KERRYCONNECT - DECEMBER 2023

Executive Summary

December 2023 marks the 10^th year anniversary of Kerry Logistics Network on the Main Board of the Hong Kong Stock Exchange. As the Only Asian-born Global 3PL/Freight Forwarder in the Top 10 Global Freight forwarders, it is a privilege to help your business succeed by committing to being your reliable partner.

We want to take this opportunity to wish you happy holidays, and a 2024 filled with success, health and plenty of opportunities.

The Australian Retailers Association (ARA) anticipates a significant increase in post-Christmas spending, with department stores expecting the highest growth. However, spending in cafes, bars, and restaurants is predicted to decline. The Australian Department of Foreign Affairs and Trade (DFAT) is working on a Comprehensive Economic Partnership Agreement (CEPA) with the UAE, while India and New Zealand are seeking ways to enhance bilateral trade. The global economic recovery is showing a unique trend, with services outperforming goods, leading to a decrease in container market volumes despite overall economic expansion. This unusual situation is expected to continue into 2024, with a recovery forecasted for the second half of the year. Fuel costs are anticipated to rise significantly due to market forces and new environmental legislation.

For Oceania, the report highlights expectations of rate pressures and capacity reductions in early 2024. Port congestion and industrial action, particularly at DP World terminals, are causing significant delays and impacting service schedules. The region has seen significant growth in container services, but principal ports in Australia and New Zealand experienced contractions in early 2023. Overall, 2024 is projected to be a challenging year for Oceania, with a predicted decline in port throughput. Despite this, Australia's economy has shown resilience, driven by exports and public investment.

Business Tip

Market Trend

Australian Retailers Association (ARA) showed post-Christmas spending up to January 15 was expected to rise by about $400m compared with last year. Department stores are predicted to experience the greatest growth – up 4.8 per cent. Other segments of the retail industry expected to record sales growth include clothing, up 3.4 per cent, and food retailing, up 2.8 per cent. But as consumers tighten their belts, spending at cafes, bars and restaurants is set to plunge by 3.3 per cent, down $116m.

The Australian Department of Foreign Affairs and Trade (DFAT) has commenced negotiations for a Comprehensive Economic Partnership Agreement (CEPA) – a bilateral free trade agreement with the United Arab Emirates (UAE). You can read the media release here.

India and New Zealand will focus on ways to increase bilateral trade and look for greater areas to cooperate in the new year. Todd McClay, Minister for Trade, New Zealand, who is on an official visit to India, met his Indian counterpart Piyush Goyal and discussed ways to reduce trade barriers, streamline trade processes and promote a more conducive environment for businesses and investors from both nations, according to an official statement from the Commerce & Industry Ministry.

What to expect for 2024?

It is becoming increasingly clear that the fragile global economic recovery is benefiting services disproportionally more than goods. This has left the container market in the very strange position whereby global laden volumes are decreasing at the same time that world economic activity is expanding. The disconnect between economic and container growth had never happened at an annual level before it did last year, and this odd situation is very likely to be repeated again. An optimistic 2025 vs 2024 is witnessed, where recovery is estimated to start H2 2024.

Experts have revised the outlook for 2024 mainly on account of updated (higher) bunker price forecasts, more accurate estimates for the impact of EU carbon taxes from 2024, and a slight improvement in the East-West supply-demand index.

Fuel costs are expected to be much higher than in previous years, due to market forces and new environmental legislation with shippers expected to pay BAF of about a 55% hike compared to eight years before.

However, The Far East-Oceania southbound trade also recorded positive YoY growth of 3.6% in August, and is expected to return to growth in Q3 and Q4 after eight straight quarters of contractions.

Regarding the DP World Industrial action, The Department of Transport and Planning (DTP) has determined that the prolonged container supply chain disruptions at the Port of Melbourne justifies the notification of a Disruption Event under the Voluntary Code of Practice. A disruption event is generally defined as an unexpected event or supply chain blockage that leads to the prolonged inability of goods to flow efficiently.

Developments in Oceania

• Rates are expected to face pressure in Q1 2024. Expect abnormal blank sailing programs to reduce capacity.
• Port congestions for SEA transshipments and terminal delays from the ongoing DPW Industrial action are causing the utilization to come in short supply.
• Container services to Australia/New Zealand grew significantly over the last three years.
• Principal ports of Australia and New Zealand contracted in the first of 2023. Oceania region projected to contract 4% in 2023.
• Oceania collective port volumes suffered a deeper than anticipated decline, diving 6.5% YoY in 2Q23, compounding a 6.3% YoY drop in 1Q23. Throughput in the first six months of the year remains well below last year in the three primary Australian ports, Melbourne, Sydney, and Brisbane.
• Most of overall volume contraction can be attributed to the steep fall in imports from Asia as exports from Australia continue to grow.
• Experts forecast the closing of 2023 to be an underwhelming year for Oceania with port throughput expected to decline by 2.4%
• Australia’s economy expanded by more than expected in the second half of the year, driven by exports and public investment, while household consumption remained weak as decade-high interest rates cooled demand. Port volumes across Australia were static at the start of the pandemic in 2020, but since then have grown by 10% over two years. On the other hand, New Zealand lost 5% of its volumes in 2020, which have not been recovered.
• Altogether, there are thirty-one weekly deep-sea loops serving Australia/New Zealand. Most serve Northeast Asia (14 loops) and Southeast Asia (13 loops). There are two loops to Europe and two to North America, but an increasing proportion of trade with these two regions is transshipped via Asian hub ports. Most loops, 20 in total, call only in Australia, where around 75% of the regional volumes are generated, while four loops call only at New Zealand ports.

Forecast Oceania

Ocean Freight Updates

• The red sea and Suez Canal disruptions are a critical situation involving worldwide shipping. Stay informed on how to mitigate effects. Check our piece on this news here.
• Space remains tight with irregular blank sailing from carriers in Q4 traditional peak, also DPW terminals are still under industrial action across Australia, impacting service and schedules.
• We are experiencing an average 10 day berthing delay for DPW terminals across the country and situation is expected to continue for some months in coming 2024.
• For space issues please always liaise with your preferred forwarder for space protection.
• COSCO congestion on Transshipment via Singapore is tight, expect 2-3 weeks transit time via SGSIN (subject to change)
• The market remains unstable, keep close contact with your preferred forwarder to negotiate rates and space protection.
• Average global rates, excluding fuel surcharges, are forecast to be about 16% lower than in 2016 However, once fuel surcharges are applied, “all-in” rates are expected to be 9% higher than in 2016.
• Carriers are pushing for online bookings, but the jury is still out on whether it will be more sustainable.

Update on the Red Sea disruption

Diverting vessels around the Cape of Good Hope to mitigate the ongoing risks of sailing through the region is a necessary step in the interest of safety, but it has ultimately brought about increased costs for carriers which need to be recovered. Carriers have been updating their surcharge tables, being innovative enough to deploy charges such as Transit Disruption Surcharge (TDS), Peak Season Surcharge (PSS) and Emergency Contingency Surcharge (ECS) for all cargo on vessels affected by the disruptions around the Red Sea / Gulf of Aden.

For Oceania, the IFCBAA has issues a strategic briefing on the situation.

Shipping Schedules for carriers are expected to be disruptive between 2-6 weeks, depending on destination. Carriers are clear to mention they reserve all of their rights under the Service Contract to restrict, reject or cancel bookings from customers who do not accept the inclusion of surcharges.

There appears to be an increasing discrepancy between some of the carriers’ hardline stance of not using the strait and the actual movement of their vessels. The main segment of shipping lines who have stated that they will not go through the area is the large global container lines, as well as oil company BP.

The reality on the ground shows that some carriers are clearly re-evaluating the risk and necessity of going around Africa, at least for a few select vessels. The re-evaluation of risk might be because there haven’t been any attacks reported in the Bab Al-Mandeb since Dec 20th.

We have available resources for you related to this subject:

• Critical Briefing: Red Sea & Suez Canal Disruptions on Global Shipping - Updated
• Ocean Freight Surcharges for 2024: What to Expect

The Decoupling of 2M

• The discontinuation of the 2M partnership in 2025 will bring about deep structural changes in the liner market, a sector so far dominated by three major alliances of roughly comparable market share.
• Going forward, the 2M members MSC and Maersk will once again become independent carriers, while two mega -alliances are set to remain. These however, will no longer be of equal size. Most 2M loops are now operated by one carrier, rather than with a mixed vessel fleet.
• The Ocean Alliance, already the world’s largest carrier grouping in terms of deployed capacity, is forecast to witness a massive growth in the coming years.

Ocean Freight Snapshot (up to Dec 30th, 2023)

Check our snapshot for a quick glance on space, rate, equipment and transit times for Oceania

Air Freight Updates

Global average air cargo rates now stand +50% above their pre-Covid levels this time four years ago following the significant rebound in the last few months in demand and pricing, especially ex-China, according to the latest figures from WorldACD Market Data. Preliminary figures for week 50 (11 to 17 December) indicate that global tonnages and average worldwide rates have been stable compared with the previous week, after recovering more quickly than last year from the seasonal post-Thanksgiving dip last month,

The figures indicate that demand and pricing are levelling off, as they usually do in the second half of December, after rallying in the last three months. Although the main driver for the recent increases has been a surge in tonnages and rates ex-Asia Pacific, especially China, volumes ex-Asia Pacific have now flattened, although there have still been some modest rises in average rates ex-Asia Pacific, especially to North America (+4%).

Sea-air gearing up for rush in demand following Suez disruption

Sea-air providers are gearing up for a sudden rush in demand from shippers concerned at delays caused by vessels avoiding the Suez Canal, with fashion brands most likely to take up the offer. While the airfreight and air charter market has not yet seen any pick-up in demand from the situation, sea-air routes via Dubai are expected to see an increase. The attacks on vessels in the entrance to the Red Sea led shipping lines to ‘pause’ their journeys. However, according to tracking websites, many began to move to go around southern Africa instead – at an increased fuel and transit cost of some $2m per vessel, according to analyst Lars Jensen, indicating the lines do not think the situation will resolve any time soon, despite naval convoys in the region.

Cathay Pacific Cargo reports increase in airfreight volumes

Cathay Pacific has released its traffic figures for November 2023, which saw a good growth in air cargo carried largely driven by seasonal sales events and year-end demand. The airline carried 123,970 tonnes of cargo in November 2023, an increase of 20.3% compared with November 2022. The month’s cargo revenue tonne kilometres (RFTKs) increased 14.2% year on year. The cargo load factor decreased by 5.8 percentage points to 61.1%, while available cargo tonne kilometres (AFTKs) increased by 25.1% year on year. In the first 11 months of 2023, the tonnage increased by 19.5% against a 64.2% increase in AFTKs and a 43.6% increase in RFTKs, as compared with the same period for 2022. Chief Customer and Commercial Officer Lavinia Lau said: “Air cargo demand got stronger in November as we reached the middle of the peak season. Tonnage grew around 20% compared with the same month in 2022, largely driven by seasonal sales events such as ‘Singles’ Day’ and ‘Black Friday’, the Thanksgiving holidays, as well as year- end demand as we approach the Christmas holiday period. Aside from e-commerce, demand was also robust in traditional air cargo commodities such as high-end electronics, automotives and perishables”.

Air Freight Snapshot (up to Dec 30th, 2023)

Customs, Inland Transport, Terminal and Regulation Updates

Brown Marmorated Stink Bug (BMSB) Update

The Department of Agriculture, Fisheries and Forestry (DAFF) has released an update on the BMSB for goods treated after December 1st, 2023. You can read the full update here.

CEPA with UAE

The Australian Department of Foreign Affairs and Trade (DFAT) has commenced negotiations for a Comprehensive Economic Partnership Agreement (CEPA) – a bilateral free trade agreement with the United Arab Emirates (UAE). You can read the media release here.

DP World Industrial Action

The Department of Transport and Planning (DTP) has determined that the prolonged container supply chain disruptions at the Port of Melbourne justifies the notification of a Disruption Event under the Voluntary Code of Practice. A disruption event is generally defined as an unexpected event or supply chain blockage that leads to the prolonged inability of goods to flow efficiently.

Would you like to understand more about the situation? Check our snapshot here.

If you would like to receive updates on the situation, we invite you to subscribe to our customer advisories, where we let you know of events that can affect your supply chain as they happen:

For our list of past advisories and keeping an eye on what’s happening, you can follow our advisories on our website in here.

ACCC Container Stevedoring Monitoring Report 2022-2023

The Australian Competition & Consumer Commission (ACCC) has released its container Stevedore Monitoring Report 2022-23. The report reveals that the operating profit margin of Australia’s container stevedoring industry increased to 24.9% during the period. It provides commentary on cargo owners being exposed to a lack of predictability in landside charges for both container terminals and empty container park services.

You can read the full report here.

Supply Chain Innovation

• The global forklift truck market, valued at US$6.2 billion in 2021, has grown to US$8.1 billion by 2031, driven by urban material handling needs, a shift towards sustainable electric or hybrid models, and increased demand for automated forklifts with advanced safety features.
• The drone logistics and transportation market, valued at US$0.9 billion in 2023, is projected to reach US$16.1 billion by 2030, with a 50.1% CAGR, driven by innovations in the freight drone segment, transforming logistics and addressing congestion and environmental concerns.
• nuVizz received the ‘Top Software and Tech Providers’ award for its nuVizz RoboDispatch™ Solution, an innovative AI and ML-powered technology streamlining Logistics Service Providers' operations through automated, optimised asset allocation.
• Tai Software was recognised as a ‘Top Software and Tech Provider’ for updates to its Tai Document Processor and Tai Email Automation technologies, leveraging artificial intelligence to enhance data extraction and matching for a more efficient workflow in their freight broker platform.