full story here.

By Bruce Abbe, strategic adviser for trade and transportation

Demurrage charges have long been a source of raw conflict between transportation providers and shippers.

That conflict is not only over the recent spate of penalty fees by ocean container carriers that shippers have called unfair due to poor execution of cancelled sailings. There has also been a challenge from railroads assessing demurrage and accessorial charges on (non-intermodal) rail shippers. Charge amounts and applications have increased in recent years as Class 1 railroads have shifted to more precision-scheduled-railroad operations.

On April 30, the U.S. Surface Transportation Board (STB) issued a policy statement on three decisions related to how it will look at the reasonableness of railroad demurrage and accessorial charges, if rail shippers decide to bring a case before it.

The policy statement says STB is unwilling at this time to make “any binding determinations” and “declines at this time to take further regulatory action. … However, the (agency) will remain open to argument that these concerns and suggestions should be considered in future proceedings in assessing the reasonableness of demurrage rules and charges.”

The National Grain and Feed Association (NGFA) was among a group of shipper interest groups that has been pressing STB to take firm action to sort out and mitigate unfair application of demurrage charges.

NFGA President Randy Gordon wrote a detailed overview of the STB’s policy statement, including STB positions on free time, “bunching” of cars, accessorial charges, overlapping charges and invoicing and dispute-resolution.”

The STB said, “With the policy statement, the Board intends to facilitate more effective private negotiations and problem solving between rail carriers and shippers and receivers, to help prevent disputes from arising, and to help resolve disputes more efficiently and cost-effectively.

“The (STB) encourages all carriers, and all shippers and receivers, to work toward collaborative, mutually beneficial solutions to resolve disputes on matters such as those raised” by rail users during the agency’s proceeding on this matter.”

Another report on the announcement can be found here.