Sep 02

Transpacific Spot Rates Soar After Hanjin Collapse

JOC Staff | Sep 01, 2016 4:44PM EDT

Trans-Pacific inbound container rates are soaring in the aftermath of this week’s collapse of Hanjin Shipping, but it’s unclear how high they’ll go over the next few months as new capacity gets deployed to handle the orphaned Hanjin Shipping cargo.

Prior to the Thursday bankruptcy of the world’s seventh-largest container line, which brought its worldwide operations to a sudden standstill on Wednesday, trans-Pacific carriers were planning to implement a Sept. 1 general rate increase of $600 per forty-foot-equivalent unit from Asia to the West Coast. But whereas in normal times the success of such a GRI would have been questionable at best, this time sources say it will without question take effect and that rates are likely to rise even further in coming weeks.

The Sept. 1 increase will take spot rates up to $1,700 per FEU, up from $1,100 or 54 percent prior to the increase. On top of that, carriers have announced a $600 peak season surcharge to take effect Sept. 15, which also stands a good chance of taking effect, and an Oct. 1 GRI on top of that. At the very least, sources say, the Sept. 1 GRI and PSS stand a good chance of taking effect, taking trans-Pacific spot rates to the West Coast up to $2,400 and East Coast rates up to $3,000 per FEU.

The Hanjin collapse “is definitely giving the carriers the confidence to stick with the GRI and understandably so; they are inundated with cargo requests,” said Kurt McElroy, executive vice president of APEX, one of the largest non-vessel-operating common carriers in the trans-Pacific eastbound market.

Others believe the same thing. “The complete halt in Hanjin Shipping’s operations is expected to cause serious capacity issues in the market. In light of this, we anticipate a strong general rate increase as of Sept. 1, 2016 and continued rate increases for the remainder of 2016,” OEC, another larger trans-Pacific NVO, said in an Aug. 31customer advisory.

Part of what is giving liners confidence is an already tight trans-Pacific market that sources say is at 90 percent utilization. The evidence for the tightness is clear from recent spot rates: spot rates to the U.S. West Coast have climbed from $753 per FEU in late June to $1,153 in the latest reading from the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index, a 53 percent increase.

Following the Hanjin collapse, the Drewry rate assessment increased by 42 percent to $1,674 per FEU on the Shanghai-Los Angeles route and by 19 percent to $2,151 on the Shanghai-New York route.

Hanjin was carrying roughly 10,500 to 12,000 FEUs per week in the eastbound trans-Pacific, all of which will now have to find another home. Fellow Korean carrier Hyundai Merchant Marine plans to deploy 13 additional ships to handle the orphaned cargo, the Wall Street Journal reported and other carriers are said to be planning so called “extra-loaders” in coming weeks — ships deployed in addition to scheduled services.

“We’re already seeing indications that carriers are going to do extra loaders,” McElroy said, “Anyone who has access to available tonnage is undoubtedly going to evaluate the merits of extra loaders, and I think there is certainly enough demand for that capacity even at the higher spot rates.”

How the spot rate market plays out will depend on how quickly it adjusts to the shock of this week’s sudden withdrawal of the Hanjin capacity. There is no shortage of idled capacity that could quickly fill the void. Maritime analyst Alphaliner reported this week that the idle fleet is currently over 1 million TEUs and extra-loaders are to be expected in coming weeks. And with rates at higher levels carriers, can be expected to move quickly to get higher valued cargo onto their ships. This is especially so given the historically rock bottom rates, some as low as $700 per FEU, that cargo under annual service contracts is currently moving under.

McElroy said beneficial cargo owners are already knocking on the doors of NVOs like APEX seeking extra capacity. He said it’s likely that given the low service contract rates, carriers are likely to enforce limits on minimum quantity commitments, as they typically do in periods of high demand. For example if a shipper has a 1,000-FEU MQC contract, a carrier will allow only about 20 containers per week to be shipped at the contract rates, and will demand higher rates more aligned with current spot rates for any incremental volumes a BCO may need to ship.

The fate of an announced Oct. 1, $1,000 GRI is harder to determine at this point. If the Sept. 1 GRI and Sept. 15 PSS were to hold and then the Oct. 1 GRI was slapped on top of that, West Coast rates would stand at $3,400 per FEU, which would represent a huge increase versus current levels and a significant upward shift in the rate structure. Would the Hanjin withdrawal and the peak season be enough to support those types of rates?

Even if they weren’t, the current September increases look favorable, at least for carriers. “I definitely think a $2,400 rate is quite feasible for September given the situation,” McElroy said. Come Oct. 1, it is going to look different. There could be a decline in volumes coming and capacity coming in, possibly through taking idle tonnage for the displaced Hanjin tonnage. But right now I think that September is definitely going to see higher rates and (the carriers will) keep those rate levels at least through September and well into October as well.”

Sep 01

NCBFAA Comments On Hanjin Bankruptcy

National Customs Brokers & Forwarders Association of America, Inc.
Possible Impacts of Hanjin’s Bankruptcy on Current Shipments
by
Edward D. Greenberg, NCBFAA Transportation Counsel

As you are probably aware, Hanjin filed for bankruptcy protection in Korea on Wednesday August 31st. The filing came just a day after the company creditors discontinued financial assistance of more than USD $896 million to keep the company operating. The Korean bankruptcy court will determine whether Hanjin should be liquidated or given a chance to restructure.
The press is reporting that one Hanjin vessel, the Hanjin Rome, was seized by a creditor in Singapore on Monday. The press is also reporting that a number of ports, including ports in China (Shanghai, Xiamen), Spain (Valencia) and the United States (Savannah), have blocked access to Hanjin ships due to concerns Hanjin would not be able to pay port fees. The bankruptcy filing and the actions of the ports and at least one creditor raise a number of questions. One issue is whether the court will issue a stay prohibiting Hanjin’s creditors from seizing assets (e.g., vessels) to satisfy their claims. It is likely that the Korean court will do so given Hanjin’s size and importance. A second issue, however, is whether any such stay would bind foreign creditors in ports where Hanjin vessels may call. Because it is doubtful that foreign creditors with no operations in Korea will pay much attention to an order of a Korean court, Hanjin likely would have to seek an injunction blocking vessel seizures in all countries where Hanjin ships are located. This would be a pretty large undertaking. And, while it is difficult to predict with certainty whether courts in various countries will issue injunctions blocking the seizure of Hanjin vessels, it is certain that the cargo on any vessel that is denied access to a port or seized will be delayed and will likely incur extra costs.
Any supplier of goods to Hanjin’s vessels has a lien on the vessel to secure payment of what they are owed so there are potentially a lot of foreign creditors that exist. And, once one of the vessels is seized, it is likely that other foreign creditors would rush to do the same thing to protect their interests. This is when events could take on a life of their own and spin out of control. There is not much that can be done about shipments that are already on Hanjin vessels. We have heard from an inside source at Hanjin that it intends to “protect” such current shipments, which probably means at the least that it will endeavor to complete voyages in progress and deliver the goods (to the extent that the vessel is allowed to enter the port.)
If a vessel is arrested, and Hanjin does not – or cannot – put up a bond to obtain its release, it is probable some third party will be appointed to arrange for disposition of the goods. The goods themselves will not be subject to a creditor’s lien; however, freight charges owed on collect shipments will probably have to be paid because they will be considered Hanjin’s assets. It is also probable that shippers may have to make their own arrangements for on-carriage of their containers. For containers that have been shipped with other carriers and loaded on Hanjin vessels pursuant to vessel sharing arrangements, the issue will be how much responsibility those carriers will take for making the arrangements for on-carriage in the event the Hanjin vessel is seized. As you can see, there are a variety of possible outcomes here. Which of the possible outcomes actually occur will depend upon how this situation unfolds and what actions third parties take.
We understand, again from the trade press, that Hanjin either already has or will be declaring force majeure with respect to its contractual obligations to provide transportation services. If so, it is possible – if not likely – that Hanjin will exercise the provisions of the “Hindrance” clause in its bill of lading to declare that the transportation services have been terminated, that it is entitled to full freight, and that the merchant now needs to make any necessary arrangements to complete the transportation services to destination. Consequently, whether or not any of its vessels are seized, it may well be that arrangements will need to be made to make sure that goods in Hanjin’s possession or control are released and then moved to final destination.
We recommend that you not pay Hanjin for the transportation of cargo until goods are actually delivered into your possession and control. We also recommend that you send notices out to your customers advising them of the situation. It might be helpful if your notice to customers includes reference to Hanjin’s exercise of force majeure and its Hindrance clause and that any additional costs required to get their cargo to destination will necessarily be passed along to the shipper pursuant to the provision of your company’s bill of lading and its Hindrance clause.
We are available to answer any questions you may have about these matters.

Sep 01

Hanjin Cargo Not Being Released Without Payment

JOC Staff | Aug 31, 2016 4:20PM EDT

US shipper customers of Hanjin Shipping are facing the unpleasant reality that terminals and other operators will not work or release their cargo until they get paid by a container line that is entering bankruptcy and possible liquidation.

“Any operator, be it a terminal, railhead, trucker, railroad, that is handling freight for a company in receivership, or going into receivership, and that is performing service in advance of being paid, is likely to be reluctant to release that freight in lieu of payment,” Dean Tracy, managing director of logistics consulting firm Global Integrated Services LLC, told JOC.com.

In a stark example of the phenomenon, the DP World terminal at Prince Rupert on Wednesday was refusing to work a Hanjin ship that has arrived there from Asia carrying its own cargo and that of its alliance partners Cosco, “K” Line, Yang Ming Line and Evergreen Line, according to two sources close to the matter. The Prince Rupert Port Authority couldn’t be reached for comment.

The Georgia Ports Authority has also blocked a Hanjin ship from calling at the Garden City container complex at Savannah, a Hanjin spokesperson told Reuters. The GPA wasn’t available for comment.

The Port of Virginia said it wouldn’t accept Hanjin containerized exports but would receive empty containers.

Global Container Terminals’ Deltaport and Vanterm facilities at the Port of Vancouver, British Columbia, will no longer receive Hanjin ships. The terminal operator said its Bayonne facility stopped receiving Hanjin calls months ago.

“The carrier is unable to confirm payment arragements for forthcoming vessels,” said GCT spokeswoman Louanne Wong. “Until this is resolved, we are no longer receiving Hanjin cargo.” The terminal operator said its Bayonne facility at the Port of New York and New Jersey stopped receiving Hanjin calls months ago.

Maher Terminals, the largest terminal at the Port of New York and New Jersey, told customers that Hanjin import deliveries must be pre-paid and that Hanjin exports won’t be accepted. The terminal operator added that the main Maher terminal and Columbia Container Services’ yard for off-dock depot of empty containers would no longer accept Hanjin empty containers, either.

Fearing that future cargo will be similarly and perhaps indefinitely idled, China Cosco Shipping and Evergreen Line are telling customers they won’t load cargo for their ailing fellow CYKHE Alliance partner, nor will they place their customers’ freight onto Hanjin ships.

It’s unlikely that US marine terminals and ports will seize Hanjin ships because an expected Chapter 15 filing would force their release. Chapter 15 grants foreign companies trapped in insolvency access to the US court system, at which point they would receive the many of protections typically associated with bankruptcy in the United States.

Once Chapter 15 is complete, port and marine terminals would have to file their pre-insolvency claims in the Korean bankruptcy proceeding, and be forbidden from arresting Hanjin ships and property.

After filing the Chapter 15 petition, Hanjin can take the “wise step” of orderly reorganizing or winding down the company without interference from creditors because of the protection afford to foreign debtors, said James Power, a partner at Holland and Knight who has been lead US counsel in at least seven Chapter 15 cases for foreign debtors in shipping-related bankruptcies including, Korea Line. The bulk carriers filed for receivership in 2011.

“This step has been taken in support of Korean insolvency proceedings including for Korea Line with great success resulting in the release of numerous vessels that has been attached in the US and abroad prior to the filing of the Korean proceeding,” Power told JOC.com

As a result, the only leverage marine terminals, railheads, railroads and truckers have is to control cargo until someone steps up and agrees to pay for it to be released.

Tracy, the former logistics director for the home improvement chain Lowe’s, said he recalls the 1986 bankruptcy of United States Lines, then the largest container line bankruptcy, where cargo holds lasted for months. “In US Lines (bankruptcy), it was a tough days, tough weeks, tough months, because cargo was held to satisfy the needs of the creditors.”

He said among the most exposed shippers are those importing under free-on-board terms because in those situations freight generally is not paid until the cargo has been released, meaning there are many parties waiting to be paid who will in turn be reluctant to release freight against an unpaid bill from the steamship line.

“Most of the time in international logistics, the move is effected before payment is made, especially under FOB terms,” Tracy said. Under those terms, freight services — ranging from transloading to drayage — are performed before the freight is paid and the service provider will be reluctant to release the importer’s freight until the service provider has been paid for their services.

“That means you are at the mercy of the organization that is handling your freight,” he said.

At Charleston, the port is preparing for Hanjin containers moving through its terminals, said South Carolina Ports Authority CEO James I. Newsome III. “Fortunately in this case, we only have cargo aboard other CKYHE ships,” Newsome said. “So we are going to ask for money in advance on future imports.

“As for what we have on the terminal, we are going to be very flexible and let the cargo go,” he added. “We do not want to hurt the truckers. We will also take empties in so they do not get stuck with them. Sometimes, you just have to do the right thing with a viewpoint greater than just your own little world.”

Aug 31

Hanjin Upate 2016-8-31

www.joc.com   JOC Staff | Aug 31, 2016 10:40AM EDT

The bankruptcy and apparent unraveling of Hanjin Shipping on Wednesday, the world’s seventh-largest container line, following the withdrawal of support from its creditors after a lengthy period of financial distress, will cause an immediate upward adjustment in US import rates, sources told JOC.com Wednesday.

A set of sharp trans-Pacific spot rate increases will take effect on Thursday, as the ocean carrier announced it has put a hold on container loadings on ships, and forwarders and Hanjin’s alliance partners cancel bookings with the Korean liner and frantically seek to divert freight to other container lines and the alliances in which Hanjin does not participate. JOC.com was told that Cosco and Evergreen Line, partners of Hanjin in the CKYHE Alliance, have ceased making bookings on Hanjin ships, as did a major forwarder according to what it told JOC.com.

Trans-Pacific eastbound rates were already trending higher in recent weeks due to higher utilization amid the peak holiday shipping season, and now they will go higher still. According to one large forwarder, carriers as of Sept. 1 will implement a $600 increase per 40-foot-equivalent unit for freight all kinds (FAK) cargo to a level of $1,700, representing a 54 percent rate increase from Asia to the U.S. West Coast. The rate to the East Coast will go up by $800 per FEU to $2,400, a 50 percent hike. Similar increases were announced to Vancouver, Prince Rupert, Houston, Mobile, and inland ports such as Chicago, Detroit, Memphis, Fort Worth, and Kansas City. This comes on top of recent increases that have largely held; spot rates to the U.S. West Coast have climbed from $753 per FEU in late June to $1,153 in the latest reading from the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index, a 53 percent increase.

Carriers will likely achieve these increases, and perhaps more to come, given that Hanjin, according to one larger forwarder, was carrying 20,000 TEUs to 25,000 TEUs in the trans-Pacific eastbound trade. The withdrawal of its capacity will create a rush of volume to other carriers who are already operating at 90 percent to 100 percent utilization.

According to the Agriculture Transportation Coalition in a member advisory on Wednesday: “There is currently, overall for all carriers, about 8,000 to 10,000 TEU unused capacity transpacific eastbound. So if Hanjin ceases operations, suddenly we are in massive demand-over-supply situation. Impact on westbound shipments will be significant, but may be less than for eastbound imports.”

The rate increases come as the Hanjin business appeared to be coming apart on Monday. One larger forwarder on Monday told JOC.com it was immediately cancelling all bookings with Hanjin. Another forwarder said it was told by Hanjin officials that the company is entering bankruptcy and to cease booking with the carrier. One forwarder told JOC.com on Wednesday that it is “devanning containers that are loaded at origin to get it on other carriers.”

In a customer announcement on Wednesday Hanjin said “All containers intended to load on vessel are put on-hold for loading as per instruction of our Head office to avoid further problem that may incur at transshipment port.” It further stated, “Advance booking confirmation which has been released will also be put on-hold. Kindly refrain from sending out truckers to our CY (container yard) for empty container withdrawal, our CY has been advised not to release empty containers to truckers.”

Some saw the writing on the wall and took action in advance of the bankruptcy. Two non-vessel-operating common carriers doing business with Hanjin dramatically pulled back their exposure to the ailing carrier in June, according to an analysis of the latest data available via PIERS, a sister product of JOC.com within the maritime and trade business of IHS Markit. Between May and June, Seattle-based Expeditors, the largest trans-Pacific NVOCC, went from shipping nearly 2,100 TEUs to moving under 100.

Vilden Global Transportation Solutions also pulled back its exposure in the same period, going from 2,334 TEUs to 663 TEUs. Expeditors and Vilden didn’t respond to requests for comment. Unlike Expeditors and Vilden Global Transportation Solutions, the third- and fifth-biggest movers of NVO cargo for Hanjin, Orient Express Transport, Orient Star International and an undisclosed NVOCC that commands the top spot increased their exposure. Translink, the third biggest bringer of NVO business, reduced its monthly volume from 1,750 TEUs in May to 1,374 TEUs in June

United Arab Shipping Co., a fellow CKYHE Alliance member of Hanjin, told customers Tuesday it was closely monitoring their cargo that is aboard Hanjin ships and has taken emergency contingency planning of such cargo.

China Cosco Shipping told JOC.com Wednesday morning that it hadn’t heard of any of its customers’ cargo on Hanjin ships being seized.

“We are trying to get all the information we can. Our first objective is to protect shippers,” said Howard Finkel, executive vice president of China Cosco Shipping Americas. “We have to find out legally what we can and can’t do.”

“We’re going into brand new territory so there are a lot of questions that need to get answered,” Finkel said.

The bankruptcy begins what will be a “complex insolvency process,” said the UK law firm Psydens, which issued an initial advisory with preliminary details on shippers’ options.

“In a receivership situation, the party going into receivership cannot trade once they know they are insolvent. Hanjin appeared to find this out on Tuesday when it was reported that key lenders had withdrawn their support,” Psydens said.

Aug 31

Hanjin Files for Receivership

From: www.joc.com   Xiaolin Zeng, east Asia correspondent | Aug 31, 2016 12:43AM EDT

Hanjin Shipping has decided to file for court protection after losing the support of its banks in South Korea, sending shockwaves through the shipping and financial world.

The writing was on the wall after the country’s largest shipping line had trading of its stocks suspended on the Korea Exchange yesterday after a liquidity plan submitted to Korea Development Bank on Aug. 26 was rejected.

The KDB felt that the plan, which involved cash injections of up to 500 billion South Korean won, was insufficient to solve the liquidity shortfall facing Hanjin Shipping, which had already raised more than 1.7 trillion South Korean won since former chairwoman Choi Eun-young handed over the reins to her brother-in-law, Korean Air Lines chairman Cho Yang-ho.

The Financial Services Commission’s earlier assessment was that Hanjin Shipping would lack 1.2 trillion won over the next two years. Hanjin Shipping had been in the red for four of the last five years, dealing a blow to its equity even as it soldiered to raise funds.

While Hanjin Shipping has yet to issue any official confirmation of its application for receivership, the FSC has already issued a statement to the same effect. The latter statement stated that at a presentation yesterday, Hanjin Shipping’s creditor banks decided that they could not accept the liquidity plan.

Considering the impact on the economy, the Seoul Central District Court is expected to approve Hanjin Shipping’s receivership application.

The impact on the liner shipping industry is expected to be significant and will affect Hanjin Shipping’s CKYHE Alliance partners, its future THE Alliance partners, slot sharing with other carriers, its charter contractors and countless shippers with cargo moving on major trades on its 98-ship fleet.

In the meantime, Hanjin Shipping’s debt repayments are expected to be stayed and creditors would be precluded from seizing the company’s assets. Once the receivership application is granted, Hanjin Shipping would continue rehabilitation procedures under the direction of the court and KDB, its main creditor.

The company could implement layoffs and asset sales while its banks reschedule loan repayments. Hanjin Shipping on Monday said it had made significant progress in its negotiations to lower charter costs and delay loan repayments to foreign banks. The company’s counterparties include Seaspan, Doun Kisen, Ciner Ship Management, HSH Nordbank, Credit Agricole and Commerzbank.

In a manner similar to Pan Ocean, which was in receivership from June 2013 to early 2015, Hanjin Shipping could sell vessels that are not part of its core business of container shipping, in addition to terminals in South Korea and elsewhere.

Cash injections from Hanjin Shipping’s banks are unlikely as KDB and other South Korean banks have been massively burdened by the downturn in the shipping and shipbuilding industries. There also will not be any government bailouts, although debt-for-equity swaps could be possible, as seen with Pan Ocean and Korea Line Corporation. If debt-for-equity swaps are executed, the Hanjin Group could lose control of its shipping subsidiary and a new management team is likely to be appointed.

The FSC, South Korea’s financial watchdog, has moved to mitigate the impact of Hanjin Shipping’s situation on the latter’s associated companies, banks and investors.

The FSC said: “While Hanjin Shipping will be applying for receivership soon, the restructuring efforts that the company undertook in the meantime should limit the impact on the financial market.  Firstly, although Hanjin Shipping dos not carry heavy weight on the stock market, the company’s stock price has already adjusted downwards since the start of the year. Furthermore, the credit rating of Hanjin Shipping and Korean Air Lines has been adjusted to reflect the negative market conditions, and this should mitigate the impact on the corporate bond market .”

On the other hand, the FSC acknowledged that a significant proportion of Hanjin Shipping’s bank debts may become unrecoverable, and to this end, the company’s banks have been making provisions.

“Following Hanjin Shipping’s filing for receivership, we have been assessing the total possible amounts that the banks can absorb,” said FSC.

Aug 10

Space Concerns Arising in the Trans-Pacific Eastbound Route

LONG BEACH, California — U.S. importers, anxious because vessels in Asia are starting to fill up, are working to secure peak season space on the trans-Pacific, even though spot rates this week actually dipped slightly.

Beneficial cargo owners are concerned that a brief uptick in rolled cargo that affected non-vessel-operating common carriers in recent weeks could spread to their contracted shipments if vessels are overbooked later this month.

About a quarter of the 20 U.S. importers informally surveyed by JOC.com report an increase in rolled cargo over the last three to four weeks. Those who have been affected note the increase in contracted cargo delayed from loading in favor of more profitable spot freight has been minimal. Shippers expect further cuts to capacity as carriers, sore from a brutal trans-Pacific contract season, work to boost spot rates as shippers stock up for the holiday shopping season.

“We have experienced some intermittent rolling of cargo in the last three to four weeks, nothing too severe — one or two bookings per week, tops,” said an importer whose home decor freight headed to Long Beach was rolled in Ningbo and Qingdao. “We provide a rolling eight to nine-week window for a forecast, so that has helped us.”

Click to Enlarge

Other shippers, such as a major apparel importer, haven’t had any cargo delayed, a result of having strong service agreements. The importer said it gives carriers an eight-week, rolling, 40-foot-equivalent unit forecast and will reject bookings if cargo doesn’t ship when scheduled.

“I do expect there to be some tightening occurring as they accelerate their laying up of vessels and their redesign of the current strings in those trade lanes,” said another shipper who hasn’t seen any of their cargo headed to Canada and the U.S. rolled. “I’m waiting for the shoe to drop and there to be some space issues moving into late summer.”

The spot rate for shipping a 40-foot container from Shanghai to the West Coast this week fell 3.4 percent to $1,277 from $1,322 last week, according to the Shanghai Containerized Freight Index, as displayed on the JOC.comMarket Data Hub. The spot rate to the East Coast fell 3.8 percent to $1,884 per FEU from $1,958 last week.

It could be crunch time soon. “August and September. This is when the crush is supposed to be on,” Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association, said Friday. He is aware of a few cases of rolled cargo that occurred last month, but knows of no significant rolling the past week or so, he said.

Former shipping executive and president of Griffin Creek Consulting Ed Zaninelli said carriers are reporting vessel utilization percentages in the mid-90s, so the expected spike in cargo volume in the coming weeks will lead to full ships and possibly some rolling of cargo to subsequent voyages on the busiest trade lanes. These factors will push freight rates higher.

“The NVOs are starting to panic. Rates are up. Their customers are surprised,” Zaninelli said. Nevertheless, the expected peak-season rally will probably not be as robust as it was in past years. “No one is saying this will be a strong peak season,” he said.

Another indicator space is tight is that some importers are increasing the minimum quantity commitments they make to carriers for a specified time period in order to secure a favorable rates. One carrier reported the MQCs are being increased not so much for rate purposes, as to ensure sufficient space now that vessels in the eastbound trans-Pacific are filling up. The concerns over space availability are also a reaction to the mergers and acquisitions that are taking place this year, and the impact these are having on established shipper-carrier relationships. An executive from another major container line said the sought after MQC increases were more of a sign of a healthier late peak season than shippers moving away from certain carriers.

NVOs are not taking much solace from the drop in spot rates this week because the rates are much higher than they were during the spring, when the spot rates were about $1,500 per FEU to the East Coast and $800 to the West Coast. NVOs and their customers had gotten used to the ultra-low freight rates, and there is some pushback now that rates are at higher levels, Zaninelli said.

NVOs are concerned because when vessels fill up, the lowest-paying containers are the first to be bumped off of ships and “rolled” to subsequent voyages. Several importers reported to JOC.com there were some instances of cargo rolling two to three weeks ago, but the situation cleared up quickly when it became evident that proposed general rate increases did not materialize.

Some container lines in early July individually announced GRIs of $600 to $1,000 effective Aug. 1. The SCFI spot rates jumped double-digits in mid-month, and some shipments were rolled, but the increases were not sustained.

similar pattern of volatile price swings from week to week has taken place in the Asia-Europe trades. The SCFI spot rates to Northern Europe and the Mediterranean dropped by double digits this week after large increases the previous week.

Cargo volumes so far this year have not been bad. West Coast ports, which account for more than two-thirds of U.S. containerized imports from Asia, reported an increase of 3.1 percent year-to-date through June, according to the Pacific Maritime Association website. While nowhere near the 10 percent-plus increases that were common 10 years ago, the trans-Pacific is a mature trade now and industry analysts expect 3 percent to 5 percent annual increases in containerized trade to be the new normal.

However, carriers continue to struggle with overcapacity in the major east-west trade lanes, due to huge vessel orders the past five or six years that have resulted in deliveries far beyond what the trades can absorb. Carriers in the eastbound Pacific this summer have taken the unusual step of removing vessel strings as the peak season approached rather than adding peak-season only strings, but capacity has continued to outstrip demand. The Ocean Three Alliance last month announced the removal of two weekly services, and the G6 Alliance merged two weekly services into one.

A similar story is unfolding in the trans-Pacific trade to Canada where the Canadian International Freight Forwarders Association reports that after some sporadic incidents of cargo rolling in recent weeks, it looks like the peak season is indeed at hand. A CIFFA member forwarder echoed the views of some forwarders when he told Ruth Snowden, executive director, “Vessels are full now, and forecasts for the next four weeks are strong.”

Carrier behavior in the Canadian trans-Pacific trade is the same as through U.S. ports. Importers and NVOs that played the spot market and enjoyed especially low rates this spring and early summer are now being told they have to pay higher rates or their shipments will be left behind, but loyal customers that are paying market rates have had no problem so far getting their containers on vessels.

“Certainly the feeling is that loyalty, commitments, revenue do play a factor, and that where forwarders and carriers have established commitments and a strong relationship, service is not being seriously impacted,” Snowden said.

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Jul 10

Challenging Start to VGM in China

JOC.com

Half of all the verified gross mass declarations of containerized exports being received in China by giant forwarderKuehne + Nagel are missing the required data as shippers grapple with the new regulation that came into effect on July 1.

The VGMs being submitted either via the forwarder’s online portal or in VGM forms contain incomplete information 50 percent of the time, such as not having the weight properly declared or missing a shipper signature, said Otto Schacht, executive vice president, global sea freight for Kuehne + Nagel International.

“That means for each single container, a Kuehne + Nagel operator must call up the shipper or vendor in China to ask them for the missing information otherwise we cannot process the data,” he told JOC.com.

The new VGM rule is an amendment to the International Maritime Organisation’s Safety of Life at Sea convention that requires shippers to verify the weight of every export container across the world. However, the IMO in May urged the maritime agencies around the world to exercise leniency in enforcing the rule. A regularly updated Q&A can be found here.

In the build up to the implementation date, container lines were pounding home the “no VGM, no load” message as concern mounted that compliance in many jurisdictions would be a problem. As the source of much of the world’s exports, China was high on the concern list, and rightly so as it turned out.

On the first sailing weekend after the rule went live on Friday, July 1, 30 percent of all export containers entering the port of Shanghai were missing VGMs, said Markus Johannsen, senior vice president of sea freight for the North Asia Pacific Region for Kuehne + Nagel. “And that was not incomplete data, the VGMs were completely missing,” he said.

No delays were reported as the various parties in the container supply chain worked out the problems in Shanghai, but following up the missing data — and the software  that Kuehne + Nagel created to process VGM data — was given as an explanation for the forwarder’s VGM fee of $12.75 per container for submission via its online portal and $25 for manual data entry.

This charge for handling the container weights has become a bone of contention among shippers who have been vocal in their opposition to the various VGM fees being charged by forwarders. The Hong Kong Shippers Council called on forwarders to withdraw the VGM charges in the run up to July 1 and this week the Global Shippers’ Forum Secretary General Chris Welsh said some carriers and other service providers were exploiting the introduction of the new VGM rules.

“Shippers worldwide support the safety goals of the container weighing requirements and are committed to fulfilling their regulatory requirements, but this should not be used by supply chain partners as an excuse to impose unjustified fees,” Welsh said.

Schacht said Kuehne + Nagel fully supported the SOLAS regulation because it is all about safety, which has to get an even higher priority in container transportation.

“But safety is not for free. If you buy a bicycle helmet it will cost you money. The whole industry now has to have far more accurate weight data, and as a forwarder we want to provide efficient solutions and not handle all this data manually,” he said.

“For the sake of efficiency we reprogrammed our global operating software for the VGM and Inttra provided a connection solution. We had to create the portal and programmed an app so people can key in the weight and name and the electronic signature via a mobile phone from a container station. All this resulted in extra cost.”

Johannsen said Kuehne + Nagel did not simply pass on data received from the shipper to the carrier. “We have provided the market with a stable solution that is working. But this is only the start and we manage the many exceptions,” he said.

The need to chase shippers for the correct data was also highlighted by Joerg Hoppe, DB Schenker director and head of ocean freight for North and Central China. He said last week that providing the VGM certification added an additional cost and time element to the shipping process for all parties.

Hoppe said that although 100 percent trade compliance was something customers have come to expect, it did not always come free. “A VGM processing fee has almost no impact on overall merchandise costing if broken down to line item level,” he said.

“We believe shippers should be, and in fact are already, far more concerned about early VGM submission deadlines negatively impacting their current production lead times. This then comes back full circle to the already described ‘late’ VGM submission with the freight forwarder being relied upon by shippers to fix things.”

In China, although some ports provide weighing services, much of the container weighing is being done by independent companies that are charging 50 Chinese yuan ($7.50) per twenty-foot-equivalent unit and 100 yuan per forty-foot-equivalent unit for the service. However, JOC.com has learned that cargo agents are being relied onto get the boxes weighed and they are not happy with the arrangement.

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

Jun 22

Peak Season Surcharge Postponement Update 6-22-16

| Jun 21, 2016 2:21PM EDT  joc.com

In an exercise that is likely to be repeated in the weeks ahead by other container lines, CMA CGM notified its customers that a previously announced peak-season surcharge in the eastbound trans-Pacific that was scheduled to take effect on July 1 has been postponed until July 15.

The customer advisory listed the proposed peak-season surcharges as $360 per 20-foot-equivalent unit, $400 per 40-foot-equivalent unit, $450 per 40-foot high cube, $450 per 40-foot refrigerated container, $510 per 45-foot container and $640 per 53-foot container. The surcharge would apply to most origin points in Asia to all U.S. ports.

Hapag-Lloyd announced earlier this month that it was delaying implementation of its proposed peak-season surcharges from June 15 to July 1 on routes from East Asia to the U.S. and Canada. Hapag-Lloyd’s customer advisory listed the proposed surcharges as $320 per TEU and $400 per FEU.

Carriers must provide at least 30-days advance notice for rate increases. As the U.S. import trade from Asia begins to transition to the busy summer-fall peak season, carriers usually test the waters with an early-summer surcharge announcement. In recent years, with so much over-capacity in the trans-Pacific, the early peak-season surcharges have not stuck.

Carriers will then postpone the early surcharges and announce new dates 30-days out. Eventually, when supply-demand is more in balance, carriers begin to capture a percentage of the surcharge, but usually not the full increase. However, as the season progresses and vessels become over-booked, carriers are usually able to retain a higher percentage of the surcharge, especially from smaller importers and NVOs.

Trans-Pacific carriers are working to make rate increases stick by cutting capacity. China Cosco Shipping, the Ocean Three and the G6 Alliance have all cut services, resulting in a 1 percent drop in trans-Pacific capacity equal to 16,000 TEUs, according to Alphaliner.

In recent years, August has been the busiest month of the year for West Coast ports, with another cargo surge coming in October. September is usually busy for East Coast ports, although volumes there tend to be more consistent during the summer and fall months because of capacity constraints at the Panama Canal.

This summer will usher in a new capacity environment with the opening at the end of this week of the third set of locks at the canal. Vessel sizes initially will probably double from about 4,500 TEUs today to ships of 8,000 TEUs to 10,000 TEUs. However, it will take some weeks for carriers to test the new locks and phase in their rotations.

Total U.S. import growth in 2016 is still very much in question, with the Global Port Tracker predicting minimal growth of about 1 percent from 2015. However, IHS Senior Economist Mario Moreno projects 5.7 percent growth.
Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Mar 01

US Coast Guard: SOLAS container weight guidelines not mandatory

 

Source:  JOC.com

LONG BEACH, California — The SOLAS guidelines on container weight verification that will be implemented from July 1 are not mandatory, U.S. Coast Guard Rear Adm. Paul Thomas told a packed TPM Conference here Tuesday.

“They are not mandatory under SOLAS, they are not mandatory under any U.S. regulation. It says that right on top — these are non-mandatory guidelines,” he said in a panel discussion on the verified gross mass rule.

As far as the Coast Guard was concerned, complying with the VGM rule was a business procedure issue. “SOLAS places no legal obligation on the shipper. It places a legal obligation only on the vessel subject to SOLAS. So if you need to meet that obligation by working on a better business practice with your partners, that’s where you need to focus,” Thomas said.

This was not well received by Christopher Koch, senior advisor and former CEO of the World Shipping Council, who said there was a distinction between commercial practice and regulatory compliance.

“The decision of what is required is not a matter for business discussion, it is not a business practice issue,” he said. “The Coast Guard’s position is that SOLAS regulation does not apply to shippers and require them to provide a signed VGM, and terminals are not required to enforce what the SOLAS regulation says.”

Koch called the Admiral’s comments a “stunning revelation,” considering the IMO guidelines were submitted by a working group shared by the U.S. Coast Guard, and in a paper co-sponsored by the U.S.

“It would have been far better if the U.S. Coast Guard had said this was their view at the time we were all working on this,” he said.

On July 1, a new international rule under the Safety of Life at Sea convention will come into effect, requiring shippers to present a signed cargo weight verification to ocean carriers prior to the containers being loaded a vessel. The rule has created huge uncertainty around the world with the governments of 162 signatories to SOLAS struggling to draw up guidelines on how their respective jurisdictions will police the rule.

It has become an increasingly acrimonious issue in the U.S. with shipper groups such as the Agriculture Transportation Coalition saying they are already in compliance and don’t plan to change the way they operate.

Donna Lemm, vice president of global sales for Mallory Alexander International Logistics and chairman of the AgTC SOLAS working group, said the SOLAS rule did not make a whole lot of sense.

“If the amendment goes ahead as we see it, including tare and no variance, this means total disruption to our agricultural activity,” she said. “But we are going to continue to do what we have been doing. We are going to our carriers to ask how we can work together.

“What we are talking about is continuing to build upon best practices on what we have been doing. As a shipping community, we are saying we are providing gross and net weights today, accurately and to our best ability. What we can’t afford is another VGM field, another EDI (electronic data interchange) program, another database, for information we are already providing,” she said.

One of the concerns Lemm raised was that shippers will be held responsible for the weight of the actual container, something the shipper had no control over. She said the carrier needed to provide the tare weight, not the shipper.

But Marc Bourdon, president of CMA CGM (Americas), said the shipper was not required to certify the weight of the container. “They are required to certify their cargo and the packing around the cargo, but will not have any liability for the tare,” he said.

Bourdon said any variability in the weight of the box would be insignificant, and it would be okay if a container was within a ton of the weight provided. Variations found were usually way above that. “So I don’t think the tare should be a focus to the extent that I am hearing.”

What was clear from the panel discussion is that complying with the SOLAS rule will be achieved through dialogue between the main players in the supply chain and through creativity, rather than trying to stick to the letter of the law.

For instance, Peter Friedman, executive director of AgTC, said the exporter was responsible for the cargo and the carrier for the container, so the carrier could marry those weights themselves without having the exporter weigh the container and provide the VGM.

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