KERRYCONNECT - SEPTEMBER

Executive Summary

Significant shifts and challenges have marked the maritime shipping landscape in Oceania. Blank sailings, which peaked at 21% early in 2023, have since stabilized, indicating a more consistent shipping schedule for the region.

However, the upcoming China's Golden Week, starting October 1st, is expected to influence global supply chains, with potential disruptions in production and logistics due to factory shutdowns and limited freight services. Oceania's ocean freight updates highlight tight space with carriers' booking utilization reaching up to 100% for some destinations, emphasizing the need for businesses to place bookings well in advance.

Additionally, the introduction of the Green Shipping Corridor by ports in Los Angeles, Long Beach, and Shanghai aims to reduce emissions on major container shipping routes, reflecting a broader industry move towards sustainability.

Business Tip

Market Trend

Blank Sailings Updates

Shipping companies sometimes cancel or adjust their planned trips due to various factors such as changing seasonal demands, trade imbalances, port overcrowding, labor disagreements, harsh weather conditions, or unexpected events like the COVID-19 outbreak. During 2021-2022, even though carriers introduced additional trips to cater to the surging demand, supply chain disruptions led to ships being trapped in port lines. This resulted in many cancellations, even with the expanded capacity. However, these "blank sailings" played a pivotal role in preventing a sharp decline in spot rates, ensuring that freight rates remained above the carriers' break-even levels. Today, blank sailings are more systematic than the random cancellations of the previous year. They serve as a tool to balance market rates and apply upward price pressure on specific trade routes, driven by booming market demand and strategic decisions by carriers.

The shipping industry is witnessing a rapid capacity growth, primarily due to the launch of new mega-ships. This growth is surpassing the current demand, putting pressure on trade lanes that are already saturated. After reaching a low in August 2021, blank sailings saw a resurgence in 2022 as carriers fine-tuned their capacity in line with market dynamics. The blockage of the Suez Canal in March 2022 by the Ever Given container ship led to significant delays across the industry. At the same time, the Chinese New Year celebrations in February 2022 saw a dip in China's exports, prompting carriers to cancel trips for better capacity management. Moreover, ports on the U.S. West Coast grappled with issues like congestion, decreased efficiency, increased import volumes, labor conflicts, and equipment scarcity. This forced carriers to modify their sailings to sidestep further delays and additional expenses.

Blank sailings peaked at 21% early in 2023 but then dropped to 10% in weeks 8 to 12, indicating industry stabilization. Throughout the year, blank sailings have remained low, reaching 4% in weeks 25 to 29, signifying a more consistent schedule.

Future Trends

Zooming out to the global perspective, the worldwide order book for ship capacity is approaching 30% of the current active fleet, crossing the 7 million TEU mark. According to forecasts by Drewry, by the end of this year, there will be a delivery of 2.5 million TEUs, with an anticipated addition of 3 million TEUs in 2024. Experts in the field predict that supply will outpace demand for the upcoming 18 months.

Current projections indicate a 2% rise in global demand this year, whereas supply is expected to grow by 4%. By 2024, the industry predicts a 7% surge in capacity, contrasting with a 3% increase in demand. It's significant to highlight that about 65% of the new orders are for ships with a capacity of over 15,000 TEUs, mainly targeting the Asia-Europe routes. The industry is currently seeing the arrival of these colossal vessels, including OOCL's ships with a 24,188 TEU capacity and Ocean Network Express's vessels boasting 24,136 TEUs. Additionally, the 2M Alliance, a collaboration between Maersk and Mediterranean Shipping Co., introduced two of these giant ships to their fleet in early June.

To handle the excess capacity of container ships, carriers are expected to adopt a mix of strategies. These include slow steaming, retiring older ships, and implementing blank sailings. Slow steaming means reducing ship speeds to save on fuel, aligning capacity more closely with demand. By scrapping older, less efficient ships, carriers can permanently cut down on surplus capacity.

However, blank sailings present considerable hurdles for businesses dependent on sea freight. They can disrupt product shipments, leading to potential stock outages, production hold-ups, and unhappy customers. This unpredictability makes stock management tricky, and the ambiguity around missed ports and scrapped schedules hikes up the costs for shipping firms, underscoring the wide-ranging effects on supply chain operations. Such unpredictability pushes businesses to either order products earlier or keep larger stockpiles, as the just-in-time supply model becomes less reliable. These changes can drive up operational expenses, potentially fueling inflation in the wider economy.

Moreover, the ripple effects of blank sailings touch the return trade as well. When headhaul sailings are blanked, the ships and containers that usually come back loaded with goods are absent. This unexpected trade disruption, which wasn't the primary concern when deciding on blank sailings, adds another layer of challenges for shippers, making it even harder to maintain a streamlined supply chain.

Opting for shipper-owned SOC containers during blank sailings can offer advantages over carrier-owned COC containers. SOCs provide better control over container schedules, cutting down on the extra charges that often pile up during port delays. They also allow for more flexibility in rerouting and prioritizing shipments, streamlining logistics, reducing rerouting expenses, and cutting down on overall container leasing costs, leading to faster container turnaround.

For container providers, blank sailings can throw off container turnaround times, resulting in imbalances like container shortages in some places and overstocks in others. To navigate these issues, firms might need to keep a bigger fleet to offset these unpredictable disruptions, leading to higher operational costs and more expenses related to repositioning containers for balanced stock levels. Moreover, decreased fleet usage can result in lower revenue, putting financial pressure on shipping companies. It's crucial, therefore, to adeptly manage and adjust to the effects of blank sailings in the container shipping sector. The implications of blank sailings are vast and deeply felt across the maritime shipping landscape.

The Composite Index: weighted average of all routes

The composite index is the weighted average of all routes: the average spot freight rate of the specific route is divided by average price of its base period. The result multiplies its weighting and its base period index to obtain a value of each route.

The composite index has decreased by 5.2% last week and 67% YOY. The average composite index for the ytd is sitting at $1756/F which is $923/F lower than 10 year average.

China Golden Week Reminder

A reminder on the upcoming China's Golden Week, starting on Oct 1^st through Oct 7^th. This holiday can influence global supply chains, affecting businesses worldwide.

Impact on Global Supply Chain during Golden Week

• Factory Shutdowns: Many factories in China cease operations during Golden Week, causing potential production halts.
• Logistics Interruptions: Both sea and air freight services face disruptions due to limited availability. This can result in blank sailings and consequent shipping delays.
• Communication Lags: With many professionals on holiday, communication with Chinese partners or suppliers might be slower than usual.

Strategies for Businesses

• Anticipate Delays: Given the disruptions, it's wise to foresee potential delays and modify your production and order schedules accordingly.
• Maintain Adequate Inventory: Ensure you have enough stock to cover both the holiday period and any post-holiday backlog.
• Engage Early: If you have urgent orders or concerns, it's best to communicate them well in advance to find collaborative solutions.

Ocean Freight Updates

• Space is tight and carriers booking utilization sits at 95% to AU, NZ at 100%, suggest placing booking at least 3 weeks in advance.
• Equipment availability has been an issue for 40’ containers in Australia. Book in advance.
• COSCO T/S via Singapore still has an issue with congestion, waiting time likely 2-3 weeks and booking will be affected depending on service loop.
• Q4 is the traditional peak so beware of upcoming space issues.
• Green Shipping Corridor: Ports in Los Angeles, Long Beach, and Shanghai are planning a Green Shipping Corridor to reduce emissions on busy container shipping routes. This initiative will have a significant impact on reducing emissions in the maritime industry and promoting greener practices in supply chains.
• CMA CGM Pelleas: This 120,853-dwt container ship has become Australia's largest containership, indicating a trend of larger vessels on traditionally second-tier routes.
• MSC's Second-hand Ship Acquisitions: MSC continues its acquisition of second-hand ships, solidifying its lead in capacity over Maersk.
• MSC Group's Hydrogen-powered Ships: MSC Group ordered two additional hydrogen-powered ships for its luxury brand, Explora Journeys, aiming to achieve zero carbon emissions by 2050.

Weight Mis-Declaration fee introduced for Melbourne

From Oct 1st, there is a weight mis-declaration fee applicable to any import containers with a weight variance greater that one metric tonne compared to the declared weight. This is related to VGM.

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

Air Freight Updates

• Capacity Growth: Capacity to Oceania is growing. However, there are some capacity constraints due to the Northern summer season travelers and additional fuel loads required, especially from North America on direct flights. As we approach the fourth quarter, a softening of these restrictions and further additional capacity are expected.
• Fewer Restrictions: There are fewer restrictions for flights both to and from Oceania when originating from Europe and Asia. This ensures ample support for cargo demand in the region.
• Export Market: The export market to most destinations from Oceania is softer overall. With capacity exceeding demand, spot rates for air freight are lower for September but are picking up due to elevated jet fuel prices and the upcoming peak season.
• Ecommerce and Technology Drives Demand: As the end of the third quarter approaches, there's a buildup to a modest peak season in the fourth quarter. This is mainly driven by ecommerce demand for the holiday season and new technology product launches, especially out of Asia.
• Rate Fluctuations: Rates are picking up due to elevated jet fuel prices, flight cancellations, and increased demand for specific trade lanes impacted by seasonal demand.
• Labor Strikes in Europe: Repeated labor strikes in Europe, especially in France, due to President Macron’s plan to raise the pension age have caused delays, fewer flights, and increased air space congestion. With France hosting the Rugby World Cup from September 8 through October 28, logistical delays are anticipated.

Soekarno-Hatta Airport became the busiest airport in Southeast Asia

By September 2023, Jakarta's Soekarno-Hatta Airport is set to become the busiest airport in Southeast Asia, closely competing with Singapore's Changi Airport, according to data from the Official Airline Guide (OAG). The report showed that during September, Soekarno-Hatta Airport served 3.13 million passengers, a 2% decrease from the previous month, while Changi Airport in Singapore served 3.12 million passengers. Kuala Lumpur Airport in Malaysia ranked third. Several airports from Indonesia, including Bali's I Gusti Ngurah Rai Airport and Makassar's Sultan Hasanuddin Airport, also made the list.

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

Customs and Biosecurity Update

Given the interconnected nature of global trade, changes in one region can have cascading effects on others. Oceania businesses engaged in international trade should stay updated on these changes to ensure compliance and to strategize effectively.

Update on Offshore BMSB Treatment Providers Scheme

The Australian Department of Agriculture Fisheries and Forestry advised on 14 September that two treatment providers, Fumigation Pest Management (AEI: SG4016SB) and National Fumigation (Charleston) (AEI: US4024SB), associated with the Brown Marmorated Stink Bug (BMSB) treatment during its risk season, are currently under review due to signs of non-compliance. Both companies are now listed as ‘under review’ in the Offshore BMSB Treatment Providers Scheme. Consequently, they are restricted from treating consignments headed for Australia and New Zealand. Any consignments they've treated, including those in transit, may undergo actions deemed necessary by the department to manage biosecurity risks. See the full notice here.

UK: Further Postponement of Labeling Obligations

The UK government announced further postponements for a mandatory UKCA label, allowing the European CE marking to continue being valid in 2023 and can still be used until December 31, 2024. Oceania exporters to the UK might benefit from this extension, giving them more time to adjust to the new labeling requirements.

CBAM: EU Adopts Compensation Mechanism for Carbon Dioxide

Starting from October 2023, the EU will introduce levies for the import of certain goods that cause high carbon emissions during production. Oceania exporters dealing with such goods might face additional costs when trading with the EU.

Supply Chain Innovation

• Solar-powered Vehicle EVIG: Clean Motion unveiled its solar-powered delivery vehicle, EVIG, in Milan, Italy, catering to last-mile delivery in sustainable, zero-emission zones.
• Amazon's Multi-Channel Fulfilment in India: Amazon.in introduced Multi-Channel Fulfilment in India, enabling sellers to expand their reach, simplify order processing, and enhance customer experiences.
• Danelec, a maritime technology company, has launched Danelec Connect, a digital platform designed to enhance Ship Performance Monitoring, operational efficiency, safety, and sustainability. The cloud-based platform extracts value from high-quality data regardless of source or format, facilitating storage, analysis, sharing, and insights.