COVID Market Update For September 1, 2020

Transpacific westbound sea freight rates continue to climb as the Air freight continues to experience decreased demand across Europe in the last weeks of summer, with the exception of key hubs: Germany’s Frankfurt International Airport, as a leading European hub for temperature-controlled cargo such as pharmaceuticals, and Amsterdam’s Schiphol Airport. Portugal-based Indian air carrier SpiceJet announces its expansion of freighter cargo operations to over 42 destinations across Africa, Europe, and Asia. In general, the Asia market for outbound US and EU destinations remains heavily impacted for air and sea, with many carriers prioritizing cargo based on density and value, leaving shippers and forwarders to mull over alternative strategies to save either time or costs.

Rather than reinforce popular routes, regional and global ocean carriers are revisiting a road less taken—in particular, through the Arabian peninsula and European waters. A new India-US service route that cuts through the Suez Canal and the Port of Gibraltar began September 1, connecting US Southern ports to Bangladeshi, Sri Lankan, and Southeastern Indian ports.

More posturing by the usual global powers is seen in the South China Sea, and its potential fallout has the trade ministers of Australia, India, and Japan urgently working to launch a supply chain partnership before the end of 2020. A second border stand-off between India and China has once again fanned trade tensions as India unofficially bans Chinese telecommunications vendors along with smartphone apps.

Following the August 27 summit, an October meeting has been scheduled for member countries of the Regional Comprehensive Economic Partnership (RCEP). The Association of South East Asian Nations (ASEAN) also plans to create Mutual Recognition Arrangements (MRAs) among countries to decrease production costs and boost intra-Asia trade of automotive goods and construction materials this month.

Latest News

COVID-19 Supply Chain Disruptions: According to a recent survey from the Institute of Supply Management (ISM), nearly 75% of companies report supply chain disruptions in some capacity due to coronavirus-related transportation restrictions. Furthermore, 16% also report adjusting their revenue targets downward an average of 5.6% as a direct result of coronavirus. “The story the data tells is that companies are faced with a lengthy recovery to normal operations in the wake of the virus outbreak,” said Thomas W. Derry, Chief Executive Officer of ISM. Another survey from the MIT Center for Transportation and Logistics (MIT CTL) revealed an alarming statistic: Only 16% of respondents mentioned that their company has set up an emergency management center. When asked whether they believed that coronavirus-related disruption would change how their company operates its supply chain in the future, nearly a third of respondents expressed that they felt that their company should have better risk management protocols in place. These responses are indicative of a larger issue within the supply chain logistics industry – an issue that does not stem from the current COVID-19 crisis but is further compounded by it: the lack of a logistics contingency plan.

Air Freight

Transpacific westbound sea freight rates continue to climb as the Shanghai Containerized Freight Index (SCFI) reaches a 53% year-over-year increase on the third week of August, driven by demand for home appliances, furniture, and PPE. Reefer cargo has also grown heavily this year due to heightened demand for perishables, leading logistics experts to forecast greater expansion in coming years that may potentially outpace container cargo. But Asia-Europe sea trade, shaken by second quarter volatility into a state of demand/rate equilibrium, may fumble in later quarters if demand drops as 86 new ships totaling over 10,000 TEUs are scheduled for delivery in the coming months. Airfreight rates ex-China are recovering to pre-COVID rates due to the resumption of economy activity in the AsiaPacific, but the flurry of business reshoring efforts have also incentivized carriers and logistics companies to expand support networks in the Americas and Europe.

New technology in the form of Unmanned Aerial Vehicles (UAVs) are undergoing domestic flight tests in China and the US, which may shape air freight transport in the years to come. Government officials of several countries in the Asia-Pacific sans India are scheduled to meet on August 27 to discuss the Regional Comprehensive Economic Partnership (RCEP) agreement, which many hope to be signed before the end of 2020.

Air cargo recovery continues amid improving economic activity, says IATA. July saw the air cargo market stabilize further, according to the latest data from IATA. Cargo-tonne-km (CTKs) fell 13.5% year on year, although month-on-month, seasonally adjusted figures showed growth of 2.6%. IATA noted that manufacturing output and export orders were improving, indicating that CTKs should also continue to improve. Year-on-year, July capacity was down 31.2%, but up in June. Belly capacity remained low, at some 70% down year on year, but there was a 28.8% rise in freighter capacity. “Most regions are on an upward swing – at different paces,” noted the association.

• Industry-wide cargo tonne-kilometres (CTKs) declined by 13.5% year-on-year in July. CTKs adjusted for seasonality grew 2.6% month-on-month in July, similar to the pace of improvement seen in June (3.0%)

• Despite growing uncertainty in COVID-19 developments, economic activity continued to recover in July. Indicators such as manufacturing output and new export orders are improving. July’s CTK performance is weaker than expected based on economic activity. But new export orders – a leading indicator for air cargo – show that CTKs should continue to improve in the coming period.

• This divergence between economic activity and air cargo is partly due to the shortage of air cargo capacity. Total available cargo tonne-kilometres (ACTKs) fell by 31.2% year-on-year in July, a small improvement from June (33.4%).

• While most regions are on an upward swing – at different paces, international cargo volumes in Latin America deteriorated in June and July amidst challenging economic and health conditions.

Sea Freight

Port of Halifax Returning to Normal Operations Following Surge of Diverted Cargo. With the final unscheduled calls of vessels diverted from the Port of Montreal at the Port of Halifax, the Port of Halifax’s terminal operators, labour and CN Rail are focusing their efforts on returning the port to its standard state of fluidity. The emphasis is on handling regularly scheduled vessels and getting this cargo to its final destination quickly and efficiently, following by the clearing up of diverted cargo.

Charterers playing ‘pass the parcel’ with crew changes. Charterers are now discriminating against ships which have long-serving crew onboard rather than risk their cargo being delayed by crew change deviations, warns one crew manager today. Roger Storey, managing director of CF Sharp Crew Management, Singapore, reported he has been advised of charterers who are stating in their contracts that vessels should not have any seafarers who have been serving onboard continuously for more than 12 months. If such crewmembers are present the charterers do not select that vessel for hire. “Why? Because of the risk that the vessel gets detained and their cargo gets stuck,” he explained in conversation with Splash. Storey, whose company has successfully repatriated more than 12,000 crew members during the pandemic, said: “Shipowners are in the firing line and crew are pawns in this game. The charterers just don’t seem to care about anything but their cargo at present

Shippers’ ocean freight budgets ‘about to explode’ as rates hit new highs. Ocean freight budgets for shipments from Asia to the US and Europe are going through the roof as carriers prepare yet another round of freight rate increases. Today’s Shanghai Containerized Freight Index (SCFI) recorded further gains for the transpacific and Asia-Europe tradelanes, taking its combined reading up another 7% for the week, which is 54% higher than a year ago. Container spot rates from Asia to the US east coast, as recorded by the SCFI, jumped, well beyond the 2018 trade war high. And rates to the west coast jumped another record for the tradelane and a massive 125% higher than recorded for the same week of last year. “Demand was strong enough to push rates up, even with cancelled sailings restored and carriers adding temporary and even new permanent services on the lane,” said Freightos CMO Eytan Buchman. “With reports of rolled shipments and container shortages out of China indicating the extent of the demand rush, carriers will likely introduce another China-US GRI for September, which would be the sixth in just three months,” said Mr Buchman.

CN Rail Update: With the Port of Montreal resuming operations this week, CN is working to realign its resources and railcar flows to support the
resumption of Port rail service at Montreal while continuing to work through the backlog of imports in Halifax resulting from the numerous vessel
diversions.

Montreal and Valleyfield Terminals: Montreal Taschereau terminal is operating well but remains very busy with the influx of Montreal local truck traffic resulting
from diverted vessels into Halifax. The terminals are expected to remain very busy for the next two weeks. CN encourages customers to utilize off-peak hours and
weekends to pick up their import units. On the export side, the backlog to Halifax is expected to clear by the end of this week. The opening of Valleyfield terminal and the recent introduction of the Ray-Mont Logistics facility as a destination for diverted traffic will assist in CN’s ability to recover quickly while clearing the backlog of diverted traffic.

Toronto: Brampton Intermodal Terminal (BIT) is operating well. The backlog of Halifax export units is expected to be current by the end of this week. CN is resuming acceptance of export traffic to Port of Montreal in a controlled manner while targeting the closest vessel cut off. It has started progressively opening capacity and will continue to inject railcar supply into the Port of Montreal until it is back to normal levels.

Halifax Imports: Given the very large discharge of diverted traffic in a short period of time, CN anticipates the detoured import traffic will take several weeks to clear. CN has increased capacity to accommodate and move the required larger volumes when possible. Last week, CN moved over 70% additional imports from Halifax than typical weekly demand would require.

Port of St. John: CN currently has grounded traffic from diverted import vessels at St. John. Its car supply at St. John is sufficient to clear all grounded containers, as well as this weekend’s import vessel.

Port of Montreal: Due to the port outage, the ground count remains high and CN will be working closely with all carriers as they adjust their vessel schedules and ETAs to POM. It expects the acceptance of export traffic to POM will support its ability to drive the much required car supply to the port. Capacity for POM is available from the U.S. and all Western Canadian terminals effective immediately.

CN West Coast Ports: The continuing trend of reinstated blank sailings and additional extra loader vessels has made for high import demand and has led to longer-than-expected on-dock dwells. CN’s network remains fluid, and car supply remains strong and consistent. It has moved 20% more volume in the last four weeks compared with the previous four weeks. Based on forecast extra vessels and continued high volume discharges, CN anticipates that dwell times will remain above average into mid-September. It continues to work closely with the port operators to ensure units are being managed based on FIFO and where necessary, CN will utilize its Vancouver Domestic terminals to assist in unprecedented volume surge.

With the high volume of imports arriving at its inland terminals, CN asks that receivers make all efforts to have import units removed as quickly as possible while utilizing off-peak hours and weekends to support terminal fluidity.

Trucking

Major ports and roads remain closed after hurricane makes landfall: Ports and roadways across the Gulf Coast corridor are still closed in the aftermath of Hurricane Laura. Key ports and highways across the Texas-Louisiana Gulf Coast remain closed in the aftermath of Hurricane Laura. All Port Houston offices and terminals were closed Thursday, according to the port’s website. The Port of Beaumont in southeast Texas will be closed until Monday, according to a statement, and the Port of Galveston in Texas remains closed through Friday. The Port of Corpus Christi in Texas was open and operating normally Thursday, according to its staff. Calls to the nearby seaport in Port Arthur, Texas, went unanswered. It was not known if the port was open or sustained damage in the storm. Officials with Crane Worldwide Logistics said Port Houston was lucky not to sustain any serious damage from the hurricane. “Where we have operations, we hardly had any rain,” Chad Taylor, executive vice president of global operations for Houston-based Crane Worldwide Logistics told FreightWaves/American Shipper. “If the storm had come into Houston as a Category 4, it could have been extremely bad for us.” The Port of New Orleans’ cargo terminals were operating normally Thursday morning, according to its website. Louisiana’s Port of Baton Rouge also was open for business Thursday, its staff said. The Texas-Louisiana Gulf Coast is the center of the U.S. oil and gas refining system and Gulf of Mexico crude oil production, according to Ben Ruddell, director of the FEWSION project at Northern Arizona University. “The storm could have a serious impact on oil and gas refining operations across the region,” Ruddell said in a release.