Shippers Finally Holding the Cards Advised Against ‘Seeking Revenge’ in Contract Negotiations

By Mike Wackett (The Loadstar) – Shippers will be back on the front foot when the 2023 contract negotiations begin, but a leading maritime consultant is advising BCOs not to “seek…

By Mike Wackett (The Loadstar) – Shippers will be back on the front foot when the 2023 contract negotiations begin, but a leading maritime consultant is advising BCOs not to “seek...

Major Shareholders Raise Offer for Seaspan Takeover

By Layan Odeh (Bloomberg) — A consortium led by former Berkshire Hathaway Inc. executive David Sokol and Canadian investment group Fairfax Financial Holdings Ltd raised its offer to buy Atlas Corp.,…

By Layan Odeh (Bloomberg) — A consortium led by former Berkshire Hathaway Inc. executive David Sokol and Canadian investment group Fairfax Financial Holdings Ltd raised its offer to buy Atlas Corp.,...

Port Houston a Big Winner from West to East Cargo Shift

The Port of Houston has smashed its record for the highest number of containers handled in a single month as some U.S. imports have shifted from West to Gulf and…

The Port of Houston has smashed its record for the highest number of containers handled in a single month as some U.S. imports have shifted from West to Gulf and...

West Coast ports sink to lowest share of US imports since early 1980s

East and Gulf coast ports handled more volume than ever before in August, pulling far ahead of West Coast rivals.

photo of a container port crane

The West Coast was the destination of choice for Asian exports in the initial stage of the COVID buying boom — before container-ship queues stymied the ports. 

Since then, volumes have been redirected to the East and Gulf Coasts due to fears of both California congestion and West Coast port labor strife. There has been a major shift in cargo flows. East and Gulf coast ports now boast significantly more imports than West Coast ports.

Best month ever for East/Gulf coast ports

Data from McCown Container Volume Observer released Thursday confirms that U.S. imports remain near all-time highs. Imports to the top 10 ports totaled 2,165,939 TEUs in August, the fifth-highest monthly tally on record. August was flat year on year (y/y) and up 3% versus July.

The West Coast ports’ share of the total sank to 45%. That’s a nine-point swing from February 2021, when the West Coast boasted a 54% share. According to John McCown, author of the Container Volume Observer, August marked the West Coast ports’ lowest share of U.S. imports “since at least the early 1980s.” 

chart showing volume of cargo to West Coast ports
(Chart: McCown Container Volume Observer)

Imports to the top West Coast ports totaled 978,844 TEUs in August, down 11.5% y/y, weighed by a 17% plunge at the Port of Los Angeles (partially driven by cargo switching to Long Beach due to a union issue at one LA terminal).

Imports to the top East and Gulf coast ports totaled 1,187,095 TEUs last month, up 12% y/y. These ports “had a blowout month with their largest volumes ever,” said McCown. 

Import gains were driven by Savannah, Georgia ( up 20.4% y/y), Houston (up 12.7%), Norfolk, Virginia (up 11.4%), and New York/New Jersey (up 10.5%).

To analyze the coastal shift over time, McCown looked at the three-month trailing average of the y/y change by coastline. This data shows the latest shift toward the East and Gulf coasts began in the second quarter of 2021. Upside versus the West Coast has remained high throughout 2022. As of August, the three-month y/y change for the West Coast was minus-5.1% compared to plus-8.5% for the East/Gulf coast ports.

chart showing trends for West Coast vs East/Gulf Coast ports
(Chart: McCown Container Volume Observer)

Port queues easing

Including all three coasts, there was a peak of just over 150 container ships waiting off North America in January — mostly off the West Coast — and a similar number in late July, this time mostly off the East and Gulf coasts.

The biggest queue in recent months has been off Savannah, Georgia, with over 40 container ships waiting on some days. On Sept. 13, Georgia Ports Authority Executive Director Griff Lynch said the number of waiting ships would “dwindle” over the following six weeks.

American Shipper surveyed ship-position data from MarineTraffic and official California queue lists on Thursday morning. The survey found that the North American queue total has pulled back to 116 ships, 22% below highs in late July.

Savannah was down from its peak but still had the largest queue, with 29 ships waiting. Houston has not improved, with 23 container vessels still offshore. The other recent hot spot — New York/New Jersey — was down to 13 ships on Thursday morning; it had recently been in the 20s. Meanwhile, the queue off Virginia — composed of ships waiting to get into Norfolk or Baltimore — had worsened and was up to 13 ships.

Altogether, only 24% of waiting vessels were off the West Coast on Thursday morning, highlighting the extent that shipping lines have shifted to the other coasts.

Click for more articles by Greg Miller 

Over the past month (through Tuesday) Customs data shows that US containerized imports have actually increased versus the same period in 2021 (Chart: FreightWaves SONAR)

FreightWaves SONAR data revealed global recession months before FedEx’s earnings

FreightWaves founder and CEO Craig Fuller outlines how FreightWaves SONAR pointed to the global freight recession months ago.

A container ship stacked with containers

In a note last Friday, September 16, J.P. Morgan reminded us that back in June it warned about a concerning drop in container volume out of China, based on FreightWaves SONAR Container Atlas data. 

Part of the J.P. Morgan note.
Part of the J.P. Morgan note.

The firm titled its June 3 report “Watching the China Freight Wave,” which covered the slowdown in container markets and forewarned about a slowing U.S. domestic freight market.  

Using the same data, on June 7, FreightWaves wrote an article titled “U.S. import demand is dropping off a cliff.” We saw container flows out of China to the U.S. drop by 36% between May 24 and June 7, 2022. 

The Port of Shanghai. (Photo: Shutterstock)
The Port of Shanghai. (Photo: Shutterstock)

SONAR’s high-frequency supply chain data tracks the point-of-origin loadings (i.e. ports in China) and comes from container booking platforms that represent 70%+ of inbound containers to North America.

FreightWaves did get one thing wrong – we underestimated how long it would take the volume drop to show up at U.S. ports. We expected it to be apparent by July, but the backlog of containers was so massive that it wasn’t until August that the data was clear (Port of Los Angeles down 17% year-over-year). 

At the time of the FreightWaves article, Stifel issued a scathing report of FreightWaves’ analysis. The “global wealth management and investment banking company” confused SONAR Point of Origin bookings data with Customs clearing data in the U.S. The difference is SONAR data measures when freight is loaded at its destination port, while U.S. Customs and Border Protection measures when it clears U.S. ports. 

U.S. Customers and Border Protection officers at the Port of New York/Newark inspect an incoming shipment. (Photo: U.S. Customs and Border Protection)
U.S. Customers and Border Protection officers at the Port of New York/Newark inspect an incoming shipment.
(Photo: U.S. Customs and Border Protection)

SONAR’s data (tracking container loadings out of China) will always lead U.S. Customs data by at least six weeks. This time, the data was stretched even more due to the container backlog, and took about 60+ days to show up.

There is no doubt that container volume is slowing quickly. Ocean container spot rates from China to the U.S. West Coast have dropped from $9,600 to $3,800 since our June report to today, a reflection of slowing demand. And by the way, right now is supposed to be the peak season for ocean containers.

There are signs on the ground that things are much worse in China. China Beige Book, a provider of economic data from China that isn’t filtered or manipulated by the Chinese government, has been warning about a much bigger slowdown in China than what official reports have suggested.

In recent weeks, SONAR’s Container Atlas has continued to show signs that global freight markets are continuing to weaken. Since September 1,  container loadings bound for the U.S. have dropped by another one-third and now are below levels last seen in the summer of 2019. 

FedEx’s warnings about a global recession are in large part based on what the global company is experiencing out of Asia. As its CEO stated, FedEx has seen a week-to-week volume slowdown since its investor day in late June.

FedEx has warned of a global recession. (Photo: Jim Allen/FreightWaves)
FedEx has warned of a global recession. (Photo: Jim Allen/FreightWaves)

With over 75% of container imports related to consumer goods, a slowdown should not be a shock. In fact, there have been a number of signs since March about a slowdown in the freight market.

On March 31, 2022, I wrote “Why I believe a freight recession is imminent,” based on the significant slowdown in U.S. trucking market conditions. This was the first warning that something was materially wrong in the 2022 freight market. 

Freight markets are leading indicators of economic activity, often by months. The reason is that upstream suppliers need to source raw materials months before goods are manufactured and retailers have to ship products from wholesalers months before they end up in stores.

High-frequency freight market data enables you to see the goods economy months before everyone else. FreightWaves pioneered these datasets over the past several years, and we are just starting to learn their full ability in helping to track the massively opaque global goods economy. 

This will become far more important in the future as the world shifts into a multipolar world, with competing geopolitical interests, disruptive events, and supply chains that prioritize resiliency over lowest costs.

Mexico’s biggest container port reopens after earthquake

The Port of Manzanillo has resumed operations after a 7.7 magnitude earthquake rocked Mexico’s Pacific Coast region Monday.

Mexico’s largest container port has resumed operations after a 7.7 magnitude earthquake rocked the country’s Pacific Coast region Monday.

Officials for the Port of Manzanillo said that operations restarted at 8 a.m. Wednesday for all types of commercial and tourist vessels. The Port of Manzanillo had been closed to operations since noon Sunday in preparation for Tropical Storm Madeline, according to Noticias Manzanillo.

The earthquake that occurred just after 1 p.m. Monday left two people dead in the city of Manzanillo and damaged homes, buildings, bridges and roads. The tropical storm also caused wind and water damage to parts of the city.

The earthquake’s epicenter was just 40 miles from the Port of Manzanillo, one of the main gateways for international trade with Mexico, handling about 48% of all cargo entering the country. The port handled 3.37 million twenty-foot equivalent units and 14 million tons of cargo in 2021, according to SPC Global

Philippines-based port operator International Container Terminal Services (ICTSI), which recently added four gantry cranes at the Port of Manzanillo, said it is still assessing damage at the facility.

“Everyone is OK, no injuries to report,” Narlene Soriano, a spokeswoman for ICTSI, told FreightWaves. “We are currently conducting a thorough inspection of the facility.”

Other terminal operators at the Port of Manzanillo include SSA Mexico, Hutchison Ports Timsa and the Ocupa Group.

Click for more FreightWaves articles by Noi Mahoney.

More articles by Noi Mahoney

Massive 7.7 earthquake strikes Mexico Pacific Coast region

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Red flag: Shipping lines suddenly a lot less interested in renting ships

Container lines are pulling back fast from the ship-leasing market, signaling less confidence in future freight income.

a photo of a container ship

The cost to transport containerized goods peaked at unprecedented levels in late 2021. That cost has been falling ever since. In contrast, the cost to rent ships that carry containerized goods held up much longer. Even as freight indexes slid month after month, charter indexes stayed near record highs into this summer.

No longer. Indexes that measure container-ship rental rates are now dropping like a stone, suffering far steeper declines than freight indexes. Ship-charter indexes have nose-dived in recent weeks.

“What is astonishing is how quickly the market appears to turn,” said ship brokerage Braemar on Monday. “Only some weeks ago, charter rates appeared stable and operators were still securing forward tonnage at historically high rates on long-term periods.”

The fact that liner companies are suddenly less interested in renting container ships — and when they are, they pay less and lease for shorter periods — can only mean one thing: Liner sentiment toward the freight market’s future supply-demand balance has deteriorated.

Charter indexes falling fast

The Harpex index, published by brokerage Harper Petersen & Co. since 2004, hit an all-time high of 4,586 points in late March. It stayed in the vicinity of that peak, in the low 4,400s, until late July. As of Friday, it had collapsed all the way down to 3,095 points, sinking 30% in just eight weeks and 18% versus the previous week. The Harpex is now down back to July 2021 levels, albeit still four to five times higher than pre-COVID.

Harpex index (Chart: Harper Petersen & Co.)

Braemar’s BOXi index was at 317 points on Monday, plunging 30% in the past week alone. The BOXi index was at 580 points in late July. It fell 45% in just six weeks.

The charter index of brokerage Clarksons plunged 26% last week, although it’s still four times pre-COVID levels.

According to Clarksons Securities analyst Frode Mørkedal, “Softening has been most obvious in the feeder sector in recent weeks. But the consequence of dropping freight rates is now further eroding [charter] hire rates in the bigger size ranges, even while tonnage availability remains constrained.”

Braemar likewise cited weakness among the smallest ships. “In the feeder market below 2,000 TEUs [twenty-foot equivalent units], we are seeing the biggest build-up of open tonnage and it is across all regions.”

Braemar also sees trouble brewing for midsize ships. It highlighted a recent six-month charter of a smaller Panamax-class vessel at $50,000 per day for a period of only six months. “It is about three months ago when similar-sized vessels were still able to get five-year employment at similar rate levels,” Braemar said.

Wave of newbuildings in 2023-24

When container lines leased ships for four to five years at historically high charter rates during the 2021-22 peak, it didn’t mean that liner execs believed freight rates would stay high for the next four to five years.

Rather, it meant that liners believed they’d make so much from high freight rates at the front end of charters that they’d come out on top even if they gave back some of those profits in the later years by continuing to pay high rents when freight income was much lower.

Freight rates were so high at the market apex in late 2021 that even after they initially started to descend, they continued to provide exceptionally high income in relation to liners’ ship-chartering costs. Ocean carriers continued to rack up record quarters in the first half of 2022. Carriers remained confident enough in freight earnings to continue leasing container ships at very high rates. As a result, steadily high charter indexes diverged from falling freight indexes.

The swiftness and severity of the recent charter-market index decline — closing the gap with freight-index trends — implies a change in liner confidence toward freight earnings.

The container-ship orderbook looms ever larger. According to Clarksons Securities, tonnage on order is now 27.3% of tonnage on the water. Of new deliveries, 75% of tonnage will be delivered in 2023-24.

In past cycles, when liners had too many newbuild deliveries for freight demand to fill, they let ship leases expire. If they signed renewals or leased new ships, they paid much lower charter rates. They laid up excess vessels and reduced sailing speeds.

At the bottom of the last cycle, when Hanjin went bankrupt in 2016, the Harpex hit a nadir of 314 points, one-tenth of the index’s current level.

Click for more articles by Greg Miller 

Massive 7.7 magnitude earthquake strikes Mexico Pacific Coast region

A 7.7 magnitude earthquake rocked Mexico’s Pacific Coast region, where the country’s largest container port is located.

A powerful earthquake struck Mexico’s central Pacific Coast region Monday afternoon causing at least one death, as well as major damage to buildings, roads and other infrastructure, according to early reports.

The U.S. Geological Survey initially reported a 7.6 magnitude earthquake. Mexico’s national seismological agency later upgraded the magnitude to 7.7 in a press conference on Monday.

The earthquake’s epicenter was about 40 miles from the Port of Manzanillo, the country’s largest and busiest container port. It was not immediately clear if the port sustained major damage. 

The Port of Manzanillo handled 3.37 million twenty-foot equivalent units and 14 million tons of cargo in 2021, according to SPC Global

The port is one of the main gateways for international trade with Mexico, handling about 48% of all cargo entering the country, according to the General Directorate of Ports.

The Port of Manzanillo has been closed since noon Sunday in preparation for Tropical Storm Madeline, which caused wind and water damage to parts of the city, according to Noticias Manzanillo.

The earthquake in Manzanillo set off quake alarms more than 500 miles away in Mexico City. Alarms for the new quake came less than an hour after a nationwide earthquake drill took place in commemoration of two major quakes that struck Mexico on this same day in 1985 and 2017.

Click for more FreightWaves articles by Noi Mahoney.

More articles by Noi Mahoney

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Port of Long Beach Sees Pandemic-Era Imports Surge Easing

By Augusta Saraiva (Bloomberg) — The head of the second-biggest US port expects the pandemic-era surge in consumer demand that snarled supply chains will start to cool, with evidence of a…

By Augusta Saraiva (Bloomberg) — The head of the second-biggest US port expects the pandemic-era surge in consumer demand that snarled supply chains will start to cool, with evidence of a...

Fall in container spot rates ‘much steeper,’ ‘less orderly’ than expected

Container shipping rates — particularly from Asia to the U.S. — are still falling hard and show no sign of finding a floor.

photo of containers

Shipping liner executives predicted a continued drop in spot rates during their latest quarterly calls, while offering soothing assurances to investors that the fall would be gradual. Maersk CFO Patrick Jany said it would be a “progressive erosion,” not “a one-day drop.” Matson CEO Matt Cox emphasized rates were “adjusting slowly” in an “orderly marketplace” and not “falling off a cliff.”

The decline may indeed be fairly steady, as opposed to the sudden, violent swings seen in bulk commodity shipping. Yet spot container rates appear to be falling more rapidly than some liner executives expected.

Stifel analyst Ben Nolan recently met with executives of Matson (NYSE: MATX). “In our meetings, management indicated that … the downward softening has been much steeper and less orderly in the past two months,” Nolan wrote in a client note on Sunday.

Matson introduced its third trans-Pacific service — China-California Express (CCX) — in June 2021 to meet booming demand. During the Aug. 1 conference call, Cox said CCX would run through October. It didn’t.

“As a result [of softening demand] the company has completed the last sailing of the temporary CCX service ahead of the targeted October conclusion date,” said Nolan.

Steepest decline in Asia-West Coast market

“Spot rates continue to plummet,” said Clarksons Securities analyst Frode Mørkedal on Monday. “The Shanghai-U.S. West Coast corridor has seen the most significant adjustment.”

The Freightos Baltic Daily Index (FBX) China-West Coast assessment has fallen 76% over the past six months, to $3,799 per forty-foot equivalent unit as of Friday. The Drewry Shanghai-Los Angeles assessment is down 57% in the same period.

chart showing change in container shipping spot rates
Blue line: FBX China-West Coast. Green line: Drewry Shanghai-LA (Chart: FreightWaves SONAR)

In the week reported Thursday, the Drewry rate for Shanghai-LA fell another 11% week on week. The prior week, it had dropped 14%.

 “There is no clarity with respect to when or where market rates may bottom,” said Nolan.

More blank sailings predicted after Golden Week

The initial COVID-19 lockdowns in Europe and the U.S. slashed import demand in the second quarter of 2020. Ocean carriers were able to “blank” (cancel) enough sailings to bring capacity down in line with demand. Carriers successfully stopped the spot-rate slide.

What happened in that earlier period is frequently cited as proof that carriers can blank sailings in the future if demand falls too low, putting a floor on rates. “We would expect ships to be removed from vessel services,” said Mørkedal.

Sources told Platts they’re looking to China’s Golden Week holiday (Oct. 1-7) as a potential turning point. Market participants are “bracing for a blank sailing program to be announced by carriers,” reported Platts. “Most sources expect the period immediately after Golden Week to be marked by a tonnage reshuffling as carriers look to balance capacity against the evolving marketplace.”

Spot rates still nowhere near past levels

Looking back to Q2 2020, the Drewry Global Composite Index fell to a low of $1,446 per FEU in late April. Blank sailings by carriers kept rates from falling even lower amid lockdowns.

chart showing container shipping rates during Q2 2020 lockdowns
Spot rate in $ per FEU (Chart: FreightWaves SONAR)

Prior to the pandemic, Drewry’s global index averaged $1,474 per FEU in 2018-2019. Several carriers lost money in those years.

As of last Thursday, Drewry’s global index was at $4,942 per FEU, still 3.4 times higher than the pre-COVID average and the COVID lockdown low — even after a 44% decline over the past half year, an average drop of $650 per FEU per month.

Spot rate in $ per FEU (Chart: FreightWaves SONAR)

If this same pace of decline were to continue, the Drewry global index would not reach pre-COVID levels until mid-Q1 2023.

If the same pace of decline continued for the next three months, the index would still be double pre-COVID levels.

Contract rates support carrier profits

Furthermore, a decline in spot rates does not have the same effect on ocean carriers as it did pre-pandemic because of changes in the contract market.

Carriers have more of their volume on annual contracts. In 2019, Maersk said it had only 46% of its long-haul business on long-term contracts. It now has 71% secured for one or more years.

Contract rates are also dramatically higher than they used to be. While a portion of this year’s contract business will be renegotiated, or not honored, the remainder will allow carriers to offset spot-business declines.

Chart source: Xeneta

Ocean carrier Zim (NYSE: ZIM) said its contract rates this year were double 2021’s. Hikes of 50% or more were reported by carriers in 2021 versus 2020. Xeneta publishes an index that tracks long-term freight rates. Its global index hit 453 points in August, about 4.5 times pre-COVID levels. The index is up 121% year on year.

Thus, not only do spot rates still have a long way to fall before they’re back where they started — even at the steeper-than-expected pace of decline — they’re also overshadowed by contract rates when it comes to near-term carrier profits and shipper costs. 

lick for more articles by Greg Miller