Logistically Speaking - Hot Sheet Week 2



Global supply chains are facing increased challenges in 2024 due to disruptions at two crucial trade corridors—the Panama Canal and the Suez Canal.
United States Transport
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Looking Forward into 2024: Geopolitics and Disruptions

Global supply chains are facing increased challenges in 2024 due to disruptions at two crucial trade corridors—the Panama Canal and the Suez Canal. Geopolitical tensions are taking a more prominent role in sourcing and distribution, potentially forcing countries and companies to redraw trade maps. Startups and established businesses are establishing new supply chains for clean energy, affecting industries from semiconductors to consumer goods. The unpredictable shocks and shifts press companies to act in a fast-changing manufacturing and shipping environment, especially for ocean carriers, truckers, and other logistics providers who must divert resources based on cargo flows and demand fluctuations. Despite these challenges, many companies, including retailers, have successfully cleared out pandemic-era inventory stockpiles and are adjusting their strategies to maintain flexibility and respond to volatile trends.

As geopolitical tensions, climate change, and mass migration disrupt trade lanes, companies are reassessing their supply chain strategies. Retailers are transitioning from the pandemic-driven "just-in-case" strategy of hoarding inventory to a more balanced approach. However, high-interest rates may make it more expensive to carry large inventories, potentially pushing some companies back toward a "just in time" strategy. The trucking industry, which saw layoffs and bankruptcies in 2023, is anticipating a rebound in order volumes in 2024, with expectations of more truckers leaving the road, leading to increased freight rates. Global trade flows are shifting away from China to alternative suppliers, creating new challenges and bottlenecks in supply chains. Disruptions at the U.S.-Mexico border and issues at the Panama and Suez Canal are reshaping inbound freight flows and emphasizing the need for flexibility in logistics providers' strategic plans for 2024. (Source: Paul Berger)

Dunavant Solution: With the uncertainty heading into 2024, Dunavant offers a strategic advantage by providing flexible logistics services tailored to meet the dynamic demands of the fast-changing manufacturing and shipping environment. Reach out for your supply chain needs at dunavant.com.

Air Cargo Demand Rises Amid Red Sea Conflict

The Red Sea conflict's impact on Suez Canal shipping is driving a surge in airfreight demand, according to Bolloré Logistics. The volatile situation has led to higher shipping rates, extended transit times, and supply chain delays, prompting increased reliance on air cargo. Predictions from Bolloré Logistics indicate that prolonged ocean transit times will strain inventories, resulting in substantial price hikes for airfreight on major trade routes. The conflict has forced shipping companies to reroute vessels away from the Suez Canal, creating concerns about supply chain delays and congestion. Despite efforts by a multinational defense force, Operation Prosperity Guardian, to safeguard commercial shipping in the Red Sea, companies remain cautious about operations in the area.

The disruptions in sea shipments have prompted a shift toward air cargo charters for at-risk shipments, and major shipping lines have rerouted a significant number of containerships through the Cape of Good Hope. This has impacted over 350 vessels and close to 5 million TEUs over a two-week period, resulting in a tightening of global ocean freight capacity and daily rate increases as carriers divert vessels mainly around Africa. Despite these challenges, end-of-year figures from WorldACD reveal a 3% increase in air cargo volumes in the fourth quarter of 2023, signaling a gradual improvement in demand. Overall, 2023 volumes were 5% down on 2022 levels, with the second half of the year showing a consistent year-on-year performance improvement, particularly in the Asia Pacific region. However, rates concluded the year 17% lower than 2022 levels, averaging $2.54 per kg, although they remained significantly higher than pre-Covid 2019 levels. (Source: Rebecca Jeffrey and Damian Brett)

Dunavant Solution: In response to the escalating challenges in sea shipments due to the Red Sea conflict, see if air freight is the right solution. Dunavant's air freight services provide a swift and secure alternative for at-risk shipments. Contact us at dunavant.com/global-services.

Red Sea Crisis Effect on Ocean Rates

Maersk, the world's second-largest ocean carrier, has announced the indefinite suspension of Red Sea transits and the rerouting of ships around Africa's Cape of Good Hope. This decision comes after the container ship Maersk Hangzhou was attacked by a Houthi rebel missile and subsequent threats by four Houthi boats. The armed guards on the Maersk Hangzhou engaged in a firefight with the Houthis, and U.S. military helicopters intervened, resulting in the destruction of three out of four Houthi boats. As missile launches continue in the Red Sea, the U.S.-led coalition issued a final warning to the Houthis, emphasizing the need to end these attacks to prevent consequences for lives, the global economy, and commerce in critical waterways. The escalation in military action has led to surges in container shipping spot rates, impacting cargo importers with higher freight costs and longer delays. At the same time, liner profits show bullish sentiment amid uncertainties.

The Shanghai Containerized Freight Index (SCFI) recorded a 40% spike in the week ending Friday, reaching its highest level since October 2022. Linerlytica noted that this significant rate increase will persist through January and February, with 12% of global capacity already being diverted due to the Houthi attacks. Platts reported soaring spot rates on various routes, such as North Asia-Mediterranean and North Asia-North Europe, with increases exceeding 150% from late December. The disruptions in the Red Sea are impacting rates across different shipping lanes, contributing to the roller-coaster ride in stock prices for companies like Zim, a popular indicator of how spot shipping rates may affect future container liner earnings. Danish publication ShippingWatch said meetings between Houthi rebels and shipowners had taken place and that some safe passage accords had already been agreed upon. The publication didn't name the companies that had purportedly made the pacts. A.P. Moller-Maersk A/S and Hapag-Lloyd AG denied any pact with Yemen's Houthi rebels to facilitate the safe movement of vessels through the Red Sea after shares in shipping companies sunk on a report of deals being struck. Chinese state-owned Cosco Shipping suspended transport to Israel through the Red Sea. (Source: Greg Miller)

Dunavant Solution: If you are looking for a freight expertise to help you mange through the uncertainty and increases in ocean freight, Dunavant's Import/Export is here for you. Contact us at dunavant.com/global-services.

Rail Car Ferry Service: Mobile — Coatzacoalcos, MX

Genesee & Wyoming, a short-line rail operator, has announced that Grupo Mexico Transportes (GMXT) will be its new partner in CG Railway LLC, a rail car-ferry operation linking ports in the U.S. and Mexico. GMXT is acquiring Seacor Holdings Inc.'s stake in CG Railway, a joint venture initially formed in 2017 between Seacor and G&W to own and operate CGR. The rail car ferry service operates between the ports of Mobile, Alabama, and Coatzacoalcos, Mexico, providing weekly trips and connecting shippers to 13 ports in both countries through rail interchanges. The deal strengthens the partnership between G&W and GMXT, a leader in rail transportation services in Mexico with a strong presence in the southern U.S. The financial terms of the agreement were not disclosed.

GMXT, a subsidiary of Grupo Mexico, is the largest freight train company in Mexico, operating over 6,835 miles of track connecting Mexican ports to major markets in the U.S. and Canada. In addition to the CG Railway partnership, GMXT recently acquired a 60% stake in two Mexican companies providing maritime transport services for rail cars between the U.S. and Mexico. These strategic moves align with GMXT's objective to capitalize on the $2.8 billion Interoceanic Corridor across the Isthmus of Tehuantepec, a project by Mexico's federal government. The corridor will include ten new industrial parks along the railway, connecting the Pacific port of Salina Cruz to the Gulf Coast hub of Coatzacoalcos in Veracruz state, and GMXT aims to strengthen its position as a leading freight transportation company in the region. (Source: Noi Mahoney)

Dunavant Solution: With the ever-increasing demand for freight services between the US and Mexico, Dunavant's CBMX Team stands ready. Contact us at dunavant.com/usmexico-operations.

Saving the Panama Canal

The Panama Canal, a critical artery for global maritime trade handling $270 billion annually, faces severe disruptions due to drought conditions. The historically low water levels, six feet below average, have prompted the Panama Canal Authority to impose strict limits on vessel crossings, impacting the shipping industry. While the constraints have slightly eased after a rainier-than-expected November, the canal still operates at a reduced capacity of 24 ships per day compared to the pre-drought capacity of about 38. Some shippers are paying millions to expedite their passage, while others are resorting to longer, costlier routes around Africa or South America. The situation underscores the impact of climate change on trade routes and the need for long-term solutions, such as the proposed project to dam up the Indio River and drill a tunnel to address chronic water shortages, estimated to cost $2 billion and take at least six years to complete.

The drought's repercussions on the Panama Canal reflect broader challenges the shipping industry faces worldwide due to climate change. Chokepoints like the Mississippi River in the US and the Rhine in Europe experienced disruptions last year, emphasizing the vulnerability of critical trade routes to environmental changes. As the Panama Canal handles approximately 3% of global maritime trade volumes and 46% of containers from Northeast Asia to the US East Coast, the ongoing issues have significant implications for international trade patterns. There is an urgent need for infrastructure investments and climate-resilient solutions to ensure the reliable and efficient functioning of the Panama Canal, a linchpin for international commerce. (Source: Peter Millard and Michael D McDonald)

Container Lines Implementing Surcharges

Maersk has imposed surcharges on shipping routes due to the Suez Canal disruption. For a standard 20-foot container from China to Northern Europe, there's a total of $700 in extra charges, comprising a $200 Terminal Document Service (TDS) fee and a $500 Peak Season Surcharge (PSS). Containers bound for the east coast of North America face a $500 surcharge, with $200 for TDS and $300 for PSS. Maersk has also implemented emergency contingency surcharges on various routes affected by the Suez disruption.

CMA CGM has introduced surcharges as well. On the North Europe to Asia route, there's an extra $325 per 20-foot container, and for Asia to the Mediterranean, it's $500 per 20-foot container. These charges are part of the contingency plan to reroute vessels around the Cape of Good Hope, with 22 vessels listed as having been re-routed.

ONE has introduced an Red Sea Diversion Surcharge (RDS) for all exports from the Canadian / US Eastern Seaboard and the US Gulf Coast to the Middle East / Indian Subcontinent locations. They have also introduced a Panama Cana Contingency Surcharge of $145 per TEU effective January 15, 2024.

$200 per 20' Dry and Reefer Cargo
$400 per 40' & 45' Dry Cargo
$600 per 40' Reefer Cargo

Dunavant Solution: If you have any questions regarding surcharges, please reach out to your customer representative.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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