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Asia-Europe Ocean Contracts Paused, Air Cargo Rates to Increase, and More Industry News

This week:

  • Hapag-Lloyd stops long-term Asia-Europe contracts following escalating Red Sea and Suez Canal crisis
  • Pressure from the Red Sea crisis has analysts predicting a coming surge in air cargo rates
  • Cargo volumes in Northeast US ports are projected to rise back to historical rates following 2023’s underperformance
  • US truckload spot rates stay down following soft gains in December
  • Retailers urge ILA and USMX to return to negotiations in order to avoid East and Gulf Coast port disruptions

Hapag-Lloyd Temporarily Stops Offering Long-Term Asia-Europe Contracts

Ocean carriers such as Hapag-Lloyd have temporarily suspended offering long-term contracts on the Asia-Europe market due to the volatility in the Red Sea and the Suez Canal. Attacks led by Houthi militants based in Yemen targeting commercial vessels since December have pushed many ships to reroute around South Africa instead, adding on average ten extra days for Asia-North Europe voyages and two weeks onto Asia-Mediterranean voyages.

Due to the impact of unexpected reroutings on equipment availability and vessel reliability, Hapag-Lloyd has decided to pause offering long-term contracts “until the Red Sea situation settles.”

In response to the strain placed on vessel availability, some carriers are reinstating space guarantee charges. Data from Xeneta shows that in the week ending January 13, ocean freight rates between Asia and North Europe have increased by 124% since the attacks began in December, now sitting at $3,498/FEU. Rates from Asia to the Mediterranean are up 118% to $4,179/FEU, while rates to the US East Coast are up 45% to $3,090/FEU.

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Forwarders Predict a Coming Surge in Asia-Europe Air Rates Following Red Sea Crisis

Loss of ocean equipment and schedule reliability due to the Red Sea crisis has many forwarders warning of a strong surge in air rates out of China as European shippers look for ways to move cargo in time for the Chinese New Year. Trine Nielsen, Head of Ocean at Flexport, predicts that a noticeable surge could come in the next two to three weeks, particularly as shortages of shipping containers become more apparent at origin ports.

While no dramatic spikes have been seen yet, the air cargo price reporting Baltic Air Index (BAI) did show a 2% rise in rates leaving Shanghai to North Europe last week, while other outbound Chinese rates declined.

Other forwarders are seeing as much as a 200% increase in tonnage on the Asia-Europe lane through sea-air services that use ocean transport from Asia to Dubai and then air transport to Europe.

Northeast US Ports Expect Cargo Volumes to Rise Back to Historical Norms

US ports in the Northeast experienced sharp declines in container volumes in post-pandemic 2023. However, the Port Authority of New York and New Jersey (PANYNJ) is now adding capacity at its busiest East Coast terminals in anticipation of a coming rise in volume. The increase in volume is primarily due to consumer spending returning to normal seasonal trends.

PANYNJ’s volume predictions at the start of 2023 were 8.5 million TEUs. However, the actual total for last year was approximately 7.8 million instead, with 2022’s TEU volume reaching 9.5 million.

New York-New Jersey terminals will be installing at least 12 more super-post-Panamax cranes over the coming two years, while the US Army Corps of Engineers is currently investigating dredging projects to take the NY-NJ harbor to a depth of 55 feet. The new work would allow NY-NJ terminals to handle container ships with capacities of over 16,000 TEUs.

Little Hope for a Rebound in US Truckload Rates Following Soft Seasonal Spot Gains

December saw negligible increases in trucking rates on the spot market, with shipper-paid spot truckload rates rising by $0.03 to $2.26/mile, according to an all-inclusive pricing analysis by The Journal of Commerce (JOC).

The start of 2024 has seen much more truck cargo transported under long-term contracts rather than on the spot market, a trend that won’t reverse while downward pressure keeps pushing trucking rates lower. Average spot rates peaked in January 2022 at $3.38/mile before falling to the lowest point of $2.23 last April. Although pricing movements have stayed within a five-cent range, monthly year-over-year differences are closing. While April last year saw a year-over-year difference of $0.76/mile with 2022, November’s year-over-year difference sat at $0.32, and December’s at $0.30.

Many industry leaders hoped that smaller trucking businesses leaving the industry due to the low prices would help tighten capacity and lift rates. Still, analysts don’t expect to see any spikes or large changes in truckload pricing in the immediate future.

NRF Pushes ILA and USMX to Resume East and Gulf Coast Contract Negotiations to Avoid Disruptions

National Retail Federation (NRF) president Matthew Shay has addressed the International Longshoremen’s Association and the United States Maritime Alliance (USMX) in a letter urging the two to resume contract negotiations and avoid disruptions and losing shares in containerized imports.

In the letter, Shay stated that NRF members would consider contingency plans if no progress is made before the current deal expires in September. The extended 2022-2023 West Coast labor contract negotiations increased the East and Gulf Coasts’ market shares, but with shippers already facing problems from the Suez and Panama canals, the threat of worker strikes may be enough to drive more cargo back to the West Coast.

The USMX and ILA started contract talks early in 2023 to get ahead of the current deal’s end date. However, disagreements over coast-wide wages, as well as local issues, have led to ILA President Harold Dagget warning ILA members to be prepared for the possibility of a strike.

(Photo Source: Philippe Oursel | Unsplash)

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