How to win the trade game: NY/NJ port directors explain their success

Container ship in New York City.The Port of New York and New Jersey’s outgoing and incoming directors discuss container migration, reliance on data and how they avoided problems plaguing West Coast ports.

Container ship in New York City.

The East Coast ports have become a big winner in the trade game as more logistics managers diversify away from the West Coast. The Port of New York and New Jersey is just one of the ports reaping the benefits of this container migration. 

American Shipper recently spoke with outgoing Port Director Sam Ruda and successor Bethann Rooney on their assessment of these historic times and how Rooney will continue to bring all stakeholders together.

Port Master Plan impact

AMERICAN SHIPPER: Both of you have overseen the development and implementation of the Port Master Plan — a 30-year strategy set to guide the port’s growth and manage the expected increase in cargo volumes. Given the historic volumes of containers, how many years did this propel you in the plan?

Sam Ruda, outgoing director, Port of New York and New Jersey.
Sam Ruda (Courtesy of Port of New York and New Jersey)

SAM RUDA: “From a cargo demand and capacity perspective, the cargo volume increase over the last two-plus years has propelled the seaport about five to six years forward. Just isolating capacity, we need to be mindful that effective capacity has a number of moving parts. 

“One important component of that is the current high-volume period has also come with sharp increases in dwell time of containers, both empty and full. This is not a development that you can plan for. To the degree that cargo volume remains elevated, capacity can be increased through corresponding decreases in box dwell.

“The supply chain, at least at present, remains in flux, and while there are early signs of a trend toward reduced dwell, it has not happened yet. Short term, this is where capacity gains can be found.”

BETHANN ROONEY: “In 2021, the seaport handled just shy of 9 million TEUs. The Port Master Plan 2050’s container forecast includes a high and a low forecast depending on whether our strategy is to focus predominantly on our local cargo market (low end — 12 million TEUs by 2050) or to push to maximize our share of the discretionary market in addition to the local market (high end — 17 million TEUs by 2050).  

“During the master planning process, the Port Authority decided to develop the plan around maximizing our local share and capturing a moderate share of the discretionary market (14 million-15 million by 2050). 

“With that in mind, in 2021 the Port of New York and New Jersey handled the cargo volume that had not been anticipated by the plan until closer to 2027. That meant seven years of growth without any time for the supply chain to prepare and make the investment in the links of that chain, from additional trucks, chassis and warehouse capacity to additional personnel resources to new operating models such as additional hours of service.”

Predictive trade platforms

AMERICAN SHIPPER: The paradigm shift in e-commerce has catapulted digital logistics, some say, by 10 years. Is there a need for more predictive trade platforms to quantify the anticipated amount of trade coming in?

RUDA: “Data is indeed king. But good data is emperor (or empress). The key here is that a lot of stakeholders in the supply chain require different data sets. But the data needs to be accessible and customizable with fewer discrete platforms.  

“Technology is less of the issue. What needs to occur is that data dashboards need to be utilized in a way that drives more collective decision-making beyond individual or modal silos. A good portion of the data exists. It’s just not being efficiently deployed and used to drive collective decision-making.”

Bethann Rooney. (Courtesy of Port of NY and NJ)

ROONEY: “There is power in data that collectively we need to harness. For some supply chain stakeholders, data is nothing more than information and transparency. To them, it is: ‘Where is my cargo and is it available for pickup?’

“We need to go beyond that. 

“The true power that the data holds is in being able to use that information, the data, to improve planning and resource allocation. Dozens of predictive analytics scenarios, depending on where you sit in the supply chain, exist for how data can be leveraged to help optimize resources and provide vastly improved information and transparency.

“For example, one question that data might be able to answer is, ‘When is the most probable time to schedule my trucker to pick up the container based on the location of my container on the ship and historical crane productivity?’

“One scenario related to the discretionary market that we have discussed is, for example, using manifest information when the ship sails from the last foreign port to extract the volume of IPI containers by railroad and destination and providing that information to the Class I railroads well in advance of the vessel’s arrival, so that the railroads can plan the number of empty rail cars that will be needed and have them already spotted in the Port of New York and New Jersey when the vessel arrives.”

Council on Port Performance

AMERICAN SHIPPER: Sam, the Port of New York and New Jersey, along with other ports across the nation, have had double-digit growth. Despite being a landlord port, you have not seen the problems the Ports of Los Angeles and Long Beach have seen with the stakeholders not working as one for efficient trade flow. What has the Port of New York and New Jersey along with their stakeholders done to be so united? Is it the Council on Port Performance?

RUDA: “At nearly 9 million TEUs, cargo volume through the Port of New York and New Jersey comes with its own set of challenges. This is especially true when you are experiencing a global pandemic. Nevertheless, what works well here is that we have strong leadership across the supply chain stakeholders and modal providers. This includes the ILA (labor), the railroads (Conrail, NS and CSX), the NYSA, as well as the terminal operators, trucking industry, equipment providers and depot operators, to name a few.

“There is a long history of the Port Authority of New York and New Jersey playing an active role as a convenor. We did not need to create a new forum to deal with the pandemic. 

“The Council on Port Performance has been in existence since 2014 and includes 18 different sectors of the supply chain. The only thing we changed was the frequency of the meetings, which moved to weekly for the first year of the pandemic.  

“As cargo volumes rebounded, however, we identified the need for a more narrowly focused stakeholder forum which included the terminal and depot operators, trucking, equipment providers, rail, and labor, which met on a biweekly basis. It is really important to have a common platform for sharing and reacting to real-time information. This is the tradition at the Port of NY and NJ, and it is a major reason for our collective success.

“As a final note on this, the seaport also has a productive and ongoing engagement with our federal partners. More specifically, the Coast Guard, the Army Corps of Engineers, Customs and Border Protection and the Maritime Administration. There are so many moving parts to efficient cargo movement. But our federal partners are real partners and we work very closely with them.”

Watch: Lori Ann LaRocco interviews Sam Ruda

AMERICAN SHIPPER: Beth, you are the architect of this council. Can you talk more about the performance, efficiency imperatives as well as the environmental sustainability measures you and the stakeholders are working on?

ROONEY: “First, it is important to recognize that the council is set up to work in an advisory capacity only. The council does not have the authority to require or enforce the adoption of recommendations by individual stakeholders. The council’s bylaws cite that ‘the Council on Port Performance (CPP) functions in an advisory capacity to provide advice, counsel and recommendations on matters relating to improved efficiency and service reliability in the Port of New York and New Jersey.’

“I believe that the most significant accomplishment of the CPP, dating back to its founding, is the recognition by all stakeholder segments that if one part of the supply chain is not performing well, the entire supply chain — upstream and downstream — is affected. 

“The CPP helped break down the traditional silos wherein each segment was focused on their performance only to the point of recognition that an issue in one link could affect the rest of the chain (and its ability to make money). Having a forum for entities that do not have a formal business relationship to collaborate, communicate and coordinate allows each entity/segment to consider the upstream and downstream effects of a business decision that was traditionally made with blinders on.

“Now, decisions in one sector are made with a more holistic view of the entire gateway and with an understanding that when one segment does well, they all do well. Everyone is on the same team working for the good of the whole.  

“That is not to say that all decisions made by individual sectors or entities are always welcomed by the other sectors and that there is never any conflict, but there is at least a dialogue in advance and consideration given to the rest of the supply chain.  

“Currently, the council is focused on two key issues: 1) Long-dwelling imports and the need to have them removed from the container terminals to off terminal container yards, and 2) the evacuation of empty containers and the availability of empty container return locations.

“While the CPP does not address sustainability explicitly, improvements to efficiency and service reliability will have a positive impact on sustainability.” 

Looking back and looking ahead

AMERICAN SHIPPER: Sam, you have worked at the Port of New York and New Jersey since 2015. What would you consider your biggest accomplishment?

RUDA: “The first is that the Port Department staff at the Port Authority is as engaged with our tenants as we have ever been. And this, in turn, develops into a productive two-way dialogue that collectively moves the needle in the right direction. 

“The second accomplishment is leading the seaport through the COVID pandemic. As an industry that was deemed ‘essential’ for all the right reasons, keeping the cargo moving was key. But of higher importance was keeping the cargo moving while also keeping the front-line workers safe and healthy. 

“Very early in the pandemic, I was not going to allow this port to be at the mercy of PPE handouts. We developed our own supply lines, and it was a shared and collaborative effort.”

SONAR chart with data on Port of New York and New Jersey.
According to SONAR data, the Port of New York and New Jersey has gained market share in terms of shipment counts clearing customs, while the Ports of Los Angeles and Long Beach have faltered. 

AMERICAN SHIPPER: Beth, are you expecting in the coming months more TEUs coming your way as a result of logistics managers choosing the East Coast in an effort to circumvent any disruption or slowdown because of the ILWU negotiations?

ROONEY: “All indications are that we have been and will continue to see containers that would have otherwise moved over to the West Coast, but in fear of the ILWU negotiations, have shifted their volume to our seaport (and other U.S. East Coast ports).  

“It is nearly impossible to accurately forecast the volume that is expected to shift to the East Coast, but in conversations with ocean carriers, shippers and beneficial cargo owners, the shift appears to be more proactive than was experienced in the early phase of the last set of ILWU negotiations.

“We have heard several examples of shippers who typically transport their products that originate in Asia through San Pedro Bay ports to warehouses in or around the central coast of California. They are now using the all-water route to our port and then land-bridging back to California, which is currently faster, cheaper and more reliable.”

Project44 data.

AMERICAN SHIPPER: Multiple logistics providers in Europe are concerned the shipping delays coupled with the blank sailings has eaten into the supply of empty containers. What is your outlook as we navigate this uncertainty all stemming from “zero COVID”?

ROONEY: “There is no shortage of empty containers needed to support the Port of New York and New Jersey’s export market. We are encouraging the ocean carriers to deploy sweeper vessels to evacuate large numbers of empty containers. Sending the empties to Europe rather than back to Asia would benefit the Port of New York and New Jersey, particularly if the sweeper vessels can immediately return for a subsequent voyage to pick up the next group of empties.”

AMERICAN SHIPPER: The high freight rate has attracted five new entrants that are not engaging in reciprocal trade. Bal Shipping only transported 45 loaded U.S. exports last year. All the other entrants, including the Alibaba-backed Transfar, did not fill their vessels with loaded U.S. exports. Have you spoken with Transportation Secretary Pete Buttigieg on these new entrants?

New ocean entrants data.

ROONEY: “Of the new entrants, the Port of New York and New Jersey has only seen activity from three of five new entrants: Transfar, X-Press and Lihua. The first one didn’t start to call our port until August 2021. 

“Given that these carriers entered the U.S. market to help pick up the extra inbound volume, it is not surprising that they did not fill their vessels with loaded exports. I believe there are a variety of reasons for that, including that the U.S. exports had service contracts with other carriers.  

“Given the entrance late in the year, time is also needed for the containers to cycle through and be available for export. From August 2021 through March 2022, those three carriers have imported just 5,208 TEUs into the Port of New York & New Jersey.  During that same time, those three carriers have exported 2,049 TEUs or 40% of the import volume — dramatically more than in other U.S. ports.”

China and the eventual surge in containers

AMERICAN SHIPPER: How concerned are you about China’s “zero-COVID” policies and the anticipated surge in containers that will follow?

ROONEY: “Undoubtedly we will experience a hockey stick-style surge beginning approximately six to eight weeks after the reopening in China. Import containers originating in China represent 29.6% of our total imports, which pales in comparison to the China market share in the combined Ports of Los Angeles and Long Beach, where it is more than twice as much.  

“Hence, the effect will not be as significant here as it will be on the West Coast. Nonetheless, if we are unable to reduce the amount of long-dwelling imports and empties in the next several weeks, the surge will be very difficult to handle.” 

Bubbles and thinking big

AMERICAN SHIPPER: The ports around the world work in bubbles. The World Bank and the United Nations Conference on Trade and Development have spoken about the need for global customs, a more transparent digital platform for more efficient trade. How can these multitude of bubbles pop in order to achieve data sharing so trade can be tracked, traced and moved efficiently?

RUDA: “I remember something that the late Bruce Seaton (former head of American President Lines) said about this industry. I am paraphrasing here, but he effectively said that the shipping industry is about efficient handoffs of the cargo (the container).

“While the industry was born right here at Port Newark, it has evolved in ways that ensure less efficiency in these cargo handoffs. This, ultimately, is the core problem that needs to be solved. Anything that simplifies, adds speed, reduces duplication of effort will add value toward streamlining this age-old bubble issue.”

ROONEY: “The concept of a centralized information system for global trade gives me great cause for concern. While technology and data platforms have the potential to help improve transparency and efficiency, those incremental benefits need to be carefully weighed against the risks of cybersecurity — namely data protection and the associated confidential and proprietary information that could be compromised.”

AMERICAN SHIPPER: Sam, how does the U.S. tackle its own bubbles? 

RUDA: “I recently hosted a Q&A with Secretary of Transportation Buttigieg in Washington. …. I asked the secretary what he would like to see from U.S. ports. His answer was spot-on. He said, ‘Think big.’ Old problems require new solutions. And this is what makes this industry so interesting and fascinating.”

Long Beach sets record but East, Gulf Coast ports’ gains bigger

According to maritime expert John McCown, the U.S. ports with the strongest April performance were Charleston, South Carolina; Houston; and New York/New Jersey.

“Cargo continues to move at a record-setting pace and may not slow down anytime soon,” according to Mario Cordero, executive director of the Port of Long Beach. 

The port on California’s San Pedro Bay recorded its busiest April ever. Its neighbor, the Port of Los Angeles, had the second-busiest April in its history even though it posted a year-over-year cargo volume decrease. But the strongest performances in April took place at ports on the Gulf and East coasts.

The Port of Long Beach last month moved 820,718 twenty-foot equivalent units, up 10% from the previous record set in April 2021. Imports increased 9.2% year-over-year to 400,803 TEUs, while exports dipped 1.8% to 121,876 TEUs.

FreightWaves’ SONAR shows a monthly view of TEUs cleared through U.S. Customs on a seven-day average.

Empty containers moved saw the biggest increase, 16.9% year-over-year, to 298,039 TEUs. 

The port handled 3,281,377 TEUs during the first four months of 2022, a 5.1% increase from the same period in 2021.

Cordero said the port is not anticipating any lazy days of summer. 

“We are preparing for a likely summertime surge as China recovers from an extended shutdown due to COVID-19,” he said in the port’s volumes report. “Shippers are quickly moving imports and empties from the docks, terminals are staying open longer and we are working to finalize our new Supply Chain Information Highway data-tracking solution.” 

Trans-Pacific flows steady

Gene Seroka, executive director of the Port of LA, said in a press release Tuesday that trans-Pacific trade “has held steady” despite the COVID lockdowns in China. 

The Port of LA handled 887,357 TEUs in April. The port’s busiest April occurred last year, when it moved 946,966 TEUs.

FreightWaves’ latest product, Container Atlas, shows ocean volumes from March through May 1. 

The more than 3.5 million TEUs moved in the first four months of 2022 at the Port of LA is 1% ahead of last year’s record pace. 

The port did report declines. Loaded imports in April totaled 456,670 TEUs, a 6.8% decrease year-over-year. Loaded exports totaled 99,878 TEUs, a 12.7% decrease from April 2021. 

While the number of empty containers moved at the Port of Long Beach increased by more than 15%, the Port of LA saw a 3.4% year-over-year decrease, handling 330,810 TEUs of empties. 

Cordero’s statement about cargo moving at a record-setting pace is particularly applicable for ports outside California. The Georgia Ports Authority reported Tuesday that its April container volumes were up 6.2% year-over-year and that it had the third-busiest month in its history. South Carolina Ports has set cargo records for 14 consecutive months. April was the second-busiest month in the history of the Port of Virginia in Norfolk. And Port Houston reported Tuesday that it had its busiest April ever, with the 334,493 TEUs handled a 21% year-over-year increase. 

McCown’s take

“The 10 largest U.S. ports saw inbound box volume grow 7.1% in April, an increase from the 3.5% gain in March but below February’s 13.7% gain,” maritime expert John McCown wrote in The McCown Report.  

April’s overall inbound volume at the top 10 ports of 2,189,744 TEUs was the third-highest total ever and just 1.8% below the record 2,230,919 TEUs set just a month earlier, McCown said. 

“April was the 11th straight month in which the year-over-year percent change in volume at East/Gulf Coast ports outperformed West Coast ports,” he noted. “In April, there was a 22.1 percentage-point coastal gap resulting from an 18.7% gain at East/Gulf Coast ports and a 3.4% decline at West Coast ports. This is the fourth-highest monthly gap ever in those measures and above the average 16.6 percentage-point difference over the 11-month period.”

He attributed the stronger relative performance of ports on the Gulf and East coasts to the initial pandemic volume surge disproportionately benefiting West Coast ports and impacting comparisons; shippers rerouting cargo to “avoid the widely reported congestion” in LA and Long Beach; and lower linehaul costs from the Gulf and East coasts compared to cross-country intermodal service from the West Coast. 

The McCown Report covers volumes at the top U.S. ports. (Chart: John McCown)

Shanghai volume redirected

April was strong at U.S. ports because China’s total container volume was down only 2.5%, McCown pointed out. 

“As a result of the lockdown in Shanghai related to a COVID variant, the Port of Shanghai, the largest container port in the world, saw a 25% reduction in its volume in April. However, with seven of the 10 largest container ports in the world in China, that volume was redirected,” he explained. 

According to McCown, the U.S. ports with the strongest April performance were Charleston, South Carolina, up 34%; Houston, up 26.5%; and New York/New Jersey, up 22.4%. 

“The weakest performance in April came in at Seattle/Tacoma, down 20.1%; Oakland, down 15.8%; and Los Angeles, down 6.2%,” he wrote. 

McCown forecast May’s numbers “will likely show an overall decline as it will be measured against the busiest-ever month for West Coast ports in May 2021.” 

IMF: Rising ocean shipping costs to bring wave of higher prices

Will Long Beach’s sunny spring be followed by stormy summer?

Savannah harbor deepening is done

Click here for more American Shipper/FreightWaves stories by Senior Editor Kim Link-Wills.

Viewpoint: Shanghai’s reopening pledge nothing more than the boy who cried wolf

COVID workers in Shanghai.When it comes to lifting lockdowns in China, false hope will remain the norm.

COVID workers in Shanghai.

Another week — and another pledge that the lockdown in Shanghai may be lifted. It’s not the first time this has been announced. 

And it won’t be the last.

The city’s vice mayor, Wu Qing, said at a news conference Thursday that there would be an “orderly opening, limited [population] flow and differentiated management.” Yet, no date has been set.

How many times do these false alarms have to be stated? “Actions speak louder than words” applies to this situation. The government’s actions are not reflecting the rhetoric that officials are putting out.

Anyone who has been reading the logistics reports knows the truth. The message is simple: The Chinese government, not the local level, is in control of the flow of manufacturing and trade.

Crane Worldwide Logistics informed clients in its Thursday  update: “For export, we still need to check with suppliers whether their local government allows container drayage or trucking service with truck drivers from Shanghai; or whether they can send cargo to our warehouse in Shanghai. We need to coordinate with the consignee for the document turnover and delivery schedule case by case for import.”

Worldwide Logistics offered a wide breakout on the “zero-COVID” status and impacts across the country to customers.

“We can see the Shanghai pandemic situation is trending towards a good prospect steadily,” the company said. “However, in some areas like Tai cang, Zhang jia gang and Chang shu, the COVID cases figure is rebounding, which causes the problem of cross-city delivery and containers stuffing. It should still take some time for the cross-city transportation to recover to the normal. The whole market is still impacted by the COVID situation, and the recovery depends on when the pandemic situation can be totally controlled in the country.’

(Courtesy of Worldwide Logistics)

Seko Logistics informed clients on Friday, “Trucking in and out of Shanghai requires a traffic permit, which is only valid for 24 hours and only on specific routes. Even with this arranged, it is possible for booked trucks to be commandeered by the government to transport aid supplies.”

This comment after China saying it has increased the list of companies that can reopen under a “closed loop system “ to 2000. The lack of ability for trucks to deliver raw materials into these “closed  loop” companies has impacted companies like Tesla, which had to stop production.

Now the government is trying to help.

The insanity of this situation has created a dense fog, making the logistics planning picture beyond murky. The obstruction created by Shanghai has gummed up vessel schedules.  

American Shipper reviewed a booking confirmation from Oakland, California, to Great Britain where the booking was on its 60th update. The estimated delivery went from late May to late June.

Once the roads are truly open and products can be completed and transported, a flood of containers is expected to arrive in the United States, at least a month or two after a real opening.

“Right now, the Trans Pacific Eastbound market reminds one of being in the eye of a hurricane,” said Alan Baer, CEO of OL USA. “Blue sky, available space and moderation of pricing.  However, soon enough the 100 miles per hour wind and rain could be battering supply chains all over again.”

No slicker or umbrella will protect the fragile U.S. logistics system when this container storm hits. The problems plaguing the Port of  LA and Long Beach are still there, no matter what messaging we hear from the Biden administration on improvements. 

The dwell time of the containers, and the continued long line of vessels waiting for berth, are a physical reminder of the inefficiencies.

More from Lori Ann LaRocco

SONAR charts check temperature of Shanghai’s ailing supply chain

What can go wrong next in China? Now there’s a lockdown in Zhengzhou

Has the peak of container shipping’s epic boom already passed?

container shipping Hapag-LloydOcean carrier Hapag-Lloyd sees consumer demand and spot rates slipping, with market highs in the rearview mirror.

container shipping Hapag-Lloyd

Another quarter, another earnings record for Germany’s Hapag-Lloyd, the world’s fifth-largest container line operator. But the focus now is less about what happened a few months ago and more about what’s happening now with China lockdowns and consumer demand, and what’s around the corner for supply chains and ocean freight rates.  

The implied message of Hapag-Lloyd quarterly release and conference call was: The container boom peaked in the first quarter; it’s downhill from here. Spot rates are falling. Goods demand is falling. “There have been signs that the market has passed its peak [in Q2 2022],” acknowledged CEO Rolf Habben Jansen in the earnings release.

The second quarter is shaping up better than expected but “should be somewhere slightly south of Q1,” said CFO Mark Frese during the call. In Q3 and Q4, Hapag-Lloyd sees things going a lot more than “slightly south.” Its guidance implies a 50% drop in second-half earnings versus the first half.

“For spot rates, there are regional differences,” Frese said, noting that North America’s import demand is holding up better than Europe’s.

“But overall, the trend is the same: We are seeing a softening of spot rates nearly globally.” He added that he was not referring to indexes, but rather, to “what we are seeing from what’s incoming [to Hapag-Lloyd’s booking system] right now.”

container shipping spot rates
Spot rates in $ per FEU. Blue line = Shanghai to LA, green = to Rotterdam, orange = to NY, yellow = to Genoa. Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

“Consumer sentiment is changing over time. Consumer behavior is changing. Inflation is going up. Disposable income is pressured,” he said.

“We see volume growth lower than previously expected due to … consumer sentiment. We all feel it.”

China lockdowns vs. demand decline

A seeming paradox is that port congestion remains very high globally even as spot rates are under pressure. Frese said that the Ukraine-Russia war and the China COVID lockdowns have made supply chain disruptions even worse.

Congestion historically drives spot rates higher by reducing effective transport supply. However, there can be a transitional period when spot rates go down even as congestion remains high, as consumer demand falls prior to the clearing of congestion. (After congestion clears, more vessel supply is released into the market, accelerating spot-rate declines.)  

Frese noted that rates are particularly weak out of China, where Hapag-Lloyd sees lockdowns currently reducing outbound volumes by 20%-25%. But he said that COVID-driven export snags in China are coinciding with declines in import demand in places such as Europe.

Frese said he expected spot rates to come down “even if congestion stays at the [current] level or even if there are new reasons [for congestion], due to the overall sentiment we are seeing right now that demand is softening.”

When China reopens and delayed exports makes their way into the supply chain, some market watchers expect a surge in queues of ships waiting off U.S. ports. In this scenario, extreme congestion conditions return in the second half as the wave of delayed China cargo coincides with traditional peak-season flows.

Asked about this possibility, the Hapag-Lloyd CFO answered: “Could we see a rebound out of China after China opens and everything is normal? Yes and no. Yes, when China reopens again there will be some rebound. But overall, we have to accept that demand is going down over time.” In other words, falling demand could offset some of the gains from China’s reopening and peak season.

Spot rates could fall below contract rates

Hapag-Lloyd has half of its 2022 volumes on long-term contracts and half on spot (of the long-term contracts, 90% are one-year deals, 10% two- to three-year deals). “While spot rates are expected to decline further, our long-term contracts should safeguard our earnings, at least to some extent,” Frese said.

He predicted that “in the second half we will begin to see a strong reduction [of spot rates]. Maybe, over time, we will even see the change between long-term and short-term rates, with spot rates going below [long-term rates].”

Then, in 2023, a big wave of container-ship newbuilds begins to hit the water. “Newbuild ordering activity continued in Q1, pushing the orderbook to fleet ratio to around 25%. We will see what the consequences in the future will be of that. Demand growth is expected to slow down to more sustainable levels while the capacity influx will increase in 2023.”

Hapag-Lloyd Q1 2022 results

Hapag-Lloyd pre-announced earnings and full-year guidance on April 28 and provided more details on Thursday.

It reported net income of $4.7 billion for Q1 2022 versus $1.5 billion in Q1 2021. It posted Q1 2022 earnings before interest taxes, depreciation and amortization of $5.3 billion, topping the previous quarterly EBITDA record of $4.7 billion set in Q4 2021.

Volumes were flat — limited by congestion — but freight rates soared, driving the best-ever results. Hapag-Lloyd’s rates averaged $2,774 per twenty-foot equivalent unit in Q1 2022, up 84% year on year and up 16% from Q4 2021.

“In the very short term, we expect the exceptional profitability level to continue,” said Frese.

Hapag-Lloyd projects full-year 2022 EBITDA of $14.5 billion-$16.5 billion. Last year’s EBITDA was $12.8 billion. Thus, despite tempered demand and spot rates, Hapag-Lloyd’s first half has been so strong that it should end the year with yet another record.

Hapag-Lloyd earnings

Click for more articles by Greg Miller 

Russia’s isolation deepens as shipping lines make final port calls

Russia container shippingFirst came a pause in cargo bookings to Russia. Now, ocean carriers have halted almost all of their Russian port calls.

Russia container shipping

Russia’s ocean container imports continue to collapse as shipping lines wind down the last remnants of their services to the country’s ports.

Russia — now effectively a pariah within Western logistics circles — still has cargo import options. Yet the loss of virtually all of its ocean shipping links makes obtaining consumer goods and components much more difficult.

Elvira Nabiullina, Russia’s Central Bank chairwoman, recently warned that the range of consumer goods available in her country is already shrinking and Russian companies needing foreign components are facing “serious problems.”

Top carriers wind down service

The world’s top container lines paused bookings to Russia in the days after the invasion of Ukraine. However, some service continued, including efforts to evacuate liner-owned empty containers from Russian ports.

In the third week of April, automatic identification system (AIS) vessel-position data showed that at least 10 MSC container ships and five Maersk ships had either recently called or were planning to call in St. Petersburg in the Baltic Sea or Novorossiysk in the Black Sea. MSC and Maersk are the largest and second-largest ocean carriers in the world, respectively.

As of Wednesday, AIS data showed MSC’s calls to Russian ports were down to three ships: the 2,604-twenty-foot equivalent unit MSC Lara, arriving in Novorossiysk on Thursday, and the 2,490-TEU MSC Pamira III and 2,250-TEU MSC Andriana III, which recently departed Novorossiysk.

Maersk has now completely ended its Russian service. It announced the cessation “of all vessel operations” on May 4.

According to Alphaliner, “The 3,596-TEU Voga Maersk made its last call at St. Petersburg on April 29. Earlier that week, four of her sister ships — the Venta Maersk, Vayenga Maersk, Vuoksi Maersk and Vaga Maersk — called to evacuate empty containers to North European ports.”

Maersk’s Rotterdam-to-St. Petersburg service with two 3,596-TEU vessels ceased in March. Maersk made its last call to Novorossiysk with the 2,274-TEU Nele Maersk on April 21, said Alphaliner.

Vessel-position data shows that container-ship calls to St. Petersburg and Novorossiysk are now extremely limited. Remaining service providers are generally small container ships with capacities of under 1,000 TEUs and general cargo ships with container capacities of under 500 TEUs.

Container ship calls to Russia plunge

U.K.-based data provider VesselsValue tracks the weekly frequency of container-ship calls at Russian ports. In the nine weeks since the invasion (through the first week of May), weekly calls were down 38% compared to the nine weeks prior to the invasion.

Chart: American Shipper based on data from VesselsValue

The drop was driven by a 55% plunge in calls to Russia’s European ports. There were just four calls to Novorossiysk during the first week of May, according to VesselsValue. That’s less than a third of the pre-invasion weekly average.

Meanwhile, container-ship calls to Russia’s Pacific container gateway in Vladivostok (located far from main population centers) have been relatively unscathed. They’re only down 9% post-invasion.

Bookings to Russia plunge

Data from FreightWaves’ SONAR Container Atlas, a new ocean data platform released Tuesday, highlights the severity of Russia’s ocean container import crash.

Not only is the number of calls sinking, but the average capacity of remaining vessels is shrinking with the wind down of Maersk and MSC services that deploy larger ships. Using ship-position data, SONAR Container Atlas shows that the capacity of container vessels destined for Russia has fallen to roughly one-sixth of pre-invasion levels.

Russia TEU vessel capacity
Chart: FreightWaves’ SONAR Container Atlas (To learn more about FreightWaves SONAR, click here.)

The volume of bookings (made via the booking data source for SONAR Container Atlas) is likewise around one-sixth of its pre-invasion levels.

Russia ocean booking volume
Chart: FreightWaves’ SONAR Container Atlas

And during the month after the invasion, SONAR Container Atlas data shows huge spikes in booked cargo that was not loaded by ocean carriers. 

Chart: FreightWaves’ Container Atlas

Declined bookings surged to over five times normal levels in the aftermath of the invasion. So, not only did bookings plummet, but a large chunk of Russia’s expected imports never even made it onto the ships. No wonder Nabiullina is concerned about her country’s dwindling consumer goods and components.

Click for more articles by Greg Miller 

Senate confirms Phillips to lead Maritime Administration

Marad Administrator nominee Ann Phillips and container shipPhillipsAnn Phillips will take over at the U.S. Maritime Administration as the agency receives a fresh boost of funding for port infrastructure.

Marad Administrator nominee Ann Phillips and container shipPhillips

The Senate voted 75-22 on Tuesday to confirm Ann Phillips to lead the U.S. Maritime Administration as pressure builds to ensure historic levels of funding for port infrastructure are used to help speed cargo through supply chains.

After she is sworn in, Phillips will replace Lucinda Lessley, who has been serving as the agency’s acting administrator. Lessley was named to lead Marad after Administrator Mark Buzby stepped down in the wake of the U.S. Capitol riots in January 2021.

Phillips, who served 31 years on active duty in the U.S. Navy and retired as a rear admiral, most recently was the special assistant to the governor of Virginia for coastal adaptation and protection. She was praised by the White House when she was nominated in October as “a leader in the field of coastal resilience and climate impact on national security at the regional, national and international level.”

While some were critical that her background seemed more suited for a position at the Environmental Protection Agency, her maritime and climate resilience experience could suit her well in an administration that has elevated environmental protection as a major consideration for infrastructure grant funding.

Marad announced on Monday $684 million in grant funding available for the agency’s Port Infrastructure Development Program (PIDP). That amount includes $234 million in FY22 appropriations that was added to the $450 million announced in February for PIDP grants, which were authorized by the infrastructure law signed in November.

“Under President Biden’s leadership, we are making a once-in-a-generation investment in our ports and intermodal infrastructure to move goods faster, strengthen supply chain resiliency, support economic vitality at both the national and regional levels, and address climate change and environmental justice impacts,” said Lessley.

The infrastructure law expanded the list of eligible projects to explicitly include those that reduce or eliminate port-related criteria pollutant or greenhouse gas emissions. Projects that improve the movement of goods to, through and around coastal, inland river and Great Lakes ports are all eligible for PIDP grants, according to Marad. Applications for the grants are due Monday.

Click for more FreightWaves articles by John Gallagher.

Shipping stocks take another beating, sinking by double digits

shipping sharesShares of ocean shipping companies have given back much of their 2022 gains after another big sell-off on Monday.

shipping shares

Monday was a rough day all around on Wall Street but particularly painful for owners of ocean shipping stocks, which fell much more sharply than the broader market. Concerns over China’s economy, oil demand, Fed tightening and inflation added up to one of the worst trading sessions of the year for shipping names. From tankers to dry bulk to containers, double-digit plunges were widespread.

Even so, ocean shipping stocks — generally micro-cap equities traded by retail investors — are still outperforming the broader equity indexes and domestic transport stocks year to date (YTD).

Container shipping shares

Container lines remain on track for their best year ever in 2022, given much higher contract rates and still strong (albeit moderating) spot rates. Lessors of container ships are also on track for a banner year, locking in virtually all of their vessels on charters at historically high rates.

On Monday, shares of container line operator Zim (NYSE: ZIM) sank 10%. Zim’s share price is now back to where it started the year. Across the container sector, much of 2022’s gains have been lost.

Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

Global Ship Lease (NYSE: GSL), one of the companies that rent container ships to liners, reported Monday that its Q1 2021 net income was up 1,571% year on year. It now has $1.67 billion in revenue locked in through charters. And yet, following Monday’s decline, GSL’s stock is down 7% year to date.

Crude tanker stocks

The price of crude oil sank 6% Monday on news that producer Saudi Aramco is cutting its prices.

Among crude tanker owners, share pricing of Tsakos Energy Navigation (NYSE: TNP) fell 16%, Nordic American Tankers (NYSE: NAT) 15%, Frontline (NYSE: FRO) and Teekay Tankers (NYSE: TNK) 13%, Euronav (NYSE: EURN) 12%, International Seaways (NYSE: INSW) 11%, and DHT (NYSE: DHT) 10%.

Crude tanker spot rates remain extremely low, particularly for larger vessel sizes.

Clarksons Platou Securities assessed Monday’s spot rate for modern very large crude carriers (VLCCs; tankers that carry 2 million barrels of crude) at just $8,500 per day — less than a third of the Clarksons’ estimated breakeven rate for a five-year-old VLCC of $33,000 per day.

Crude tanker stocks saw gains earlier this year despite rate weakness, driven by optimism on a future recovery. With Monday’s slide, however, most crude tanker names have given up much (and in some cases all) of their YTD gains. VLCC owner DHT is now down 3% YTD.

Product tanker stocks

The rate environment for tankers carrying petroleum products such as diesel, gasoline and jet fuel is completely different than for crude tankers. As buyers scramble for refined products, rates for product carriers are surging to multiples above breakeven. “Earnings upside from here is immense,” maintained Evercore ISI shipping analyst Jon Chappell.

Clarksons put spot rates for modern LR2 tankers — which are around half the size of VLCCs — at $65,000 per day as of Monday, over seven times VLCC earnings.

Yet some of the strongest spot rates of the past decade didn’t protect product tanker stocks on Monday. Shares of Ardmore Shipping (NYSE: ASC) plunged 15%, with Torm (NASDAQ: TRMD) falling 11% and Scorpio Tankers (NYSE: STNG) 10%.

YTD gains for product tanker equities remain very high: Scorpio is up 87% since the beginning of the year, Ardmore 77%.

To put that in perspective, the Dow Jones Transportation Average is down 10% YTD, the Dow Jones Industrial Average 11%, the S&P 500 16% and the Nasdaq Composite Index 22%.

LNG shipping shares

The Ukraine-Russia war has increased demand for seaborne volumes of liquefied natural gas (LNG). As Europe seeks to wean itself from Russian pipeline gas, it must replace lost pipeline volumes with seaborne imports. The promise of higher future European demand is helping new export liquefaction projects secure financing.

Even so, LNG shipping stocks dropped by double digits on Monday: Flex LNG (NYSE: FLNG) by 11% and GasLog Partners (NYSE: GLOP) by 10%.

Dry bulk stocks

Dry bulk spot shipping rates are rising. According to Clarksons, spot rates for Panamaxes (bulkers with capacity of 65,000-99,999 deadweight tons or DWT) were $28,600 per day as of Monday. Rates for Supramaxes (60,000-64,999 DWT) were $30,000 per day. Panamax and Supramax are at decade highs for this time of year. Rates for larger bulkers known as Capesizes (180,000 DWT) have lagged YTD but jumped 17% on Monday to $26,400 per day.

Despite rising spot rates, shares of Eagle Bulk (NASDAQ: EGLE) fell 13% on Monday, with Grindrod (NASDAQ: GRIN) down 11% and Globus Maritime (NASDAQ: GLBS) down 10%. Other dry bulk shares were down mid- to high single-digits.

Dry bulk shares are still up YTD: Golden Ocean (NASDAQ: GOGL) by 35%; Eagle, Grindrod and Genco (NYSE: GNK) by 29%; and Star Bulk (NYSE: SBLK) by 22%.

Click for more articles by Greg Miller 

SONAR charts check temperature of Shanghai’s ailing supply chain

China’s zero-COVID policy is a prescription for more inflation and supply chain “illness.”

No matter how “open” the Chinese government has said Shanghai is, the flow of trade is telling otherwise. The reality is quite simple: Shanghai’s supply chain is sick.

The diagnosis is based on the volume of trade being moved and produced. Trade takes people working throughout the entire supply chain. That is not happening.

Below are FreightWaves SONAR charts that take a real-time temperature check on the Shanghai trade route. 

The first shows container dwell time at the Port of Shanghai. Sure, it’s great you can get your product in a container, but you will have to wait more than 10 days for it to get loaded on a vessel. A container at rest is not making money.

Once the container is out on the water, it has to wait yet again once it arrives at its destination port. The Port of Los Angeles receives the most containers from Shanghai, which is why only Los Angeles is shown on the SONAR chart below. Notice another nine-plus days of waiting. More time is being lost.

So what does this all mean? It points to a massive drop in exports from Shanghai to all U.S. ports.

The weekly shipments from the Port of Shanghai to the Port of LA resemble a ski slope. There’s nothing healthy here.

Now, while some trade has been diverted to Ningbo, China, it’s not a cure. We know congestion will follow in Ningbo as a result of the elbow in the trade plumbing.

China’s zero-COVID policy is a prescription for more inflation and supply chain illness.  The prognosis will not change until the remedy being hailed as a cure is no longer prescribed.

For more information on SONAR — the fastest freight-forecasting platform in the industry — or to request a demo, click here. Also, be sure to check out the latest SONAR update, TRAC — the freshest spot rate data in the industry.

The world is ‘crying out for diesel.’ Product tankers could win big

product tankers shipping dieselThe pain at the pump keeps getting worse. Bad news for consumers. Good news for owners of refined product tankers.

product tankers shipping diesel

Retail gasoline prices in the U.S. are up 45% year on year. Diesel used by American truckers is up 75% and just hit an all-time high. But this is not just an American problem. Pain at the pump is global. And so-called product tankers — ships designed to transport cargoes such as diesel, gasoline and jet fuel — are in prime position to profit.

Fuel flows globally to where it earns the highest return. Case in point: As U.S. diesel prices have skyrocketed, American exports of diesel have surged, because demand in other countries is higher.

U.S distillate fuel exports hit 1.74 million barrels per day (b/d) in early April, nearing record levels, according to preliminary data from the Energy Information Administration (EIA). Total U.S. exports of all refined products in April rose 28% year on year.

‘Outright panic buying of diesel’

“There has been outright panic-buying of diesel,” said Anthony Gurnee, CEO of product-tanker owner Ardmore Shipping (NYSE: ASC), during a conference call on Wednesday.

Ardmore specializes in MR tankers, a vessel class with capacity ranging from 25,000-54,999 deadweight tons (DWT). Clarksons Platou Securities said that modern-built MRs were earning $49,800 per day in the spot market as of Friday. That’s more than quadruple the average rate for full-year 2021. Clarksons puts the breakeven rate for such vessels at $18,000 per day.

“The world is really crying out for diesel and that’s causing refinery margins to spike,” said Lois Zabrocky, CEO of International Seaways (NYSE: INSW), during a conference call on Wednesday.

INSW’s product tanker fleet primarily consists of MRs and LR1s (55,000-79,999 DWT). Modern LR1s are earning $50,400 per day in the spot market, according to Clarksons, which puts the breakeven rate for such ships at $19,000 per day. Current LR1 rates are almost quadruple their full-year 2021 average.

Larger LR2s (80,000-119,00 DWT) that handle high-volume, long-haul runs are showing even steeper gains. Rates for modern LR2s jumped 21% on Friday to $58,600 per day, said Clarksons.

War exacerbates diesel shortages

The worldwide diesel market is “extremely tight” and the Russia-Ukraine war “has exacerbated the global diesel shortage,” said James Doyle, head of corporate development at Scorpio Tankers (NYSE: STNG), during a conference call on April 28.

Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

Before the invasion, he said, Russia exported about 1 million b/d of diesel to Europe. That volume has plummeted. “But the diesel shortage in Europe is not new,” he added. “And the shortage extends beyond Europe to Latin America and Africa, which have similar diesel deficits.

“For our MRs, the highest rate increases were for our vessels going from the U.S. Gulf to Latin America, which has less to do with Russia and Ukraine and more to do with increasing demand,” Doyle pointed out.

“We expect the market to tighten further with increased competition for distillate molecules as jet fuel demand returns. This is also having an impact on gasoline. With refineries running in max distillate mode, we are not building significant gasoline inventories ahead of peak driving season. As demand grows and inventories remain low, product tankers will need to be the conduit for filling the global supply-demand imbalance.”

Commodity specialist Argus made the same point on gasoline. The lack of spare capacity is causing alarm heading into the peak summer driving season,” Argus warned on Thursday. “The situation is compounded by even higher middle-distillate margins, which have boosted supply of diesel over gasoline.”

Inventories drawn through COVID era

Usually, rates for tankers that carry crude oil and rates for tankers that carry petroleum products trend roughly in tandem. And if one outperforms the other, it’s usually crude. This year, product tankers are dramatically outperforming crude tankers; larger crude tankers are still below breakeven

Both crude and product tankers saw rates collapse during the COVID era. Oil production outstripped demand amid lockdowns. The world’s inventories filled with cheap crude and products bought at the trough.

Ever since, those inventories have been drawn down instead of using tankers to import new supply (because new supply is much more expensive than the petroleum still in storage bought at the trough).

Due to this practice, stockpiles were already historically low months before Russia invaded Ukraine. In November 2021, Alphatanker published a report called “Welcome to the great diesel squeeze,” which warned: “It’s now apparent that global gasoil and diesel markets are tightening at an alarming pace with supply shortfalls now hitting key consumer markets worldwide.”

Then Russia invaded Ukraine. “This event immediately laid bare … the risks of severely depleted inventories,” said Evercore ISI analyst Jon Chappell.

Product tankers vs. crude tankers

Asked why this has boosted product tanker rates so much more than crude tanker rates — given that crude inventories are also historically low — Chappell responded, “Usually the two groups are highly correlated, and usually crude leads and outperforms by measure of magnitude. But we are far from normal times.

Evercore ISI’s Jon Chappell (Photo: Marine Money)

“Crude tankers are doing really well in regions directly impacted by Russia’s invasion of Ukraine — the Black Sea, Baltic and the Med — owing to the higher insurance costs and risks of entering those markets. But overall, the crude markets have been balancing new longer trade routes with the inability of OPEC to meet quotas, Russia [being] offline, and China lockdowns. The market is better than it probably should be based on those latter factors, but the low inventories and longer ton-miles [voyage distances] are offsetting some of the macro headwinds.

“Product tankers are benefiting from localized diesel shortages, high refinery margins … and massive trading arbs [arbitrages] that allow traders to pay much higher freight costs and still make a ton on the arb. Inventories are far too low globally and prices will likely remain elevated, forcing more trading in unusual trade lanes, tightening capacity and lifting that market well before and well above crude.

“Eventually crude tankers will catch up, I think, if supply of crude can meet higher refinery demand. But right now, it’s a unique product story. And talking with my oil analyst, it’s hard to see how these diesel shortages ease or the strong tanker markets end,” said Chappell.

Earnings recap

Among the universe of listed shipowners, Clarksons Platou Securities said that “product tankers are sailing up as the winning sector year to date.”

Rates are surging on “exploding refining margins,” said Clarksons. It maintained that “the products sector looks primed to gain further.”

Through Thursday’s close, the stocks of Scorpio Tankers and Ardmore Shipping were up 106% and 114% year to date, respectively. Shares of International Seaways — which owns both crude and product tankers — were up 50% year to date.

product tanker stock prices
Chart: Koyfin

Listed product tanker owners have just reported more losses for the first quarter. The rate upswing won’t be fully felt until the current quarter.

Ardmore Shipping reported a net loss of $7 million for Q1 2022 versus a net loss of $8.5 million in Q1 2021. The adjusted loss of 4 cents per share beat consensus expectations for a loss of 8 cents.

Ardmore has 50% of its Q2 2022 available MR spot days booked at $25,500 per day. That compares to rates of $16,513 per day in Q1 2022.

International Seaways reported a net loss of $13 million for Q1 2022 compared to a net loss of $13.4 million in the same period last year. The adjusted loss of 29 cents per share was slightly better than Wall Street expectations for a loss of 30 cents.

The company has 41% of its available Q2 2022 MR spot days booked at an average of $24,500 per day. That compares to $14,030 per day in the first quarter.

Scorpio Tankers reported a net loss of $84.4 million for Q1 2022 compared to a net loss of $62.4 million in Q1 2021. The adjusted loss per share of 27 cents came in much better than the consensus forecast for a loss of 58 cents.

Scorpio has 42% of its available Q2 2022 spot MR days booked at $30,000 per day. Its MR fleet earned an average of $16,305 per day in the first quarter.

product tanker KPIs

Click for more articles by Greg Miller 

FMC requires more pricing, capacity data from container ship companies

Overhead view of container shipU.S. regulators have ordered the world’s largest ocean carriers to submit more pricing and capacity data to help protect shipping markets from anticompetitive practices.

Overhead view of container ship

Federal regulators are stepping up oversight of ocean carriers by ordering them to submit more comprehensive pricing and capacity data with the goal of protecting against anticompetitive rates and service.

The Federal Maritime Commission announced on Thursday that the three global carrier alliances dominating global shipping (2M, Ocean and THE), along with the 10 member companies that participate in them, will now have to begin providing “uniform data to use in assessing ocean carrier behavior and marketplace competitiveness.”

The new information will give FMCs’ Bureau of Trade Analysis (BTA) insight into pricing of individual trade lanes by container and service type.

“The changes are the result of a year-long examination by BTA to determine the data needed to properly analyze carrier behavior and marketplace trends,” the FMC stated. “Under the new requirements, carriers participating in an alliance will need to submit pricing information about cargo they move on the major trade lanes, and both carriers and alliances will be mandated to submit comprehensive information related to capacity management.

BTA is responsible for continuously monitoring whether carriers and their alliances are complying with shipping regulations, and whether they have an anticompetitive impact on the marketplace.

The FMC noted that the alliances are already subject to “the most frequent and stringent monitoring requirements of any type of agreement” filed at the agency, including detailed operating data, minutes from meetings among alliance members, and meetings with alliance members where FMC staff address issues of concern.

“The commission assesses its reporting requirements on a continuous basis and adjusts the information it requires ocean carriers and alliances to file as circumstances and business practices change. Additional changes to requirements will be issued as warranted,” the agency said.

Testifying on the agency’s 2023 budget request on Capitol Hill last week, FMC Chairman Daniel Maffei said that much of the reason for the 5.2% ($1.8 million) funding increase he is seeking for next year is to boost enforcement staff to address complaints from the ocean carriers’ customers.

“Aggravated shippers continue to share information with us about unsatisfactory service — all of which is reviewed for potential violations of the law,” Maffei testified.

“There has been a noticeable uptick in litigation initiated at the commission, both in small claims as well as formal complaints before our administrative law judge. Our area representatives and Bureau of Enforcement personnel are pursuing all possible leads to identify possible enforcement actions.”

But Maffei also pointed out that service disruptions and capacity issues experienced by shippers over the past two years are not solely ocean carrier issues. “Far from carrying less cargo, ocean carriers are carrying record-setting volumes of containers into the United States,” he stated in his testimony.

“The biggest challenge is not to get the ocean carriers and seaports to carry and process more cargo, but how to address and resolve issues in the U.S. domestic networks and infrastructure that are even more severe limitations on the supply chain’s capacity. The availability of intermodal equipment, warehouse space, intermodal train service, trucking and enough workers in each of those sectors remain challenges to getting more cargo off our ports and to destination with more certainty and reliability.”

Click for more FreightWaves articles by John Gallagher.