Sep 29

ILWU Pickets APL’s LA terminal

Source:  joc.com

In one of the busiest weeks of the peak shipping season, dockworker picketing shut down the Global Gateway South terminal of APL in Los Angeles, seeking leverage in contract negotiations involving newly organized superintendents.

The picketing by International Longshore and Warehouse Union Local 63 is the latest attempt by the local to influence negotiations that will establish a contract template for formerly management superintendents that the union is organizing in Southern California.

The job action comes at the worst possible time for terminal operators in the largest US port complex. Vessels filled with holiday season imports are usually full at this time of year because importers are rushing to ship their merchandise before factories in China close for the Golden Week celebration that will begin Sunday.

ILWU Local 63 in Southern California this summer has been attempting to organize terminal superintendents that have historically been part of management. The National Labor Relations

Board has certified the voting results at two of the terminals — Pasha Stevedoring and Terminals, and APL — and the union local is in the process of negotiating contracts with the terminal operators.

The contract negotiations at Pasha have been under way for two months. Last month, ILWU Local 63 placed pickets at Pasha to gain leverage in the contract negotiations. The local waterfront arbitrator ruled that day that the pickets were not “bona fide,” meaning they were in violation of the coastwide contract between the ILWU and the Pacific Maritime Association, and the pickets were removed. The ILWU appealed that decision to a three-member arbitration panel, which has yet to rule.

Thursday’s job action at the APL terminal follows the same pattern as that that took place at Pasha. APL is in contract negotiations with ILWU Local 63 for the newly organized superintendents. With the terminal shut down for the first shift on Thursday, APL and Local 63 were awaiting the local arbitrator’s ruling as to whether the picketing is bona fide.

Local 63 is also negotiating superintendent contracts at the Ports America/ITS terminal in Long Beach and the Everport terminal in Los Angeles. The ILWU and the PMA headquarters in San Francisco are not commenting on the local events in Southern California. The contracts that are being negotiated for the superintendents are terminal-specific, and do not fall under the coastwide contract. The PMA and ILWU at the coast level are involved only in the arbitration process.

The organizing of superintendents is a controversial development, with management and labor having strong views on this subject. Superintendent positions until now have always been part of management. Terminal operators consider superintendents to be their face to the public, and terminals that are considered to be efficient and well-managed say this quality differentiates them from competitors. There are 13 container terminals in Los Angeles-Long Beach.

The ILWU, meanwhile, said that in the new era of computerization, the number of superintendents has proliferated. The ILWU charges that the superintendents are performing work that belongs under ILWU jurisdiction.

Terminal operators whose superintendents have not yet been organized are taking what they consider to be preventative action. Some terminals have increased pay levels for superintendents to convince them to remain management. One terminal is said to have laid off a number of its superintendents.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Aug 31

Space Tightening and Spot Rates Rising 2017-8-31

Source:  Joc.com

With vessels leaving Asia already near or at capacity, beneficial cargo owners (BCOs) expect that an increasing number of shipments will be rolled to subsequent voyages and freight rates will jump dramatically by late September.

“It’s tight. This year we’re back to the old-school peaks we grew up with,” Patrick Halloran, director, global logistics at Cardinal Health, an importer of pharmaceuticals and medical products, told JOC.com. “I think this one is demand-driven,” he said.

Some importers this peak season admit they have been lured into a sense of complacency by lackluster freight rates in the spot market. Spot rates have been stuck in a narrow range of around $1,500 per 40-foot equivalent unit container to the West Coast and $2,400 per FEU to the East Coast throughout the always busy month of August. Last week spot rates from Shanghai actually dropped 7 percent to both coasts from the previous week, according to the Shanghai Containerized Freight Index published under the Market Data Hub on JOC.com.

That is expected to change soon as demand in the eastbound Pacific finally catches up with vessel capacity. Conditions are expected to get dicey in the last couple of weeks of September as factories in China rush to get their shipments out before closing in early October for the annual Golden Week holiday. A carrier executive this week said the anticipated demand for vessel space in late September “is already reflected in the forecast we receive from our customers.”

Despite relatively strong growth in US containerized imports of more than 6 percent so far this year, an overhang in capacity has limited carriers this summer to sporadic general rate increases, which evaporated in subsequent weeks. “Cargo volumes this summer do feel very strong, and our sense is that almost all carriers’ utilizations are very high,” said Kenneth O’Brien, chief operating officer at Gemini Shippers Association. IHS Markit senior economist Mario Moreno projects 2017 growth of 6.6 percent in US containerized imports.

However, BCOs report that so far this summer there has been little rolling of cargo in Asia. Until that happens, the pressure is not there on BCOs and non-vessel-operating common carriers (NVOs) to pay higher rates to get their shipments on the vessels. The first signs that changes are occurring surfaced the past couple of weeks, with some BCOs experiencing a delay in getting carriers to accept their bookings.

“I have not experienced ‘true’ rolls to date. What I am experiencing is the carriers delaying the acceptance of the booking. They are waiting to confirm bookings, thus avoiding rolls. The reason they are waiting is to accept the higher-paying containers,” a BCO said. He added that it is taking 14 to 17 days to get on a vessel now, compared to four to seven days last year at this time.

This means some carriers are playing the spot market. As space tightens, carriers will put on  hold acceptance of some bookings, often from customers that have signed service contracts with rates that are below the spot rates. Carriers then shop the slots to BCOs and NVOs who are willing to pay the higher spot market rates. “It’s a game carriers play,” said one executive with a chuckle.

However, a former carrier executive noted that these same lines during the slack season take a beating when they must lower their rates below service-contract levels in order to attract cargo. Furthermore, carriers forever deal with bookings that are made by BCOs who do not actually deliver the cargo. “Fifteen to 20 percent are phantom bookings,” he said.

Carrier pricing and yield management can be quite complex given the peaks and valleys that occur every year, all year, in liner shipping. At the foundation of carrier pricing is the break-even rate,which varies slightly from line to line given their cost structure, size of vessels, debt repayments and need for capital to reinvest in assets. The former carrier executive listed break-even at $1,300-$1,400 per FEU to the West Coast. Carriers argue the break-even rate is closer to $1,700-$1,800, when factoring in the cost of repositioning the containers to Asia.

Service contracts for the 2017-18 season that began May 1 ranged from about $1,000 to $1,100 per FEU for the largest retailers, to about $1,200 to $1,300 for the smaller BCOs. Therefore, when the spot market is at $1,500 and is showing signs of going higher, carriers will book as many shipments as they can under the spot rates.

This is certainly the case, for example, for contract customers that commit to 10 containers per week, but during the peak season book 20 or more. Any booking above 10 containers is almost certainly going to pay the higher spot rate.

BCOs and carriers agree that the best strategy is for carriers and their customers to establish and maintain a close working relationship that levels as much as possible the effects of the natural peaks and valleys during the annual shipping cycle. “While space is very tight, we have found that our carrier partners have and continue to honor their contractual relationships with Gemini Shippers Group and our member companies,” O’Brien said.

In addition to dealing with the normal seasonal fluctuations in supply and demand in the eastbound Pacific, BCOs are coping with the uncertainties surrounding the devastating Hurricane Harvey, which is disrupting logistics supply chains in the US Gulf, weather events in Hong Kong and Singapore, and yet another Chinese government policy development involving environmental restrictions.

Importers report that China has been shutting down or at least pressuring dozens of old, polluting factories to slash production. This is forcing importers to find new suppliers, or if that is not possible, to wait and see if the current initiative is temporary. If it should suddenly be lifted, and production ramps back up, Chinese ports and carriers could get hit with a spike in cargo that overwhelms them.

Although there are no specific numbers available, some carriers are quietly deploying “extra-loader” ships to meet growing demand. This could relieve some of the pressure on spot rates. However, vessel space is expected to be quite tight in the pre-Chinese Golden Week period in late September. Conditions are expected to remain tight through October. Carriers are therefore urging BCOs to work closely with their service providers to prepare for cargo rolling and rate spikes for the remainder of the peak season.

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Aug 25

Trans Pacific Space Tightening – 2017-8-25

Source:  JOC.com

With indications that an unusually strong peak season is under way, fueled by a buoyant US economy, space in the eastbound trans-Pacific is tightening and carriers are aiming to put the highest yielding cargo on ships. That will force shippers with lower-rated cargo to pay higher rates or face delays.

“We believe that the short-term future is that there will be some issues on space, maybe for the next two-and-one-half months,” Chas Deller, president of 10X Ocean Solutions, which advises beneficial cargo owners in contract negotiations with carriers, told JOC.com on Thursday. “The customer will have little choice but to pay more than they paid last year in order to get their freight on board.”

A medium-sized US importer said finding slot space has become trickier in recent weeks and wondered whether the collapse of Hanjin has spurred the tightness. “This summer is just absolutely unbelievable,” she said.

Import volumes from Asia to the United States rose 4.2 percent in the first half but grew 7 percent in July, according to PIERS, a sister product of JOC.com. US containerized imports in August may hit a monthly record high, with imports forecast by Global Port Tracker to rise 2.1 percent, to 1.75 million TEU.

Despite the growth, the spot rate to move an FEU from Shanghai to the US West Coast and East Coast has been largely static for the last three weeks, according to the Shanghai Containerized Freight Index. The spot rate to the West Coast is $1,659 per FEU and $2,592 to the East Coast. Rates on both routes, though, are up more than 50 percent since June.

“It is becoming a carrier market right now,” said Joe Quartarolo, executive vice president of global freight forwarding at Empire Worldwide Logistics. “They’re in control and they will be selective on what cargo gets on board the vessels based on each of the loading ports’ decisions to maximize profits.”

The situation is one that may be unfamiliar to many shippers who have enjoyed the fruits of a very weak container shipping market over the past several years, winning successive year-over-year rate reductions that shipper companies have gotten used to. The situation began turning around during the 2017 contract negotiations when carriers were able to secure modest increases of a few hundred dollars per FEU, turning the tide from the prior year when some rates were in the $700 range. But the situation has only tightened since, with growth rates in the import trans-Pacific accelerating.

“As as long as we see these 5, 6, 7 percent growth indications with capacity not increasing by that much, the carriers will be once again in charge. We’re seeing once again a complete reversal from the psychology that we have seen in the last couple of years,” Deller said.

The tightness of space is not just costing shippers more, it is adding an element of unpredictability to importers’ supply chains, Deller said.

“And the issue with [the space situation] is that you then begin to lose confidence that your product will arrive when you want it to arrive. The whole point from an importer’s perspective in the trans-Pacific is … these products have to arrive, so customers have been saying to us, ‘I don’t care about the rate negotiations, the freight has to move and it has to be here on time.’ So the only way to do that is to bow to the carrier’s demand.”

The tightening trans-Pacific import market supports comments made by Maersk CEO Soren Skou in the company’s Aug. 16 second-quarter earnings call where he said, “We believe that what we see now is probably the strongest fundamentals for container shipping that we’ve had for quite a while and certainly since 2010 and the financial crisis.”

He pointed to the fact that the idle fleet globally has dropped to just over 2 percent as many ships have been activated in recent months, but rate levels are holding in an indication that trade volumes this year are strong. For the first time in a decade economies in the United States, Europe, and the developing world are all expanding simultaneously.

“You’ve seen very little movement in the past few months despite the fact that a lot of idle capacity has been deployed. And I think we’ll take that as a sign of strength in the market,” Skou told analysts.

What appears to be happening is a peak season that has arrived with a vengeance, driven by a strengthening US economy. Real US GDP growth bounced back in the second quarter, rising at a solid 2.6 percent annual rate, compared with an anemic 1.2 percent in the first quarter, according to IHS Markit projections, which anticipate that GDP growth this year will accelerate to 2.1 percent.

“Even though the last couple of years the peak season was almost non-existent, this year it’s a real peak season. We see space becoming very tight at origin. It’s been tight for the past several weeks,” said Quartarolo.

He said the heavy volumes are being seen in delays at Pacific Northwest ports and at rail ramps around Chicago, creating delays of several hours to a few days.

He said spot rates are currently $500 to $600 higher than rates negotiated this spring during annual service contract negotiations, which creates a big incentive for carriers to load higher-paying cargo first, to the degree they are able to.

“Obviously you have the fixed long-term rates negotiated back in April and May, and then you have the spot market rates. So of course they would like to load the high-paying cargo rather than the low-paying cargo. They are not going to eliminate the fixed-rate volume but they will reduce it,” he said.

Deller said likely loading delays will force some shippers to turn to air cargo. The tightness in ocean space “will have a knock-on effect on air cargo, because if you can’t get on board and are delayed for a couple of weeks and you miss a projected sale, you are going to fly it no matter what.”

Shippers turning to air will find a tight airfreight market as well. As the forwarder Flexport reported on Aug. 15, “This has been a huge year for airfreight. Rates have stayed high and will rise further in the peak season. The trans-Pacific air market in particular is very strong.”

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell.

 

Aug 10

Record Import Volumes Forecast for August 2017

US containerized imports are forecast to reach the highest-ever monthly total in August as retailers react to strong consumer demand, providing carriers another tailwind to their improving fortunes.

The Global Port Tracker, published monthly by the National Retail Federation (NRF) and Hackett Associates, predicts  August import volume will rise 2.1 percent year over-year, to  1.75 million TEU. The current record for import volume was in March 2015, when inbound containers hit 1.73 million TEU.  The forecasted record in August would cap a strong six-month period in which four out of six months will be the busiest months in the history of the report, providing its predictions for the coming months are correct, Global Port Tracker said.

Global Port Tracker forecasts container volume to end the year up 4.9 percent, at 19.7 million TEU, from 2016. IHS Markit Senior Economist Mario Moreno has upgraded his forecast from 6.1 percent annual growth to 6.6 percent after strong volume in the first quarter.

“Retailers are selling more and that means they need to import more,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “With sales showing year-over-year increases almost every month for a long time now, retail supply chains are working hard to keep up. These latest numbers are a good sign of what retailers expect in terms of consumer demand over the next few months.”

The expected 2.1 percent increase in August over the same month in 2016, followed by a 5.6 percent increase in volume in July — to 1.72 million TEU — over the same month in 2016. June’s volume of 1.69 million TEU was 7.5 percent up from the same month in 2016.

The report predicted the US will import 1.67 TEU in September, an increase of 4.7 percent over the year before, and will import 1.72 million TEU in October, up 3 percent from the same month in 2016. November’s volume is expected to clock in at 1.62 million TEU, down 1.4 percent on the same month in 2016, and December’s volume is predicted to be 1.59 million TEU, up 1.5 percent on the month last year, Global Port Tracker said.

The report’s upbeat predictions match evidence elsewhere suggesting a buoyant peak season, and beyond. The total volume of imports through US ports in the first seven months of the year was 12.5 million TEU, up 1.7 percent on the same period last year, according to PIERS, a sister product of JOC.com.

The Port of Oakland on Wednesday reported  an “all-time record” for cargo imports in July, handling 84,835 TEU, a 1 percent increase on the previous record of 84,023 containers handled in March 2015. The Port of Virginia also reported a record, with a “best July ever” total of 234,230 TEU, a 7.5 percent increase over the same month in 2016.

Spot rates in the eastbound Pacific edged lower last week after spiking by double digits last week as carriers attempt to maintain their pricing power during the early stages of the peak-shipping season. The spot rate for shipping a 40-foot container from Shanghai to the East Coast was $2,661, down 1 percent from $2,685 last week. The spot rate to the West Coast was $1,661, down 2 percent from $1,687 per FEU container last week, according to the Shanghai Containerized Freight Index published under the Market Data Hub on JOC.com.

Carriers indeed have greater pricing power this year. Last summer the Pacific trades were marked by overcapacity, which suddenly dissipated when Hanjin Shipping filed for bankruptcy on Aug. 31. Hanjin had accounted for about 7 percent of total capacity in the Pacific. The East Coast rate last week was 41 percent higher and the West Coast rate was 30 percent higher than during the same week last year.

Fewer shippers each year allow peak season surcharges and general rate increases into their annual trans-Pacific service contracts, limiting carriers ability to capitalize on what historically been the most profitable shipping period for them. Even so, Drewry expects container lines to end the year with $5 billion in profit, after six straight years of industry losses.

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.

 

Jul 28

ILWU votes to extend contract until 2022

Source: joc.com

The International Longshore and Warehouse Union Friday announced that early reporting of coastwide election returns show the ILWU rank and file approved a three-year contract extension through July 1, 2022, signalling the potential for strong labor peace at West Coast ports for the next five years.

“Members of the ILWU voted on the employers’ unprecedented contract extension proposal after a year-long debate and democratic process in which every registered longshore worker from Bellingham, Washington, to San Diego, California, had an opportunity to vote,” the ILWU stated.

The subject of a contract extension was first raised in March 2015 at the JOC’s annual TPM Conference, when Pacific Maritime Association President James McKenna suggested that the ILWU consider an extension, and ILWU President Robert McEllrath told him to send the ILWU a formal letter.

The results of the West Coast vote that was taken this past month, which the ILWU expects will soon be formally ratified, will shift the attention of beneficial cargo owners to the East Coast, where the International Longshoremen’s Association and the United States Maritime Alliance have also been discussing the possibility of extending their contract, which is scheduled to expire on Sept. 30, 2018.

The results of the West Coast vote that was taken this past month, which the ILWU expects will soon be formally ratified, will shift the attention of beneficial cargo owners to the East Coast, where the International Longshoremen’s Association and the United States Maritime Alliance have also been discussing the possibility of extending their contract, which is scheduled to expire on Sept. 30, 2018.

“This agreement between the ILWU and PMA will provide the stability and predictability that (National Retail Federation)’s members and other supply chain stakeholders need to move their cargo efficiently through our ports,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. 

Beneficial cargo owners represented by dozens of trade organizations have been encouraging the longshore unions and employer organizations on both coasts to extend their contracts so it will be safe for US importers and exporters to plan their supply chain logistics for the next five years.

Employers on both coasts are keenly aware of the importance of sending to BCOs a message of labor stability and cargo-handling productivity. “With this  contract extension, the West Coast has a tremendous opportunity to attract more market share and demonstrate that our ports and our workforce are truly world-class. We are fully committed to delivering the highest standards of reliability and productivity for years to come,” McKenna said Friday.

West Coast ports have experienced a steady loss of market share the past 15 years. The loss continues this year. In the first half of 2017, the West Coast’s share of US  imports from Asia was 65.6 percent, which was down from 67.2 percent during the same period last year, according to PIERS, a sister product of JOC.com within IHS Markit.

By the same token, given the intense competition among ports on both coasts for market share, a guarantee of labor peace will promote growing cargo volumes, and jobs, for both the ILWU and the ILA. BCOs want to avoid the crippling effects of work slowdowns and stoppages such as occurred during the 2014-15 negotiations  between the ILWU and the PMA.

Container volume growth so far this year has been stronger than in previous years, and IHS Markit Senior Economist Mario Moreno projects US imports from Asia, which represent the most highly-contested market segment for  ports  on  both coasts, will increase 6.6 percent in 2017. 

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo

Jul 28

Booking container space, no-shows and forecasting space demand

Source: joc.com

A renewed focus on flaws in the container booking process that leave vessels partly empty when promised cargo doesn’t arrive or overbooked, with containers left on the dock has triggered a slew of new efforts by shippers, carriers, and consultants on how to resolve the problems.

Better forecasting; digital management platforms, such as the New York Shipping Exchange (NYSHEX); penalties for bad behavior; and greater visibility in the booking process are just some of the strategies tested. Industry consultants, start-ups, shippers searching for ways to increase certainty in their supply chains, and cash-strapped carriers desperate to improve efficiency are all looking to reduce so-called no-shows. Whether any of the solutions can succeed in overcoming a stubborn challenge in the container shipping system for years, is unclear.

At its heart, the system is driven by uncertainty: shippers face no penalty for booking a certain volume of cargo on a ship, and then failing to send it; and carriers face little retribution for leaving containers on the dock that they have committed to shipping. The two behaviors, and the apparent disregard for the impact on the other party, fuels an unwillingness to take steps to change a system that clearly hurts both parties in the long run. Carriers end up running ships with plenty of empty space, and shippers have to scramble to make alternative arrangements to get their cargo to its destination on time when containers are left on the dock.

Several shippers told JOC.com they are trying to more accurately predict how many boxes they will send in a shipment, and the NYSHEX in June launched an online portal that uses a system of contracts and penalties to encourage bookers and carriers to fulfill their commitments. Hapag-Lloyd and CMA-CGM have in recent weeks revived a strategy — that has not worked for others in the past — of charging a cancellation fee on shippers that deliver less cargo than they committed to ship.

New insights from Drewry Shipping Consultants says that the problem could be mitigated by a digital information sharing system that allows shippers and non-vessel-operating common carriers (NVOs) to better allocate their cargo among different carriers and vessels.

“Our Drewry view is that to resolve this issue will require a new technology-based capacity platform, enabling e-business synchronization of capacity in container shipping focused on “structural issues with booking and lack of technology.” The consultants found that the problem most affects small- and medium-sized shippers and non-vessel operators.

The question is what will it take to break that cycle, and will it be achieved by using a carrot to encourage more responsible behavior, or a stick to force the issue? Several BCOs say they have responded by coming up with their own methods of dealing with the problem, with some success.

Gary Fast, associate vice-president for international transportation at Canadian Tire, Canada’s largest container importer, said he believes its strategy of providing certainty for carriers has helped ensure that the retailer’s cargo is very rarely rolled. Fast said Canadian Tire forecasts extensively, based on information accessed by teams of analysts from up and down the organization, and provides them to suppliers, carriers, and service providers up to 26 weeks in advance. The company says it can forecast with 95 percent accuracy how many containers it will send on a particular ship.

In addition, the company, which does sales of $13 billion and handles about 65,000 containers each year, works to ensure that it always fulfills the minimum quantity commitment (MQC), or number of containers it will send, in annual carrier contracts, Fast said. If Canadian Tire at the end of the contract year has sent fewer containers than was committed, it will keep sending cargo through the carrier until the commitment is met, said Fast, adding that few companies are so committed to meeting the MQC.

“Having that certainty that we are going to honor that MQC, also gives (the carrier) a high degree of confidence in Canadian Tire,” and motivates the carrier to protect the retailer, Fast said. “Carriers are very much incentivized not only to give us a good rate but to watch our freight and take care of it.”

Three other shippers told JOC.com said they are working to provide the carrier with an accurate forecast of the number of FEU to be sent, in the hope it will prompt the carrier will reciprocate with a more reliable service and less cargo rolled. One of the shippers, a supplier of apparel that sends goods on the trans-Pacific and trans-Atlantic routes, said the tactic has shown results.

“By going back and comparing ‘Here’s what we said, here’s what we did,’ we feel we can market our forecast to our carrier reps and we reward those who can get us space with volume,” said the supply chain manager of the apparel manufacturer, who asked to remain anonymous. “It sounds naïve, but I believe it works — honesty is the best policy.

“We know our carrier reps lose credibility with their trade and origin teams if we don’t execute to our forecast,” the manager said. “We had one carrier who just couldn’t translate our forecast into action. We liked many things about that carrier, but structurally they gave lip service to the forecast and rolled several containers. That carrier is now seldom used.”

Another BCO, a household goods retailer, said that it was hoping that accurate forecasting combined with “providing visibility to our needs more than six weeks in advance” would help “reduce rolls and refused bookings.”

A senior logistics manager for an Illinois-based manufacturer and importer of automotive products said that he requires vendors to book space on a vessel more than two weeks in advance, and watches closely to ensure they comply, after realizing that vendors who didn’t book vessel space far in enough in advance were the ones whose cargo was left behind or delayed.

While most shippers told JOC.com that the booking process raises concerns, it’s not clear how big an issue it is, and until there is general agreement on that, significant change in the industry may be elusive. The household goods retailer said refused bookings and rolled cargo that created a delay of three days or more accounted for about 1 percent of bookings, and “factory canceled bookings probably exceed 10 percent of total.”

Drewry, in its research, quoted a shipper saying that the rolling of containers happened less than 5 percent of the time, and the consultancy quoted another saying that “about 10 percent of booking requests have problems with lack of space or lack of container equipment when you place the booking.” Even after the booking is confirmed, 3 percent of bookings are canceled, the BCO said, adding that the rate has increased from 2 percent last year.

Jason Lloyd, director of freight trade at Interra International, of North Carolina, a global distributor of food products, said he believes the problem of overbooking stems more from NVOCCs, who make multiple bookings to ensure they have enough space for their customers, or because they get a better-priced offer on another vessel. That in turn causes problems for BCOs, who may be shut out of a vessel that appears overbooked — even though in reality not all of that cargo will arrive, he said.

Mike Hashmi, manager of import-exports and customs compliance for The Apparel Group of Texas, said a carrier refusing to take cargo at the last minute, having agreed to take it earlier, “happens often,” although mostly during the July-to-October peak season. Hashmi cited an email he received on July 12 from a carrier saying that a shipment three days later could not happen, and offering space on a vessel a week later.

“They weren’t telling us what’s the reason, but I know what’s the reason,” said Hashmi, who refused the later booking and instead went with another carrier sailing closer to his preferred date. He said he believed that the carrier did not want to do the extra work needed to provide a container for “garments on hanger,” which requires the installation of bars in the container on which to hang the clothes.

That uncertainty over who causes the problem, and why, can make it difficult to find a solution.

Carriers have in the past tried — unsuccessfully — to levy booking cancellation fees on BCOs that do not deliver the amount of cargo they promised in advance. BCOs have generally resisted, and it is too early to say how the recently initiated effort by Hapag-Lloyd and CMA-CGM will play out. The German carrier is charging $60 per cancellation on all bookings that are canceled within three days prior to the vessel’s arrival on the Indian-Singapore route, and CMA-CGM is charging $150 per TEU on the North Europe-Middle East-Indian Subcontinent trade.

NYSHEX also is trying to change behaviors with a penalty system, albeit a more sophisticated one. The company in June moved from a test phase to the full launch of an online portal that can book cargo with carriers, but also monitors whether the booking is fulfilled by shipper and carrier.

Carriers that use the portal post specific details about a cargo movement they are willing to make — including the origin and destination, the number of containers to be moved, and the price of the move. Shippers can then commit to sending cargo under the deal, and are required to back up their commitment with a bond, cash deposit, or insurance policy. If the shipper fails to send the cargo, it forfeits between 30 to 40 percent of the agreed shipping cost, depending on the route. A similar penalty is levied on the carrier if it fails to complete the delivery.

“If carriers can use enforceable contracts to reduce their downfall rates, it will give them more confidence in being able to utilize their vessels,” said NYSHEX CEO Gordon Downes. “And consequently they can avoid overbooking their ships, which is the most common cause of rollings.”

That in turn, he said, “means shippers will know at the time of contracting how much capacity is available, which is far better than waiting to make a booking two or three weeks before the departure date only to be told that the ship is full and then being forced to scramble for an alternative carrier, or worse.”

Drewry suggests a different solution, believing that greater visibility in the booking process would enable carriers to better allocate cargo, and prevent excessive volumes beyond what a vessel can handle arriving at the dock.

The consultants suggested that could be achieved with a “network capacity management platform” that shares information between carriers and shippers and NVOs. That would enable shippers and NVOs to book cargo on a vessel with “real time” information that would enable them to see whether space is available for cargo of the specifications they are trying to send — rather than the current system of booking and then waiting a day or two for confirmation that the space is available, the consultant said.

“The carriers could publicize their capacity and rates — either publicly or privately — to shippers and forwarders, or other carriers,” Drewry said. That would facilitate access to the information and distribution of containers across the carriers and reduce overbooking and shipments being held up due to lack of available capacity.

The consultant likened the system to the way portals such as Amadeus and Sabre handle business to business travel bookings.

“It would indeed work as a carriers’ marketplace, where carriers can share their total or partial available capacity,” Philippe Salles, head of e-business advisory, transport, at Drewry said. “However, the system would not allocate the booking automatically. The shipper would be the one to decide on the carrier, to agree the price and booking’s ‘No-show’ policy.”

Key to better allocation of cargo, however, is giving shippers more accurate vessel scheduling data, and the ability to see the gamut of their shipping options, and assess which are the most beneficial.

Drewry’s cited CargoSmart’s Routemaster as a step in the right direction. The software provides optimization tools that allow a shipper to find the most efficient, and cheapest route for sending cargo. Included in the estimation are factors that enable the shipper to pick the most beneficial routes — such as carrier schedules and on time performance, weather reports and industrial action around a terminal that would affect the shipment. Also available is the carrier’s performance record on rolling cargo, as well as the cost for the trip, CargoSmart said.

That analysis enables a shipper to judiciously select a route that avoids carriers and terminals that are potential trouble-spots, said Kim Le, strategic alliance director for CargoSmart.

“That helps mitigate that, minimize that, because it gives them alternative options, and it also gives them a view of their existing routes, and compare it to other alternative options,” she said. They can see if cargo regularly gets rolled, or a shipment is frequently moved to a secondary carrier, and can use that information to shape the next route booking, she said.

The effectiveness of such a strategy, however, will still depend on resolving the problem of uncertainty: while the allocation of cargo may be more efficient, the system will still fall down if shippers don’t send what they say they will.

“Their logic is that if carriers can better manage their capacity, they can better serve their customers with fewer declined bookings and rollings,” Downes said, of the Drewry proposal. “But carriers are already pretty good at managing their capacity, and this logic only touches on a small part of the problem.

The biggest cause of bookings being declined or cargo being rolled, Downes said, is that “carriers don’t know what cargo is going to be booked on each vessel until around two or three weeks before the departure. And even then, the bookings can have high downfall rates.”

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.

 

Jun 27

Maersk hit by cyber attack – Ports of New York and New Jersey closed

The Maersk group has been hit by a cyber attack that has affected its operations around the world, closing terminals in Rotterdam and the Port of New York and New Jersey.

The Danish transport and energy group said its information technology (IT) systems are down across multiple sites and business units owing to the attack.

“We continue to assess the situation,” the company said in a statement posted to Twitter.

“The safety of our employees, our operations, and customers’ business is our top priority.”

“We will update when we have more information,” the Copenhagen-based company said.

APM Terminals (APMT) Maasvlakte 11 container terminal in Rotterdam is said to have shut down owing to the attack.

APMT’s terminal in the Port of New York and New Jersey was also impacted, and forced to close for the day.

The attack is disrupting operations for businesses and governments throughout Europe, hitting Ukraine particularly hard, and is similar to the so-called “WannaCry” attacks that paralyzed digital infrastructure around the world in May, according to the Russian cybersecurity firm Group-IB.

Like WannaCry, this attack involves ransomware, which hijacks control of a computer and demands payment to an online address in return for regaining acess to data and systems.

This is not the first time a container line has fallen victim to a cyber attack, as a 2011 cyberattack against state-owned Islamic Republic of Iran Shipping Lines crashed the carrier’s IT system, resulting in the loss of data tracking its 170-ship fleet and some cargo.

In 2014, hackers stole financial records, customer data and shipment manifests from as many as seven shipping and logistics companies.

A 2011 cyberattack against state-owned Islamic Republic of Iran Shipping Lines crashed the carrier’s IT system, resulting in the loss of data tracking its 170-ship fleet and some cargo

This story will be updated as more information becomes available.

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Contact Bruce Barnard at brucebarnard47@hotmail.com.

 

 

Mar 30

Analysis of the New Carrier Alliances 2017-3-30

New analysis of the vessel sharing agreements has revealed the scope of the changes that are going to hit the market from this weekend, while highlighting again the cut back in routes, port calls and options for shippers.

From April 1, four alliances will become three as the brand new Ocean Alliance and THE Alliance start operations, and the 2M Alliance with its slot sharing partner Hyundai Merchant Marine rolls out its new service offerings.

Software solutions provider CargoSmart studied the networks of the three alliances and made some interesting findings. For instance, nearly 70 percent of the alliances’ direct routes will be operated by one alliance, led by 2M that will control 31 percent of the direct routes being offered.

The Ocean and THE alliances will gain two additional ports on Asia-Europe while losing five ports on the trans-Pacific.

Services from the three alliances using the Suez Canal will decline by 7 percent, and while the percentage of services using the Panama Canal will remain the same, over 50 percent will be operated by the Ocean Alliance.

A total of 60 percent of the new alliance routes on Asia-Europe will have shorter transit times, and half of those on the trans-Pacific. Many transits on both Asia-Europe and trans-Pacific voyages will be two to three days faster on average, according to the CargoSmart data.

An area of concern shippers will be that 50 percent of the routes to be offered by the Ocean and THE alliance will change from direct to transshipment. Fewer direct route options and more transshipment could lead to a greater chance of missed schedules.

Across all three alliances, the Asia-Europe trade will have net 50 new port pairs while the trans-Pacific will have 120 port pairs less than the old alliances.

The analysis also highlighted one of the key issues that will be faced by shippers using the new alliances. All shipments could be on the same vessel even if a BCO books with different carriers. For example, 37 percent of vessels in the Asia-Europe trade network of the Ocean Alliance will be operated by CMA CGM.

Another finding by CargoSmart was that there will be fewer sailing days per week for the top five Asia-Europe trade lanes. Shanghai-Hamburg sailing days will drop from 5 a week to 4. Shanghai-Rotterdam from 6 to 5, and Shanghai-Antwerp will decline from 5 sailing days a week to 3.

For those ports with more services or vessels, CargoSmart warned that there may be shipment delays because of increased handling volumes at the ports. For instance, greater numbers of vessels will be visiting Rotterdam and the average vessel size will increase by 10 percent.

The size of vessels being deployed on the Asia-US trade was also rising. A spokesman for CargoSmart said based on the proforma schedules provided by the carriers through March 17, most of the top US ports would have fewer visiting vessels for each alliance service, while the average vessel size by TEU capacity for the alliance services will increase at most of the top US ports.

Michael Dye, group managing director for non-vessel owning common carrier CL Worldlink, said it was too early to tell if the new alliances will be a benefit or bane to the industry.

“I am always concerned about too little competition in any industry and ours is no different,” he said. “When you look at some trade lanes there are only two carriers operating direct port to port services. I realise this is a factor of supply and demand but as a consumer I want choices and the more the better especially when it comes to equipment availability and scheduling.

“In today’s marketplace the challenge is putting together a package that is both competitive and meets the client’s needs in terms of direct service, transit time, etc. as we still seem to be mired in the non-compensatory pricing environment. Perhaps this will change with the new alliance structure, but doing so and still having healthy competition remains to be seen.”

With such a complete global restructuring of the container shipping networks, there is huge concern among shipper groups and forwarders that the new mega alliances will create significant disruption to their supply chains.

Chris Welsh, secretary general of the Global Shippers’ Council, said the problem was that in the formulation of the new market structure, the customer was largely absent from the discussion, with the focus on what works for the container lines.

“There is little differentiation in price and service offering by carriers. Shippers are seeing less choice and less competition. We all need to be worried about that,” he said.

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.

Mar 23

Expect Shipping Disruptions in April and May Due to the Transitioning within the new Alliances

SHANGHAI — There is mounting concern from shipper groups and forwarders that the new mega alliances launching in just over a week will create significant disruption to their supply chains.

Container lines will be transitioning from the old alliances to the new networks on April 1, but with such a total restructuring of the vessel-sharing agreements (VSA) and the huge number of port pairs involved — 420 on Asia-Europe alone — a smooth rollout is not expected.

“The VSA structures will bring big changes and rough seas are coming in April. As the carriers start to reposition and pull ships out, it is going to cause chaos,” said Ken Sine, vice president of global ocean product at Crane Worldwide Logistics.

The Ocean Alliance, THE Alliance, and the 2M Alliance plus Hyundai Merchant Marine will provide 17 weekly strings between Asia and North Europe, one more than offered by the four existing alliances (2M, G6, CKYE, and O3).

Sunny Ho, executive director of the Hong Kong Shippers’ Council, agreed that disruption was on the cards, with fears that capacity management and manipulation could be a major threat to carrier customers.

“The top four carriers account for 47.7 percent of total capacity. Most other operators are too small to offer real sense of rivalry,” he told delegates at the Intermodal Asia conference in Shanghai. “There is also concern of product diversification, such as port calls, routing, network, and frequency.”

Jessica Zhang, international trade operations for the Shanghai branch of Dow Chemical, said even though the container shipping world was undergoing a major restructuring, shippers’ commitments remained the same.

“Shipping lines are sharing slots in alliances, but even though their operational model has changed, our fundamental need is for them to provide a reliable service. On-time delivery is one of our KPIs [key performance indicators] that we commit to our customers, and we expect that same commitment from the lines,” she said.

Even though the new alliances would redraw the global networks and port calls, Zhang said her needs were straightforward. “We need to make sure we have enough space to fulfill our requirements.”

Chris Welsh, secretary general of the Global Shippers’ Council, said the problem was that in the formulation of the new market structure, the customer was largely absent from the discussion, with the focus on what works for the container lines.

“There is little differentiation in price and service offering by carriers. Shippers are seeing less choice and less competition. We all need to be worried about that,” he said.

Welsh said the Global Shippers’ Council was questioning the entire alliance business model, as in the past the VSAs had failed to provide shippers with the kind of certainty they needed to operate their just-in-time supply chains.

“Previous alliances resulted in uncertainty because of blanked sailings, delays, and port congestion, and there is no reason to believe the new alliances won’t continue to undermine that certainty that shippers require,” he said.

Alan Murphy, CEO of SeaIntel, said disruption would be difficult for the carriers to avoid. “There are three alliances that are reconfiguring, two of them completely new. There are a lot of services that need to move from one set of partners to another set of partners, and it could be sorted out soon or it could take weeks,” he said.

SeaCube Container Leasing chief operating officer Robert Sappio also raised the potential of a shortage in boxes as the new alliances start to operate in April.

“That will take some time to get right and to get in effect for the peak shipping season, and it is possible there could be some inefficiencies as the alliances get used to their new networks and new rotations,” he said. “That may also cause a need for new equipment, at least in the short term.”

As shippers try to make sense of the new alliance networks, Sine warned delegates that maintaining a diversified portfolio of carriers was critical and a shipper or consignee needed to fully understand what they were getting in the new alliances.

“When you contract with a carrier, you need to avoid single sourcing yourself. If an NVOCC [non-vessel operating common carrier] comes with a great offer but doesn’t tell you that their solution is Maersk Line and MSC [Mediterranean Shipping Co.], they have single sourced you and you are not managing your risk,” Sine said.

“And it is all about managing risk as we learned from the Hanjin Shipping bankruptcy. Understand the services you use and know what is involved in the alliances you are using. Understand what you are contracting, but understand that you are not just dealing with a carrier that is moving cargo under a bill of lading for you. You also need to worry about its VSA partners.”

One of the big worries for shippers at the moment is related to carriers shifting vessels around in preparation for the launch of the new alliances and creating serious space shortages for North Europe exports to Asia. It has had the effect of driving up rates on the backhaul route, with CMA CGM just announcing that its freight-all-kinds rate, or FAK, from Rotterdam to China would be $1,400 per 20-foot-equivalent unit (TEU) from April 16.

That is more than $500 per TEU higher than the current headhaul spot rate from Shanghai to North Europe, which is tracked on JOC.com’s Market Data Hub.

Welsh said from a customer point of view, this was totally unacceptable. “Cargo space is being rationed by carriers. It is causing a lot of shippers to consider other alternatives to ocean freight, such as air or rail. There is huge interest in the China-Europe rail because of this,” he said.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.

Feb 10

Consumer Spending Increases Imports

Source:  www.joc.com

Loaded container imports will increase 4.6 percent in the first half of 2017, a significant year­ over ­year improvement, as retailers balance inventories with demand fueled by buoyant consumer spending, Global Port Tracker forecast Thursday.

The forecast of a 4.6 percent increase in the first six months of the year is about three times as large as the 1.6 percent hike in 2016 over the same period, according to the report, which is produced for the National Retail Federal by consultant Hackett Associates.

“The United States is well placed in 2017 and is likely to outperform most of the rest of the developed economies,” Hackett Associates founder Ben Hackett said. “If the infrastructure investments promised by the new administration come about, we can expect stronger growth than in 2016, but that assumes good relationships with US trading partners and no recourse to trade barriers that would result in a tit­ for ­tat response.”

Cargo volumes will increase by a healthy clip year­over­year in several months at the start of the year, rising 6.6 percent in January, 7.8 percent in March and 8.2 percent in April.

Volumes will decline by 0.6 percent in February, compared to the same month in 2016, but increase by 2.3 percent and 4.3 percent in May and June, the report said.

The NRF forecast is broadly in line with that of Mario O. Moreno, senior economist for IHS Markit, who predicted in January that US containerized imports will expand by 4 to 5 percent in 2017, and reach a new peak of approximately 21.4 million. That was based mainly on expectations of stronger economic growth, with a 2.3 percent increase in GDP in 2017 compared to the 1.6 percent growth in 2016.

Developments in the political arena could lead imports to exceed or fall below the expectations of the Global Port Tracker.

Jonathan Gold, NRF vice president for supply chain and customs policy, said the Global Port Tracker’s forecast was in line with the organization’s expectation of retail sales.

“Retailers try to balance inventories very carefully with demand,” he said. “So, when retailers import more merchandise, that’s a pretty good indicator of what they are expecting to happen with sales.”

An economic forecast for 2017 released Wednesday by the NRF, which represents discount and department stores, home goods and specialty stores, said that retail industry sales will grow between 3.7 percent and 4.2 percent over 2016 figures. Those sales, which don’t include automobiles, gasoline stations and restaurants, took into account job and income growth, along with low debt, that show “the fundamentals are in place,” the report said.

E­commerce sales, which are included in the overall number, are expected to increase between 8 and 12 percent, the forecast said.

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com (mailto:Hugh.Morley@ihsmarkit.com) and follow him on Twitter: @HughRMorley_JOC (https://twitter.com/hughrmorley_joc).