A COVID Shipping Environment Without COVID

There is a massive escalation in the pricing of spot rates at a pace like the one we experienced during the COVID-19 pandemic. Every two weeks for the past two months, we have seen successful rate increases in the spot market as high as $1,000 or more each time, depending on port pairs. We expect the trend to continue for at least the next 30 days, with GRIs and PSSs on June 1^st and June 15^th forecasted to exceed $2,000 of additional rate increases by the end of June.

What is causing these increases?                   

Less Supply and More Demand

Here are some supply and demand factors that demonstrate what creates this challenging environment.

Less Supply

1. The ocean carriers are cutting space and creating high demand to earn more profit by reducing the supply. Trans-Pacific capacity into the West Coast has seen a reduction versus plan of some 14%, whereas the trade into the East Coast has seen a reduction of 11%. These “blank/canceled” sailings are the number 1 factor driving increased prices. The additional capacity that was supposed to be added is not happening at the pace as promised. The exact opposite occurs with these space reduction actions, which cut supply.

• The geopolitical unrest has practically closed the Suez Canal for container vessels, taking capacity out of the system and reducing the supply.

• The lack of water in the Panama Canal and construction in the Canal has limited the number and weight of vessels transiting the Canal. This restrictive activity has been improving due to recent rain in Panama, but it is still not back to normal capacity.

• The threat of labor strikes at the Canadian Rails and Canadian Ports has caused diversions and congestion as shippers try to avoid Canadian routings whenever possible. This congestion increases the supply problem as cargo bunches at ports and rails.

• There is also a growing problem of a supply shortage of empty containers in Asia due to the slow return of empties due to the longer transit times and reduced stops to pick up empties when going around the Cape of Good Hope. A container shortage adds to the pressure and increases prices as shippers compete for empties to load their products.

More Demand

1. The “hoarding of toilet paper factor” is kicking in again in our shipping world. Buyers are seeing delays, rushing to place orders earlier, and making them larger. The calm, slow replenishing process that was going on at the beginning of the year is now a mad scramble to get as many goods in as possible as soon as possible. It is clear that shippers fear there will be a squeeze on capacity during the peak season in Q3 then they will start importing more goods now.

• Container volumes are forecasted to be up 10-20% for the first six months of 2024 vs 2023, as noted by various indexes creating more demand than expected.

• The threat of labor demonstrations/strikes at the US East Coast Ports, whose longshore union workers contracts expire in September, has pushed shippers to ship sooner to prepare for work slowdowns and disruption.

We recommend booking cargo as far in advance as possible and preparing for delays in moving cargo. We see many origins booked 2-3 weeks in advance. After talking to many experts, no one has convinced us of a firm date for things to return to “normal,” but we expect that most agree; this will continue through the end of July.

Please reach out to your BOC representative to help guide you through this crisis. Thank you for all your support.

Further China Tariff Increases Likely

https://www.strtrade.com/trade-news-resources/str-trade-report/advisories/further-tariff-increases-other-changes-proposed-for-imports-from-china

A mandatory review of the Section 301 tariffs on imports from China concluded May 14 with recommendations to increase some tariffs on $18 billion worth of Chinese goods, establish an exclusion process for a limited number of products, and make other changes.
A Federal Register notice soliciting comments on the proposed changes is expected next week.

The recommendations are included in the Office of the U.S. Trade Representative’s report on its review of the tariffs, which were first imposed in 2018 in an effort to persuade China to modify its “harmful technology transfer-related acts, policies, and practices.”
USTR Katherine Tai said that while the tariffs have been somewhat successful in that regard, “further action is required.”

USTR also downplayed the impact of the tariffs on U.S. businesses, saying they have had small negative effects on U.S. economic welfare, prices, and employment and that these impacts are “particularly associated” with China’s retaliatory tariffs on U.S. exports.
In fact, USTR asserted, the tariffs have helped to increase U.S. production in the most-affected industrial sectors, reduce imports from China, and increase imports from alternate sources, “thereby potentially supporting U.S. supply chain diversification and resilience.”

USTR is therefore proposing to maintain all existing Section 301 tariffs on Chinese goods and to add or increase tariffs on the following products.

– Battery parts (non-lithium-ion batteries) – from 7.5 percent to 25 percent in 202
– Electric vehicles – from 25 percent to 100 percent in 2024
– Lithium-ion electrical vehicle batteries – from 7.5 percent to 25 percent in 2024
– Lithium-ion non-electrical vehicle batteries – from 7.5 percent to 25 percent in 2026
– Medical gloves – from 7.5 percent to 25 percent in 2026
– Natural graphite – from 0 to 25 percent in 2026
– Other critical minerals – from 0 to 25 percent in 2024
– Permanent magnets – from 0 to 25 percent in 2026
– Personal protective equipment – from 0-7.5 percent to 25 percent in 2024
– Semiconductors – from 25 percent to 50 percent by 2025
– Ship-to-shore cranes – from 0 to 25 percent in 2024
– Solar cells (whether or not assembled into modules) – from 25 percent to 50 percent in 2024
– Steel and aluminum products – from 0-7.5 percent to 25 percent in 2024
– Syringes and needles – from 0 to 50 percent in 2024

USTR is also recommending (1) an exclusion process limited to machinery used in domestic manufacturing provided for under specified eight-digit HTSUS numbers (see appendix K in the USTR report), (2) temporary exclusions for certain solar manufacturing equipment (see appendix L), (3) allocating additional funds to U.S. Customs and Border Protection for greater enforcement of Section 301 tariffs, (4) greater collaboration and cooperation between private companies and government authorities to combat state-sponsored technology theft, and (5) continuing to assess approaches to support diversification of supply chains to enhance supply chain resilience.

USTR’s announcement did not include any information on the May 31 expiration of hundreds of tariff exclusions.

Importers of goods subject to the proposed tariff increases should contact ST&R to discuss options for avoiding or ameliorating those higher costs. ST&R can also help importers of machinery that may be eligible for new tariff exclusions to navigate that process. For more information on these or other topics related to the Section 301 tariffs, please contact your ST&R professional or via this email.

Tremendous Demand USWC / Proposed May 15 GRI

There is tremendous demand for the following reasons:

1. Carriers and importers are stopping to ship to North America via Canada due to the pending Canadian Rail and Port strikes. Most of the cargo that previously moved over Canadian Ports has been diverted to move over the US West Coast Ports. Now there is more than a 2 week back up for fresh bookings to USWC,
Below is a quick synopsis.

A) Rail Strike. The Teamsters of the Canadian Rail voted yes to go on strike. The cooling off period ends May 21st so they are expected to not report to work on May 22nd at both the CN and CP so Canadian rail service is expected to stop.

B) Canadian East Coast Port Strike. The longshore workers of Montreal have been working without a contract since January 1st and have been threatening to strike. It is anticipated that they will support the Teamsters of the Canadian rail and go on strike with them.

C) Canadian West Coast Port Strike. The ILWU longshore workers of the Canadian West Coast have been negotiating a contract for an extended period of time. The last three days they have had mediation managed by the Canadian Government. If an agreement is not reached today, management can lock them out and the longshore workers can go on strike. We are awaiting the outcome of today’s final day of meetings.

2. Replenishment of depleted inventories is happening. Many companies ran down their stock of goods and are feverishly trying to bring in more goods. Q1 2024 Transpac container shipments are up 33% over Q1 2023. Q2 2024 vs Q2 2023 is trending the same way.

3. Ocean carriers canceled 20% of all sailing for the first two weeks of May to drive up demand and selling costs.

With this tremendous demand we have seen climbing high spot rates including a likely upcoming $1,000 GRI on May 15th. The carriers are doing everything possible to make more profit including delaying implementation of fixed rates and starting to apply early peak season surcharges on fixed rates.
If you have any questions about this information, please contact your local BOC representative.

Canadian National & Canadian Pacific Kansas City Workers Vote to Strike

The largest railways in Canada have seen a vote by their employees to go on strike, which may cause a devastating labor disruption and halt the movement of freight shipments nationwide.

While both parties in the labor negotiations remain far apart, the Teamsters Canada Rail Conference (TCRC) union reports that its members who work at Canadian National (CN) and Canadian Pacific Kansas City (CPKC) voted decisively in favor of a strike mandate.

As early as May 22nd, the Teamsters could now demand a nationwide rail strike. If a strike mandate is enacted, approximately 9,900 train conductors, locomotive engineers, and other employees would be impacted.

According to the union, of the 92% of voters that turned up to cast ballots, 98% of said voters supported a strike mandate. All four negotiating groups returned different percentages; however, none was less than 95% in favor of a strike.

The 60-day conciliation period between the railroads and the unions ends with the strike mandate vote. There is now a 21-day cooling-off period for both parties. Until the cooling-off period is over, no lockout or strike is permitted.

Customers of CN were notified yesterday (May 1st) that CN had met on April 29th and 30th to negotiate a contract with TCRC union representatives, with assistance from government conciliators.

According to CN, the union will be unable to get together again until May 13th.

With May 22nd as the possible date that a labor disruption could be initiated, CN’s perspective remains cautious that a deal can be finalized by this date.

If you have any questions please feel free to contact your local BOC representative.