This week:
The US and UK strike a deal for aluminum and steel imports, high fuel prices continue to affect ocean carrier rates and inland cargo transport, FMC audit looks into carriers that have denied containers to US exporters, West Coast Asia imports at record lows while East and Gulf Coasts report record highs and congestion, and a new partnership between TRAC and AMC indicates growth in domestic chassis production to combat national supply shortage.
US Strikes Deal to Ease Tariffs on UK Steel and Aluminum Imports
Tuesday, March 22, saw a new deal between the US and the United Kingdom that will partially ease tariffs from 2018 on steel and aluminum imports from the UK.
The original 2018 tariffs imposed a 25% duty on steel imports to the US from the UK and a 10% duty on aluminum imports to prioritize domestic production and address China’s overcapacity for steel production. Under the new agreement, the UK will be able to export up to 500,000 metric tons of melted and poured steel and 900,000 metric tons of aluminum duty-free, with quantities above these thresholds subject to tariffs. UK Steel and aluminum producers must prove to the US that their products are not connected to China, Russia, or Belarus and must undergo auditing to ensure there are no market-distorting practices.
The new deal will begin on June 1, and the UK will lift approximately $500 million in tariffs on US products, including alcohol, blue jeans, and motorcycles. The UK is the fourth-largest whiskey export market for the US. Since the introduction of tariffs in 2018, US whiskey exports dropped by approximately 44%, from $150 million in 2018 to just $88 million in 2021.
The deal comes after the US made similar agreements with the EU and Japan, allowing 3.3 million and 18,366 metric tons of steel and aluminum from the EU before tariffs apply and 1.25 million metric tons of steel from Japan.
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Fuel Prices and Oil Market Volatility Continue to Affect US Shippers
Although high fuel prices caused by the Ukraine-Russian war have fallen slightly from their highs recorded at the start of March, prices still sit considerably higher than the 2021 and pre-invasion levels.
Consistently high fuel prices are increasing the costs faced by shippers in transporting ocean, land, and air cargo. These high fuel prices are forcing shippers to prioritize cost-saving options over the speed of delivery, a drastic transition from the focus on speed caused by 2020 and 2021’s congestion. Before Russia invaded Ukraine, fuel prices were already rising off the back of 2021. By March 8, 12 days after Russia invaded Ukraine, the price of oil per barrel rose to $123.70, dropping down to $96.44 by March 15.
Very low-sulfur fuel oil (VLSFO) prices also fell from a March 9 high of $987 per metric ton to $895/mt by March 14, although still considerably higher than the pre-invasion price of $726/mt on February 23 and higher still than the 2021 high from October 26 of $617/mt.
High-sulfur fuel oil shows a similar price trend, reaching a high of $674/mt on March 9 that dropped slightly to $623/mt on March 14. Although Hapag-Lloyd CEO Rolf Habben Jansen has ruled out introducing emergency bunker recovery surcharges like in 2018, shippers will still feel the pressure of these higher fuel costs through traditional bunker adjustment factors (BAFs).
On-road diesel and gas prices have also jumped and stayed relatively high, affecting inland operations. Diesel fuel is up by more than $1.50 per gallon compared with last fall, rising to $5.25 per gallon on March 14 according to the US Energy Information Administration (EIA) from the $3.68 average for last October and November when most shippers wrote their 2022 budgets. The EIA’s statistics are used for calculating most rail and truckload surcharges, so these figures represent surcharge increases that shippers will face. If prices remain at their current levels, shippers can expect an average increase of 4-5% in fuel surcharge costs.
The effect of such high fuel prices is that shippers are more likely to avoid less-than-truckload options that favor speed. Instead, they will rely more on full-truckload options and intermodal rail to avoid fuel surcharges, even though intermodal rail fuel surcharges are also on the rise.
FMC Investigation Looks into “Pop-Up” Carriers Denying US Exports in Favor of Empty Containers
The US Federal Maritime Commission (FMC) alleges that several small, independent ocean carriers have been denying US exports in favor of picking up empty containers bound for China. The FMC audit is currently looking at 16 ocean carriers, five of which are new “pop-up” carriers that have emerged on the trans-Pacific market.
The FMC’s audit is in response to a 14-year high US trade deficit and allegations from shippers that they have been unfairly denied export containers. The audit is part of the ongoing investigation from July 2021 investigating fees that ocean carriers charge shippers for containers. The goal is to find opportunities where carriers can improve or increase their service offerings.
On Monday, March 21, the FMC announced that their first round of meetings will focus on 11 carriers, including CMA CGM, Hapag-Lloyd, HMM, Maersk, Mediterranean Shipping Co., and Ocean Network Express (ONE). An additional five carriers are under scrutiny regarding the high number of empty containers they are transporting back to Asia.
Smaller carriers have the same legal obligations to US companies as large carriers do under the US Shipping Act and cannot provide a one-way service that ignores the needs of US exporters. FMC Commissioner Carl Bentzel stated: …my observations concerning ‘one-way’ service remain, and I continue to express concerns that these carriers could be behaving in a manner that violates common carriage protections of the law.”
West Coast Asia Imports at Record Low While East and Gulf Coast Ports Experience Congestion
West Coast congestion in the first two months of 2022 pushed many carriers to travel to East and Gulf Coast ports instead. The extra traffic to the East and Gulf Coasts is also due to potential problems from the West Coast’s longshore labor negotiations. The coast-wide contract between the Internation Longshore and Warehouse Union and its employees will expire on July 1 and could cause port slowdowns.
As a result of the contract nearing its end and West Coast congestion in January and February, the West Coast has experienced a record low in shares of US imports from Asia, dropping to 58.2% from 60% in 2021 and 77.5% in 2005. East Coast and Gulf Coast shares have hit record highs of 34.7% and 6.8%, which has caused port congestion along these coasts.
This week, the Port of Charleston reported more than two dozen vessels waiting at anchor for berth space. Norfolk, New York-New Jersey, and the Port of Houston have reported at least a dozen ships each waiting off the coast.
New TRAC and AMC Deal Aims to Address Nation-Wide Chassis Shortage Caused by Tariffs
Tariffs targeting Chinese-made chassis have led to a price increase of some 300%, effectively pricing Chinese-made chassis out of the US market. In response to the supply shortage, TRAC Intermodal has made a deal with US-based manufacturer American Made Chassis (AMC) to supply TRAC with new 40-foot marine chassis to expand their fleet.
AMC entered the market after the US International Trade Commission applied a 40% tariff to Chinese-made chassis due to concerns that China International Marine Containers (CIMC) was dumping product in the US. CIMC had a share of 85% in the US fleet, so finding an alternative supply of new chassis is paramount for overcoming the current shortage throughout the US.
AMC is a one-year-old startup, a joint venture between privately-held manufacturer LB Steel and Integrated Industries, which has provided repair services and more to intermodal terminals. Under the new deal, TRAC is investing in AMC, while LB Steel constructs the chassis frames and Integrated completes the final assembly processes.
AMC is just one example of American chassis manufacturers moving in to fill the hole left by CIMC. However, the current chassis supply will not likely be sufficient until 2023 in the face of record import volumes. The lack of availability of chassis in 2022 poses an additional concern for supply chains throughout the nation as more chassis are required to transport record numbers of containers.
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