Radiant's Freight Market Update

This week: Growing likelihood of ILA strike threatens U.S. East and Gulf Coast ports; smaller box ships diverted from Intra-Asia services; high shipping costs force European importers to cut back.

Ocean

Smaller box ships diverted from Intra-Asia services. The diversion of smaller box ships to more lucrative long-haul lanes has caused a vessel shortage for intra-Asia trades, quadrupling freight rates from last year. On July 12, the Shanghai-Southeast Asia rate was $756 per TEU, now at $1,413 per TEU. Rising demand on Asia-Europe, US, and South America routes has driven regional carriers, especially foreign ones, to reassign ships. Taiwanese carrier TS Lines has diverted two ships to the Asia-US West Coast service. Korean feeder operators are urging domestic shipping companies to prepare for local support and address the shortage by deploying new vessels and improving container availability.

Non-alliance carriers gain market share on East-West trades. Independent container shipping services are capturing more market share on East-West routes. Sea-Intelligence reports that about a third of Trans-Pacific trade services will operate outside vessel-sharing agreements (VSAs) in the next three months. Nearly 30% of Asia-North America West Coast capacity and up to 12% of Asia-North Europe capacity will be non-alliance. After many niche carriers exited in late 2022 and early 2023 due to dropping rates, the current rate increase has reversed this trend. The ending of the 2M partnership between Maersk and MSC next year, with MSC operating independently, will further reduce the dominance of the three major shipping alliances on East-West routes.

FMC halts Maersk and Hapag-Lloyd cooperation. The Federal Maritime Commission (FMC) has issued a halt to the cooperation between shipping giants Maersk and Hapag-Lloyd under the Gemini Agreement. This decision comes as the FMC scrutinizes the impact of such agreements on competition within the shipping industry. The suspension aims to prevent any potential anticompetitive practices that could arise from the collaboration, ensuring a fair and competitive market for maritime shipping.

Ports

Growing likelihood of ILA strike threatens U.S. East and Gulf Coast ports. The International Longshoremen’s Association (ILA) is increasingly likely to strike at U.S. East and Gulf Coast ports by October 1. This follows failed contract negotiations between the ILA and the United States Maritime Alliance (USMX), which represents port employers. Key issues include automation and job security, with the ILA strongly opposing automation due to potential job losses. The ILA has indicated its readiness to strike, and preparations for such an event are reportedly underway. A strike would significantly disrupt port operations, affecting supply chains and economic activity across the region.

New sea container terminal to boost Indiana's connectivity. Ports of Indiana plans to build a new sea container terminal on Lake Michigan, enhancing connectivity with the Chicago region. A multimodal hub will be built at the Port of Indiana-Burns Harbor, linking lake and rail transport with the extensive rail network in Chicago. This terminal will provide a new route for sea container traffic, offering an alternative to congested coastal ports and improving supply chain efficiency.

Trucking

DOT announces $5 billion bridge funding. The Department of Transportation (DOT) has unveiled a $5 billion funding initiative aimed at repairing and upgrading bridges across the United States. This program, part of the Biden administration's infrastructure plan, seeks to address the country's aging bridge infrastructure. The funding will be allocated to states and local governments to support critical bridge projects and boost economic growth through improved transportation networks.

Truck safety advocates criticize DOT inaction. Truck safety advocates are voicing concerns that the Department of Transportation's (DOT) inaction on key safety regulations is costing lives. Despite rising fatalities in truck-related accidents, the DOT has yet to implement measures such as speed limiters and automatic emergency braking systems. Advocates argue that these regulations could significantly reduce accidents and save lives, urging the DOT to prioritize safety reforms.

Rail

BNSF seeks to expand SCABT waiver to new location. BNSF Railway is requesting an extension of its existing Southern California Air Basin Test (SCABT) waiver to include a new location. This waiver allows BNSF to test and operate low-emission locomotives under specific environmental conditions. The proposed expansion aims to gather more data on the effectiveness of these locomotives in reducing emissions and improving air quality.

New STB chair summons railway CEOs to address declining volumes. The newly appointed chair of the Surface Transportation Board (STB, Robert Primus, has mandated that railway CEOs attend a forum to discuss declining freight volumes. This move underscores the STB's concern over the sustained drop in rail traffic and its impact on the industry. At this time, Primus is looking to facilitate a dialogue on the causes of the decline and potential strategies for revitalizing rail freight services.

Air

Miami Airport secures cargo facility funding. Miami International Airport has secured funding for a new cargo facility, enabling the airport's capacity to handle increasing cargo volumes and improve operational efficiency. This development is part of Miami's broader strategy to strengthen its logistics infrastructure and support regional economic growth by accommodating rising demand in the air cargo sector.

Temu and Shein reshape China's air cargo market. Popular bargain shopping apps Temu and Shein are reshaping China's air cargo market by significantly increasing demand for aircraft space. This surge in demand, driven by these e-commerce giants shipping low-cost clothing and household goods to Europe and North America, has driven up freight rates and raised concerns about capacity shortages during the upcoming peak shipping season. Prices out of South China have risen approximately 40% year-over-year, despite this traditionally being a slower season. The rapid growth of Temu and Shein has transformed the airfreight market, consuming over 30% of cargo space on some Asian routes, according to Tim Scharwath of DHL Global Forwarding.

International

High shipping costs force European importers to cut back. European importers are scaling back shipments of low-profit, bulky goods from Asia due to high ocean shipping rates and surcharges, which have rendered these goods too expensive to transport. This reduction in shipments has eased pressure on the Asia-Europe trade lane, leading to lower prices to the Mediterranean, though prices to North Europe remain unchanged. Attacks in the Red Sea have forced ships to take longer, costlier routes, prompting shippers to place orders early. Carriers then reduced capacity, with many importers facing allocation cuts of up to 80%, pushing them into the spot rate market, where rates are nearly seven times higher than last year. Seasonal importers are particularly hard-hit, unable to delay shipments despite soaring costs.

Carriers may be adding UK port calls to avoid EU carbon fees. Shipping lines may be adding UK port stops on Asia-Europe trade routes to avoid high EU carbon taxes under the Emissions Trading System (ETS). Lars Jensen, CEO at Vespucci Maritime, explained that including the UK as a port of call before or after entering the EU can reduce carbon tax payments, as voyages from Asia to Europe incur higher carbon taxes than those from the UK to the EU. This strategy offers cost savings and is also motivated by the desire to save on inland transport and provide faster service to UK importers and exporters, according to Tim Power, managing director at Drewry. Peter Sand from Xeneta noted that ETS costs are minimal compared to the currently high freight rates.

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The Radiant Network's supply chain and logistics updates provide valuable insights on freight trends, customs regulations, global news, economics, tech, and more. The Radiant Network includes the brands Radiant World Trade Services, Radiant Global Logistics, Radiant Canada, Radiant Road & Rail, Adcom, Airgroup, SBA, and Distribution By Air.

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Radiant World Trade Services is a part of Radiant Logistics, Inc. (NYSE American: RLGT), a publicly traded third-party logistics company that provides technology-enabled global transportation and value-added logistics solutions to a diverse account base. They offer comprehensive services including freight forwarding, truck and rail brokerage, warehouse and distribution, customs brokerage, order fulfillment, inventory management, and technology services. Radiant has an extensive network of offices throughout North America and other key markets worldwide.