KERRYCONNECT - NOVEMBER 2023

Executive Summary

Robust start to the Black Friday sales in Australia, suggesting a record spend despite economic challenges.

The global economy, while resilient, faces challenges such as rising protectionism, geopolitical risks, and supply-demand imbalances. With the IMF projecting a slight dip in global growth, the container market is underperforming, raising concerns about carrier responses to low growth periods.

Regarding environmental efforts, the International Maritime Organization (IMO) is targeting net-zero GHG emissions by 2050 but currently depends heavily on conventional marine fuel. Geopolitical tensions are reshaping global trade, leading to a rise in 'home bias' in sourcing and potential increases in protectionism. Economic recovery varies globally, affecting world trade growth.

Focusing on the Oceania region, a contraction in container services and port volumes is projected for 2023. Updates include capacity issues in ocean and air freight and new offerings from air carriers like Qatar Cargo. Locally, we are affected by the impacts of non-negotiable fees by DP World on the supply chain and inflation, alongside risks like port labor issues and global economic fluctuations post-COVID-19.

The Biden administration’s logistics plan and NZ-EU trade agreement are important developments.

Business Tip

As the year comes to a close, it is an excellent time to regroup and measure the current state of the supply chain for your business: disruptors, freight prices and new measures being deployed. With the end of peak season and the proximity of year-end holidays, focus on your data and see ways to minimize impacts for Q1 2024.

Market Trend

Retailers reported a robust beginning to Black Friday, with Australians expected to have set a spending record as they sought deals amidst the cost-of-living crisis. In collaboration with Roy Morgan, historical data from the Australian Retailers Association (ARA) indicated that consumers were projected to spend $6.36 billion from Black Friday to Cyber Monday, marking a 3% increase from the previous year. The National Retail Association had also forecasted that spending would reach $6.28 billion over these four days, accounting for roughly 10% of the total estimated festive season expenditure. Notably, over 40% of retailers that year started their Black Friday sales one to two weeks in advance.

DP World has declared significant, non-negotiable fees that will affect domestic transport providers, exporters, and importers. These expenses trickle down the supply chain, contributing to inflation and hampering the global competitiveness of our domestic manufacturers and regional suppliers. Concurrently, while engaging with Federal and State Ministers, the Freight & Trade Alliance (FTA) and the Australian Peak Shippers Association (APSA) have initiated a media campaign. This campaign highlights the dual impact of the Protected Industrial Action and the impending financial burden of a substantial increase, up to 52%, in fees for accessing DP World's terminals.

Covid-19 health crisis is over officially, and supply-chain disruptions have returned to pre-pandemic levels

Depressed container volumes have assisted with smoother operations, but disruptive risks have not gone away. Port labor issues are clearing up, as are congestion hot spots worldwide. This is great news for supply chain efficiency, but the threat of disruption remains high.

The global economy has fared somewhat better than anticipated in the first half of the year, despite a tepid economy in Europe and China’s economic rebound fizzling out. According to the International Monetary Fund (IMF) July 2023 update, global growth is projected to fall only marginally from 3.5% in 2022 to an estimated 3% in 2023 and 2024.

Global trade and investment are slowing, while unilateralism, protectionism and geopolitical risks are rising. The supply and demand balance is expected to be the worst next year. Average freight rates are expected to slide an estimated 33% next year.

For advanced economies, the growth slowdown expected for 2023 remains significant: from 2.7% in 2022 to 1.5% in 2023. For emerging markets and developing economies, growth is projected to be broadly stable at 4% in 2023. However, this stable average masks divergences – for example, while growth in emerging and developing Asia is on track to rise to 5.3% in 2023, Latin America and the Caribbean is expected to decline from 3.9% in 2022 to 1.9% in 2023.

Time is running out for the container market to achieve parity with last year’s world port throughput total, and following some disappointing monthly performances of late, 2023 will eventually fall short of last year. There is speculation that the growth pattern will not repeat, and the question now is: how will carriers respond to a prolonged period of low to no growth? The medium-term growth outlook is expected to be muted, but, likely, the worst is over, and the market will trend upwards. What we see is a “pessimistic” outlook for the liner industry, predicting a 60% reduction this year in global freight rates – spot and contract combined – followed by a drop of 33% in 2024 is estimated.

ESG – a goal set

IMO (International Maritime Organization) sets an ambitious new net zero GHG emissions target close to 2050. In addition, the IMO wants to see an uptake of zero or near-zero GHG emission technologies, fuels and/or energy sources to represent at least 5%, striving for 10%, of the energy used by international shipping by 2030. Nearly 97% of the active containership fleet is still using conventional marine fuel, with regard to achieving the interim targets, and no one can deny that the size of the task at hand is immense.

Some caution on the part of owners is natural as they are being asked to invest billions in unproven new technologies with no guarantees that the new fuels will be available or economical.

Permafrost in geopolitical relations

Countries and firms find themselves mired in a geopolitical environment that exerts binary pressures. This marks a significant change from the last three decades of globalization, when investors allocated capital based on business considerations, and firms established footprints worldwide and linked up in global supply chains.

There has already been a marked degree of “home bias” in the sourcing of inputs, even after allowing for some amount of “friend-shoring” - which inadvertently may pave the way to protectionism.

Economic recovery is happening at different speeds around the world. World trade growth (all commodities) is expected to decline significantly from 5.2% in 2022 to 2% in 2023 before rising to 3.7% in 2024, well below the 2000–19 average of 4.9%. The decline in 2023 reflects not only the path of global demand but also shifts in its composition toward domestic services, rising trade barriers, and the lag effects of US dollar appreciation (which slows trade owing to the widespread invoicing of products in US dollars).

Developments in Oceania

• 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. The Oceania region is projected to contract by 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 the 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 more than expected in the second quarter, 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 volume in 2020, which has not been recovered.
• Altogether, thirty-one weekly deep-sea loops are 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.

Ocean Freight Updates

• Space remains tight, and carriers booking utilization at 95% to AU, 90-95% to NZ, irregular blank sailings continue to occur in the Q4 traditional peak, suggest placing booking at least 3 weeks in advance.
• For space issues, please always liaise with your preferred forwarder for space protection.
• COSCO congestion on Transshipment via Singapore has eased, average waiting time has been reduced to 1-2 weeks.
• The market remains unstable, keep close contact with your preferred forwarder to negotiate rates and space protection.

Ocean carriers are belatedly tackling overcapacity, but they have dug themselves a very deep hole to climb out of. Lines have been dealing with these conditions for a long time, and only now are we starting to see more concerted efforts to bring the market back into balance. Industry media is increasingly carrying news of service suspensions and blank voyage programs.

Some of the incredibly low deals that carriers are offering, as well as losing discipline on capacity the same is true for pricing. Unfortunately, we believe they have left it too late on the capacity front. What is required to bring the market back to equilibrium is simply too big a challenge to pull off. We have to consider new data on port throughput and fleet developments, but while it has been updated, the message is the same, carriers will be in challenging times for some years.

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

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

Air Freight Updates

Global air cargo demand in the fourth quarter (Q4) period so far has been stronger than tonnages in the equivalent period last year, and average rates have continued their gradual post-summer rise, according to the latest weekly figures from WorldACD Market Data.

Nevertheless, more than halfway through the market’s traditionally buoyant final quarter, there are few signs of a strong peak season, with demand patterns so far broadly mirroring last year’s disappointing Q4 and only moderately ahead in overall tonnage terms. In essence, the improvement compared with last year is more a reflection of the unusually soft demand levels in Q4 last year, while this year it has held up slightly better.

One big difference compared with last year is a recovery of tonnages ex-Asia Pacific, compared with last winter’s soft ex-Asia volumes, while tonnages ex-North America and ex-Europe remain down, year on year (YoY). Weekly analysis indicates that overall worldwide tonnages have remained broadly flat since the middle of October, with preliminary figures for week 46 (13 to 19 November) showing stable tonnages compared with the previous week and a +3% increase in global average rates, based on the more than 400,000 weekly transactions covered by WorldACD’s data. And comparing weeks 45 and 46, combined, this year with the preceding two weeks (2Wo2W), overall tonnages also remained flat, while rates increased by +3% and capacity was stable.

Qatar Cargo revs up with new automotive product

Qatar Cargo has launched a new product catering for the transport vehicles. The carrier’s new Drive product will cater for various types of vehicles including regular cars, vintage cars, premium or luxury models, new cars and sports cars. The service will be available on both the airline’s passenger and all-cargo flights to more than 160 belly hold and 70 freighter destinations. The Drive product also offers full or part-charters. The airline has been transporting cars for several years. In 2022, Qatar Airways Cargo transported over 1,400 vehicles.

China Airlines looks to offload more 747 freighters

China Airlines is looking to offload five of its ageing Boeing 747 freighters next year. The Taiwan-based carrier has mandated AMS Aircraft Services (‘AMS’) to sell, via a Request For Proposal (‘RFP’) process, the five 747-400 freighters. The aircraft, all CF6-powered, were manufactured between 2001 and 2003 and are available for delivery from April through October 2024. By the year's end, the airline aims to have offloaded another 747 freighter to bring the total number down to 13. So far, the carrier has taken delivery of seven of the 777Fs while its fleet of 747 freighters is down from its previous high of 18. In the first half of the year, China Airlines saw its cargo revenues decline by 54.5% to TWD29.3bn as the market re-adjusted following the COVID-19 pandemic.

Israel's cargo capacity is down despite recent freighter additions

Cargo carriers have been quick to add freighter operations to Israel since the outbreak of war, but these flights have not been enough to offset the withdrawal of belly capacity. Rotate’s Live Capacity data shows that overall cargo space – both freighter and bellyhold – is down 29% in the three weeks running to November 19 compared with the three weeks running to Oct 01.

The drop off comes as widebody belly capacity, which pre-conflict made up the majority of capacity, has fallen 67%. Meanwhile, freighter capacity during the two three week periods has increased by 17%.

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

Customs, Inland Transport and Biosecurity Updates

DP World Industrial Action

The situation at DP World terminals remains challenging, as they face ongoing labor disputes leading to additional port closures. There seems to be no imminent solution to these issues. Moreover, there's a growing call for direct intervention by the government.

Additionally, the aftermath of recent cyber-attacks is still being felt, particularly at the Port of Sydney. Recent events also include a blockade at Port Botany by pro-Palestinian demonstrators, specifically targeting the Israeli-owned ZIM lines, which also operate in New Zealand. These incidents have resulted in a ripple effect, causing vessel rerouting and significant disruptions in both import and export activities at these ports, with no immediate resolution in sight.

Therefore, for cargo originating or transiting through these East Coast ports of Australia, delays are likely to continue.

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.

New Zealand CentreRail - Christmas 2023 - New Year 2024

KiwiRail has announced that full track and tunnel maintenance will occur over the Christmas Period from Monday, 25 December 2023, through to Sunday, 07 January 2024. This maintenance will mean no trains will run in or out of Wellington during this period.

You can check the Christmas 2003 – New Year 2024 CentreRail Schedule here.

Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) is an EU measure to put a fair price on the carbon emitted during the production of carbon-intensive goods entering the EU and encourage cleaner industrial production in non-EU countries. It is a WTO-compatible measure meant to encourage global industry to embrace greener and more sustainable technologies. In its transitional phase, CBAM will only apply to imports of cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.

 If your company trades with the EU, we suggest taking a look at the guidance document issued by the DFAT from the European Comission (EC) on CBAM implementation. You can have a look here. 

Supply Chain Innovation

• The global market for AI in the supply chain is projected to reach $3.39 billion in 2023, with a 47.9% CAGR, driven by rising internet user penetration, and it could grow to $15.07 billion by 2027, with the Asia-Pacific region experiencing the fastest growth.
• The global sortation system market is expected to grow at a CAGR of 5.1% from 2022 to 2026, reaching a valuation of $2 billion by 2026, driven by the growing e-commerce industry, increased labour costs, rising industrial automation, and advancements in sorting technologies.
• The First 2023 Green Logistics and Supply Chain Development Conference in Hangzhou aims to foster green logistics and advance supply chain collaboration aligned with state directives on green and low-carbon logistics.
• An article navigated the practical impact of generative AI on supply chains, emphasising its role in processing vast datasets, optimising routes, and enhancing efficiency, envisioning a productivity revolution and advocating for global cooperation to establish governance frameworks for responsible AI integration in the logistics industry.
• Forbes Technology Council members highlighted how businesses increasingly use AI to enhance sustainability efforts across various sectors, focusing on its role in ESG reporting, including supply chain optimisation, regulatory tracking, data analysis and equipment life cycle predictions.