In 2023, ocean shippers saw ample capacity and falling rates. This year, however, that trend has reversed due to labor disruption, geopolitical issues, and rising demand.
Gary Frantz is a contributing editor for CSCMP's Supply Chain Quarterly and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The first two-thirds of 2024 hasn’t been particularly kind to shippers, global containership operators, and U.S ports. They’ve had to deal with rebel attacks on ships transiting the Suez Canal and the Red Sea, congestion at Asia-Pacific ports such as Singapore and Malaysia, a Panama Canal slowly recovering from last year’s drought, and more recently a three-day strike at U.S. East and Gulf Coast ports.
It’s a familiar picture: a maritime market experiencing high demand while dealing with geopolitical factors that have shifted global supply chains, upended normal operations, and sucked up available capacity. As a result, rates for container shipping have been on the rise and stayed stubbornly strong most of the year.
“We are seeing the exact same playout as during the pandemic,” observes Lars Jensen, principal with maritime consultancy Vespucci Maritime. “There is an overall lack of capacity.”
Red Sea reverberations
In this case, the biggest culprit is hostilities in the Middle East, which have forced containership operators to reroute Asia-origin vessels destined for Europe and the U.S. East Coast from the Red Sea to around Africa’s Cape of Good Hope.
Because going around Africa takes longer, capacity has been tied up, and carriers have needed to add more vessels so that they can maintain schedules. To illustrate this trend, Michael Britton, head of North American ocean products for Maersk, cites one example where if the containership operator had not added two vessels to a service, it would have been up to two weeks before another voyage was offered.
“How do we respond to a requirement to add two to three vessels to a string, so we can maintain frequency of sailings?” he asks. “Where does the extra capacity come from?”
Carriers like Maersk have just two options, Britton says. They can either go to the charter market, or they can pull ships from other parts of their network to fill in the gaps. According to Britton, the charter market is limited and comes with higher fixed costs. Furthermore, these additional costs are not just for a couple of weeks or months. In today’s market, with charter rates at a premium, those vessel owners typically demand—and get—multiyear contracts for the capacity. As a result, vessel operators have mostly taken the second option of pulling ships from other routes and redeploying them into the lanes serving Asia to Europe or the U.S. East Coast.
The route changes have caused transit times to increase by anywhere from seven to 10 days to the U.S. East Coast and by 14 to 28 days or more to some locations in Europe and the Eastern Mediterranean.
Compounding the problem is the fact that cargo that once was able to move on larger ships through the Red Sea now needs to be transshipped, which is the transportation of cargo containers from one vessel to another, while in transit to its final port of discharge. Transshipping commonly happens when the cargo can't reach its final destination through a direct route. “It takes more time to handle four smaller vessels than one big [one],” Jensen notes.
Nor have the new routes been easy on the ports. There have been reports that the irregular schedules have led to what is called “ship bunching,” when multiple vessels arrive within a short time of one another.
“Adding insult to injury, nothing runs on time,” says Jensen. “That makes it exceedingly difficult to plan yard layout, which reduces port efficiency [and delays ship loading and departure].”
Maersk, for example, has seen increases in congestion and waiting times at key hub ports and some Asian ports. “It’s a networkwide challenge, not just limited to the U.S. trades,” Britton says.
Rising costs
Additional costs are piling up as well. To make up for longer transits, ship operators are running vessels at faster speeds. That’s incurring higher fuel and other operating costs, which by some estimates are as much as $1 million per string.
Then there is the issue of containers. With longer transit times, containers are taking longer to get back to origin ports. “There is no use having a weekly sailing if I don’t have boxes to release to customers,” Britton says.
With the current trade lanes and transit times, it’s taking up to 24 days or more for boxes to return. “The only way to stay ahead of that and carry the same volumes is to buy and deploy more containers,” Britton notes. “You can either do one of two [things]: invest in capacity and higher operating costs or eliminate the service. If you want transit time and port coverage, that requires investment and higher operating costs—and with that comes higher rates.”
Pulling forward
At the same time that capacity has been tight, demand has also been on the rise. According to Britton, volumes have been higher than expected due to a return to normal inventory stocking cycles and continuing strong demand from U.S. consumers. He also notes that some China-based suppliers, seeing weakness in their own domestic markets, are pushing more into export markets than projected.
Finally, the longer transit times themselves have also been contributing to the increase in demand. “It’s making [businesses] order earlier to factor in those longer leadtimes or maybe pull forward some of the traditional peak season volumes we’ve seen,” Britton says. “There is some front-loading going on.”
That aligns with what shippers have been telling Port of Los Angeles Executive Director Gene Seroka. While the conflict in the Mideast hasn’t significantly impacted his port, Seroka says shippers are telling him that they are altering their ordering and supply chain timelines to accommodate the longer transit times.
A reversal
In all, 2024 has been a reverse image of where the market was nearly a year ago. In 2023, capacity was relatively available, rates were falling, and new ships were coming online at a rapid pace, foreshadowing a capacity glut. Shippers were haggling for the lowest rates they could find.
“October to November last year, rates were lower than prepandemic,” Jensen says. “At that point in time, the industry talk was how dumb the carriers were to overorder vessels.”
But now the shoe is on the other foot, according to Seroka. “New build capacity coming out of shipyards was thought to be a concern,” he says. “It has worked out to be just the opposite because so many of the new-build ships were put into service on these longer strings.”
Without that excess capacity, the ocean carriers might not have been able to manage the Red Sea crisis. “Imagine where we would be right now [if vessel lines had not ordered ships at the rates they did],” Jensen says. “We would not be able to service the global supply chain.”
Five material handling companies have merged into a single entity, forming an Elgin, Illinois-based company called “Systems in Motion” that will function as a tier-one, turnkey material handling integrator, the members said.
The initiative is the culmination of the companies’ close working relationship for the past five years and represents their unified strength. “We recognized that going to market under a cadre of names was not helping our customers understand our complete turn-key services and approach,” Scott Lee, CEO of Systems in Motion, said in a release. “Operating as one voice, and one company, Systems in Motion will move forward to continue offering superior industrial automation.”
Systems in Motion provides material handling systems for warehousing, fulfillment, distribution, and manufacturing companies. The firm plans to complete a rebranded web site in January of 2025.
Regardless of the elected administration, the future likely holds significant changes for trade, taxes, and regulatory compliance. As a result, it’s crucial that U.S. businesses avoid making decisions contingent on election outcomes, and instead focus on resilience, agility, and growth, according to California-based Propel, which provides a product value management (PVM) platform for manufacturing, medical device, and consumer electronics industries.
“Now is not the time to wait for the dust to settle,” Ross Meyercord, CEO of Propel, said in a release. “Companies should approach this election cycle as an opportunity to thrive in the face of constant change by proactively investing in technology and talent that keeps them nimble. Businesses always need to be prepared for changing tariffs, taxes, or geopolitical tensions that lead to unexpected interruptions – that’s just the new normal.”
In Propel’s analysis, a Trump administration would bring a continuation of corporate tax cuts intended to bolster American manufacturing. However, Trump’s suggestion for spiraling tariffs may benefit certain industries, but would drive up costs for businesses reliant on global supply chains.
In contrast, a Harris administration would likely continue the current push for regulatory reforms that support sectors like AI, digital assets, and manufacturing while protecting consumer rights. Harris would also likely prioritize strategic investments in new technologies and provide tax incentives to promote growth in underserved areas.
And regardless of the new administration, the real challenge will come from a potentially divided Congress, which could impact everything from trade negotiations to tax policies, Propel said.
“The election outcome is less material for businesses,” Meyercord said. “What is important is quickly adapting to shifting policies or disruptions that address ‘what if’ scenarios and having the ability to pivot your strategy. A responsive manufacturing sector will have a significant impact on the broader economy, driving growth and favorably influencing GDP. One thing is clear: the only certainty is change.”
With that money, qualified ports intend to buy over 1,500 units of cargo handling equipment, 1,000 drayage trucks, 10 locomotives, and 20 vessels, as well as shore power systems, battery-electric and hydrogen vehicle charging and fueling infrastructure, and solar power generation.
For example, funds going to the Port of Los Angeles include a $412 million grant to support its goal of achieving 100% zero-emission (ZE) terminal operations by 2030. And following the award, the Port and its private sector partners will match the EPA grant with an additional $236 million, bringing the total new investment in ZE programs at the Port of Los Angeles to $644 million. According to the Port of Los Angeles, the combined new funding will go toward purchasing nearly 425 pieces of battery electric, human-operated ZE cargo-handling equipment, installing 300 new ZE charging ports and other related infrastructure, and deploying 250 ZE drayage trucks. The grant will also provide for $50 million for a community-led ZE grant program, workforce development, and related engagement activities.
And the Port of Oakland received $322 million through the grant, which will generate a total of nearly $500 million when combined with port and local partner contributions. Altogether, that total will be the largest-ever amount of federal funding for a Bay Area program aimed at cutting emissions from seaport cargo operations. The grant will finance 663 pieces of zero-emissions equipment which includes 475 drayage trucks and 188 pieces of cargo handling equipment.
Likewise, the Port of Virginia said its $380 million in new funding will help to reach its goal of eliminating all greenhouse gas emissions by 2040. The grant money will be used to buy and install electric assets and equipment while retiring legacy equipment powered by engines that burn gasoline or diesel fuel.
According to AAPA, those awards will demonstrate to Congress that the Clean Ports Program should become permanent with annual appropriations. Otherwise, they would soon cease to be funded as backing from the Inflation Reduction Act (IRA) comes to a close, AAPA said. “From the earliest stages of legislative development in Congress, America’s ports have been ecstatic about and committed to the vision of implementing a novel grant program for the port industry that will complement and strengthen existing plans to diversify how we power our ports,” Cary Davis, AAPA’s president and CEO, said in a release. “These grant funding awards will usher in a cleaner and more resilient future for our ports and national transportation system. We thank our champions in Congress and the Biden-Harris Administration for committing to us and we look forward to working closely with our Federal Government partners to get these funds quickly deployed and put to work.”
Keep ReadingShow less
A survey from e-commerce software vendor HubBox found that 28% of home deliveries arrive damaged.
More than half of home deliveries to U.S. online shoppers arrive either late, damaged, or to the wrong address, according to a study from e-commerce software vendor HubBox.
Specifically, almost one in three (27%) home delivery packages are currently delivered late, while almost one in six (15%) online orders are delivered to the wrong address. The results come from Atlanta-based HubBox, which works with networks and carriers to provide retailers with pickup access to over 400,000 locations worldwide.
Furthermore, the survey of more than 1,000 U.S. shoppers revealed consumers’ top five home delivery pain-points:
Orders delivered to the wrong house or block (37%),
Packages left with neighbors they don’t like or don’t speak to (30%),
Item arriving damaged (28%),
Delivery is late (27%), and
Having to wait at home for deliveries (25%).
According to HubBox, those frustrations have pushed nearly half (49%) of shoppers to consider out-of-home delivery collection points to overcome poor delivery service.
“Shoppers expect seamless experiences throughout their buying journey—and nowhere more so than in delivery and the last mile where shoppers’ anticipation of receiving their order is highest,” HubBox CEO Sam Jarvis said in a release. “Retailers that offer flexible and convenient delivery experiences, such as pickup points or BOPIS, ("buy online pick up in store") stand a better chance, and, if they can’t meet these expectations, they risk significant lost sales and future loyalty.”
In addition, more shoppers now expect compensation for late deliveries. Over half of shoppers (53%) expect money off their next order if a delivery is delayed, while 63% expect delivery charges to be waived. Another 54% expect a free delivery code for their next order.
“Late deliveries don’t just erode hard-won customer loyalty. Increasingly, as retailers are having to compensate customers for delayed orders, they eat away at already slim margins—and this at a time when the cost of fulfillment is rising and some carriers are charging additional fees for home deliveries,” Jarvis said. “By diversifying fulfillment options, such as adding local pickup, retailers can ensure demand can be met across their network even during peak trading periods such as Black Friday and the Christmas holidays while ensuring consumer experience is maintained.”
Buoyed by a return to consistent decreases in fuel prices, business conditions in the trucking sector improved slightly in August but remain negative overall, according to a measure from transportation analysis group FTR.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.