Posted on September 9, 2024
Ocean Update
During the first half of 2024, the global capacity utilization was 2% higher than the previous year despite a substantial 10.4% increase in containership supply. Container ports have exhibited resilient growth in the first half of 2024, with the top 10 ports reporting 7.4% combined gains. However, challenges persist as port congestion and diversions along the Cape of Good Hope route curtail capacity expansion. On the demand front, while Europe witnesses a return to pre-COVID core inflation levels, the US charts a slower decline. Surprisingly, US Consumer Spending data illustrates a gradual decline rather than a sudden surge, highlighting a peak season fueled more by import front-loading and inventory restocking than an upsurge in consumption.
Maersk continues with fleet renewal plan
Continuing its fleet renewal program initiated in 2021, Maersk is signing new building orders and time-charter contracts for dual-fuel vessels matching the planned renewal pace of around 160,000 TEU annually.
The ordered capacity will be a mix of owned and chartered, ensuring that Maersk maintains strong financial and operational flexibility while continuing to own a significant part of its strategic tonnage. The vessels come in different sizes, offering great network options. In line with Maersk’s commitment to decarbonization, all vessels will be dual-fuel with the intent to operate them on low emissions fuel. To ensure the long-term competitiveness of the fleet and its ability to deliver on the decarbonization goals, Maersk has elected a mix of methanol and liquified gas dual-fuel propulsion systems. While green methanol is likely to become the most competitive and scalable pathway to decarbonization in the short term, Maersk also foresees a multifuel future for the industry, including liquified bio-methane. Once the vessels have been delivered, around 25% of the Maersk fleet will be equipped with dual-fuel engines.
Global supply chain challenges presented by the situation at the Red Sea
Seven months into the situation at the Red Sea, the impact on maritime shipping and global supply chains continues to intensify. With ships diverted around the Cape of Good Hope, we’re seeing significant increases in transit times and operational costs. These disruptions have led to service reconfigurations and volume shifts, straining infrastructure and resulting in port congestion, delays, and shortages in capacity and equipment. Despite these challenges, demand for container shipping remains robust.
Before the attacks began towards the end of 2023, 12% of global trade passed through the Suez Canal. Recent figures show that the number of ships crossing through the canal has plummeted by 66% since carriers began diverting their vessels around Africa.
The timeline for easing these disruptions and returning to ‘normal’ remains uncertain. This crisis underscores the critical need for businesses to bolster supply chain resilience and for carriers to reassess their risk mitigation strategies.
Businesses should consider the following strategies to enhance supply chain resilience:
- Diversifying supply chains: Source materials from multiple suppliers across different regions to mitigate the impact of localized disruptions.
- Building solid partnerships: Collaborate with trusted supply chain partners to plan alternative transportation modes and shipping routes, minimizing potential disruptions.
- Investing in data and analytics: Leverage technology to better predict and respond to supply chain challenges.
As Vincent Clerc previously shared, Maersk will only return to sailing via the Red Sea / Gulf of Aden when the safety of seafarers, vessels, and cargo can be guaranteed. He said that once a resolution is found, ships could return to sailing their usual routes through the Suez Canal almost immediately. Others would need to complete their journey around the Cape of Good Hope first. Clerc warned that there would be a period during which the ships on these different routes would be arriving at ports at similar times. He expected this to cause congestion at ports, before returning to a more stable scenario.
Update on the ILA and USMX Labor Negotiations
The contract between USMX and ILA is due to expire on September 30, raising concerns about potential disruptions at Gulf and East Coast ports. On August 22, 2024, USMX was notified by the ILA that it had filed a Notice to Mediation Agencies (Form F-7) with the Federal Mediation & Conciliation Service (FMCS) on August 19. In response, USMX also filed a Form F-7 on August 22. The purpose of these notices was to inform the FMCS of a dispute between the parties and was not a request for or agreement to mediation. No job actions are anticipated before October 1 due to the ‘no strike’ clause currently in effect.
We are hopeful that both parties are committed to reaching a mutually beneficial agreement, ensuring the continued efficiency and robustness of supply chains. However, should a contract not be finalized, the potential for a strike remains, which could result in localized or broader disruptions. Even a short disruption could require weeks to fully resolve, leading to significant backlogs and delays.
In the event of disruptions, we are prepared to support our customers explore their desired alternative routes, transport modalities, or distribution schedules to maintain operational supply chains. We encourage customers to stay in close communication with their Maersk representatives to facilitate tailored contingency planning as needed.
Air Freight Update
Global airfreight demand surged by 13% year over year in July, driven by the continual e-commerce volumes from China and ocean substitution during a slow air cargo season, as reported by IATA. This marks the eighth consecutive month of double-digit volume increases. Despite this growth, the supply of cargo space expanded at a slower rate of 2%, resulting in tight capacity on specific trade lanes.
The ongoing situation in the Red Sea underscores the importance of reliable air freight services and solutions like Sea-Air. While many U.S. and European businesses proactively ordered inventory to mitigate the impact of supply chain disruptions, such as vessel rerouting by the Cape of Good Hope, industry experts believe that the sustained demand will lead to increased transport activity. Consequently, air freight is evolving from being considered a ‘plan B’ solution to becoming a crucial component of supply chain success.
For information on our air freight solutions please contact your sales representative or contact our team via this form.
Intermodal Update
Through late July, overall North American intermodal volume is running 8% ahead of the same time period in 2023. The four major U.S. railroads have continued posting strong M/M and Y/Y volume gains in early Q3; however, due to disruptions stemming from the brief Canadian rail strike in August, volume slowed down.
On August 24th, the Canadian Industrial Relations Board (CIRB) issued a mandate preventing any additional labor stoppages, including strikes or lockouts, during the arbitration process. Consequently, the strike notice issued by the Teamsters Canada Rail Conference (TCRC) to CN on August 23rd has been voided. CN and CPKC will adhere to the CIRB directive, and both companies have now resumed railway operations in Canada as of Monday, August 26, 2024. Stay up to date with the Canada rail strike contingencies here.
Topics, Trends and Insights
Heading into holiday peak, consider diversifying your last mile carrier options
Hear from Charles Van Der Steene, Regional President for North America
I often discuss with customers that as e-commerce continues to be a core focal area for them in terms of both a sales channel and customer engagement, last-mile delivery has become a critical component of their supply chains. Consumer expectations for faster and more reliable deliveries continue to rise, and those expectations are never higher than they are during the holiday season.
To meet these expectations, we see last-mile carrier diversification as a key strategy shippers can leverage to deliver for their customers at the most high-pressure time of the year. Now that Maersk ships half a million parcels each day, we’ve seen this approach’s benefits play out repeatedly.
- Enhanced Flexibility and Reliability: Diversifying last mile carriers allows shippers to adapt to varying delivery needs and challenges. By leveraging multiple carriers, shippers can mitigate risks associated with carrier-specific delays or disruptions, ensuring a more reliable delivery experience for customers.
- Cost Efficiency and Simplicity: We’ve seen that by managing a mix of regional carrier relationships for our customers, we help them reduce their costs. And by shipping with multiple carriers under a single contract with Maersk as a carrier, they get time back to focus on running their business.
- Improved Customer Experience: With multiple carriers, shippers can offer a range of delivery options, such as same-day, next-day, or scheduled deliveries so that customers can choose what works best for them.
- Geographic Reach: Different carriers often have varying strengths in specific regions. By diversifying, shippers can extend their reach and ensure efficient deliveries even in remote or hard-to-serve areas.
At the time of year when the delivery reliability of online purchases becomes even more important than usual, making sure you have the best partners to serve your Customers’ E-Needs is paramount to a successful peak season.
Regulatory Uncertainty
As we embark on a transformative period marked by historic global elections, the prevailing question of whether new political leaders will maintain continuity or usher in substantial changes looms large. Recent election outcomes in key nations, such as South Africa, India, Pakistan, and Venezuela, Mexico and the upcoming US presidential election in November, underscore a pivotal juncture in shaping the future business landscape.
Particularly with the upcoming US and recent Mexico elections, the future of efforts in each country to bolster domestic supply chains in critical areas may result in international trade impacts in other areas, and this hangs on election results and the prerogatives of state new leaders.
To navigate this uncertainty, companies are adopting critical measures such as nearshoring and reshoring initiatives to mitigate risks associated with geopolitical volatilities and reevaluating their supplier networks to ensure operational smoothness and reliability amid global tensions.
As businesses adapt and innovate amidst evolving global challenges, Maersk reaffirms our commitment to assisting customers through an integrated approach, offering consultative guidance, logistics scenario planning, visibility tools, and proactive insights to address emerging issues.
