Another Panama Canal red flag: Spiking product tanker rates

U.S. diesel exports to South America’s west coast are heavily exposed to Panama Canal delays. Tanker rates have skyrocketed.

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Yet another signal on the Panama Canal situation is flashing red: Spot rates are surging for product carriers — specialized tankers carrying diesel, gasoline and jet fuel — that transit the waterway.

America is the world’s largest exporter of refined petroleum products. The west coast of South America is a traditional destination and the Panama Canal is pivotal to this trade. Alternate routes are more than twice as long.

Since the Panama Canal Authority (ACP) began heavily restricting reservation slots at the start of November, waiting time for ships without reservations has dramatically increased — and spot rates for medium range (MR) product tankers using the canal have skyrocketed to record highs.

According to price reporting agency Argus, the U.S. Gulf-Chile rate reached $105 per ton of cargo on Tuesday, up 92% from Nov. 1. The U.S. Gulf-Peru rate hit $113 per ton, up 105% from Nov. 1.

“Both are the highest levels since Argus began reporting those assessments in 2012 and 2015 [respectively],” said Nick Watt, head of Argus freight pricing services, in comments sent to FreightWaves.

chart of spot rates of tankers transiting Panama Canal
Rates are converted to $/ton from lump sums assuming 38,000 tons of cargo. (Chart: FreightWaves based on Argus data)

Transit delays squeeze tanker supply

Looking back at Argus’ historical data, there is no precedent on these routes for the run-up in rates during November. In past years, rates have increased only moderately, or decreased, during this month.

“The transit delays are squeezing tanker supply available in the Gulf by slowing their return to the Atlantic Basin,” explained Watt. “With about a third of U.S. refined products exports reaching Latin America’s Pacific coast — Chile, Peru, Ecuador and Mexico’s west coast — that’s a significant number of tankers being held up on the way back.

Vessel-tracking data from MarineTraffic showed 20 product tankers waiting at the Pacific entrance to the canal on Thursday.

“Vessels without booked transit slots are waiting up to four weeks to transit the canal’s lock system. Tanker operators are charging premiums to carry cargoes across the Panama Canal because they know they’ll have to either wait in line or secure a transit slot on the return journey,” Watt said, noting that a transit slot for an MR product tanker can cost as much as $1 million.

Tanker ‘migration’ factors

The cure for high prices is high prices. The historic rates being achieved by MRs in the U.S. Gulf-to-west coast route should attract more tankers, bringing rates off their peak.

“Looking ahead, the canal delays are likely to continue well into next year, but U.S. Gulf Coast rates may retreat as tanker operators ballast across the Atlantic from Europe to capitalize on the high-earning journeys in the U.S. Gulf,” said Watt.

On the other hand, Atlantic Basin vessel supply is usually “balanced” by product tankers migrating from the Pacific Basin. The Panama Canal crisis may stymie this option.

Rates for MRs in the Pacific Basin are much lower than in the Atlantic. According to Clarksons Securities analyst Frode Mørkedal, “The sustained strength [in MR rates] is primarily due to market tightness in the Atlantic region. The Pacific market tells a different story, with rates significantly lagging behind.

“A key factor contributing to the subdued Pacific market compared to last year is the reduced volume of Chinese exports, a consequence of the absence of additional export quotas.

“Although there is a significant difference in earnings between the Atlantic and the Pacific, the Panama Canal disruptions make it harder for vessels to ballast from Asia to the U.S.,” said Mørkedal.

Vortexa analyst Mary Melton made the same point in a market commentary on Nov. 24. “Panama Canal congestion could create global fleet distribution rigidity” and “uncertainty for MRs migrating to the Atlantic Basin,” she wrote.

“Moving forward, fleet inflexibility looks likely, as repositioning and migration may be more difficult.”

Click for more articles by Greg Miller 

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No reservation at Panama Canal? Prepare for a long wait

As the Panama Canal scales back on reservation slots, more ships without reservations wait longer to get through.

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Panama Canal disruptions are worsening. Wait times for vessels without reservations have surged this month.

In response to drought conditions, the Panama Canal Authority (ACP) cut the number of daily reservation slots from 32 at the beginning of November to 24 currently. Slots will drop to 22 on Friday, then to 18 by Feb. 1.

If enough ships don’t divert from the Panama Canal to offset the drop in reservation slots, the number of ships without reservations rises — as does wait time.

The average wait time for ships without a reservation for Atlantic-to-Pacific (southbound) transits was 2.1 days at the beginning of November. As of Wednesday, it was over five times that — 11.4 days — according to ACP data.

The maximum wait on for southbound transits hit 22.8 days on Sunday, triple the maximum wait at the beginning of the month.

a chart of Panama Canal wait times
(Chart: FreightWaves based on ACP data)

Pacific-to-Atlantic (northbound) transits also show a sharp rise in wait time in November for ships without reservations, coinciding with cuts to reservation slots.

Average wait time was nine days on Wednesday, more than triple the average at the beginning of the month. The maximum wait time was 24.9 days on Wednesday, more than quadruple what it was in early November.

a chart of Panama Canal wait times
(Chart: FreightWaves based on ACP data)

“It’s the worst we have seen in terms of waiting time — ever,” said Randi Navdal Bekkelund, CFO of Avance Gas (Oslo: AGAS), during a presentation on Thursday.

Panamaxes waiting the longest

The ships suffering the longest wait times are those transiting the older Panamax locks, which the ACP categorizes as “regulars,” ships with a beam (maximum width) of less than 91 feet, and “supers,” those with a beam of 91 to 107 feet.

As of Wednesday, no Neopanamax ships (with beams over 107 feet) in the queue had been waiting more than 11 days to transit the larger, newer locks. In contrast, at the Panamax locks, 10 supers had been waiting 13-25 days and three regulars for 14-15 days.  

In response to rising wait times, the ACP just began offering a special daily auction slot for Panamax locks transits to supers and regulars without reservations that have been waiting 10 days or more. The first slot in the special auction was for a transit on Monday.

Average wait time for Neopanamaxes also up

Data on average (versus maximum) wait times shows that Neopanamaxes without reservations are likewise facing longer waits this month — this is not a problem specific to the smaller Panamax locks.

On the southbound route — commonly used by ships transporting bulk commodity cargoes from the U.S. to Asia and the west coast of South America — average wait time for Neopanamaxes without reservations was higher than for Panamaxes during the first half of November and on par with the average for all ship sizes on Tuesday.

Average wait time for southbound Neopanamaxes with no reservation is triple what it was at the beginning of November.

a chart of Panama Canal wait times
(Chart: FreightWaves based on ACP data)

On the northbound route — frequently used by laden container ships headed to U.S. ports and empty bulkers and tankers planning to reload in the U.S. — average wait time for Neopanamaxes without reservations was in line with Panamax wait time for most of this month.

Average Neopanamax wait time has now fallen well below Panamax levels in the northbound lane. However, this has only been during the past four days.

(Chart: FreightWaves based on ACP data)

Impact on bulk commodity shipping

Ship-position data from MarineTraffic showed 33 dry bulk carriers at anchorage off entrances to the canal on Wednesday (18 on the Pacific side, 15 on the Atlantic side).

The queue of product tankers was heavily weighted to the Pacific side: 16 versus three on the Atlantic side. In addition, there were a dozen liquefied petroleum gas (LPG) tankers waiting, six at either entrance. There was only one liquefied natural gas (LNG) carrier waiting to transit.

The commodity ship backlog would be larger, except that many LNG carriers, as well as high-capacity LPG tankers known as very large gas carriers (VLGCs), have already given up on Panama.

“For those who want to go from the Atlantic Basin to the Pacific Basin [with LNG ships], they are going around the Cape of Good Hope as Plan A. I’d go so far as to say that’s the norm now,” said Richard Tyrrell, CEO of LNG carrier owner Cool Co. (NYSE: CLCO), during a conference call Tuesday.

VLGCs are now commonly avoiding Panama on their return trip to the U.S. from Asia. “The number of VLGCs taking longer routes to the U.S. from Asia has skyrocketed,” said Oystein Kalleklev, CEO of Avance Gas, during a conference call Tuesday.

“Today, there are about 50 VLGCs taking a route via the Cape of Good Hope to the U.S. This summer, the number was 10,” said Kalleklev.

Impact on container shipping

Ship-position data also shows a growing number of container ships in Panama Canal queues: 21 on Wednesday, around double the number at anchorage this summer. (This also includes container ships waiting to berth at Panamanian terminals, not to transit the canal.)

Neopanamax container ships that serve U.S. East and Gulf Coast ports secure transit reservations for their scheduled liner services. However, the reduction in daily Neopanamax reservation slots to just five per day as of Jan. 1 will likely force some carriers to seek alternate routes.

French carrier CMA CGM confirmed on Nov. 21 that the canal situation is already “taking a severe toll on operations.” MSC, the world’s largest ocean carrier, said Monday that the Panama Canal situation is having “a direct impact” its operational costs.

Industry analytics provider Linerlytica warned on Monday: “The Panama Canal transit restrictions have started to impact container ships for the first time, with a rising number of ships facing delays that are set to worsen over the next two months.”

Click for more articles by Greg Miller 

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Bankrupt Bed Bath & Beyond files $316M mega-claim against MSC

MSC, the world’s largest shipping line, faces the largest-ever shipper claim for alleged damages suffered during the supply chain crisis.

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The bankruptcy estate of former retail giant Bed Bath & Beyond (BBBY) continues its relentless pursuit of shipping lines for alleged damages suffered during the supply chain crisis. It has already filed $31.7 million in claims against Hong Kong shipping line OOCL and $7.7 million in claims against Taiwan’s Yang Ming.

But those were just the appetizers.

The main course, filed Tuesday, is a mammoth claim against the world’s largest ocean carrier, Switzerland’s Mediterranean Shipping Co. (MSC). The various alleged damages add up to $158 million, plus there’s a request that all reparations be doubled due to “MSC’s willful retaliatory conduct.”

That brings the tally to a whopping $316 million, the largest shipper damage claim, by far, against an ocean carrier since the supply chain crisis.

As in the earlier cases filed with the Federal Maritime Commission (FMC) against OOCL and Yang Ming, BBBY’s estate is seeking reparations for the added cost of shipping cargo due to volume shortfalls under service contracts, alleged excess amounts paid through peak season surcharges (PSSs) and other charges, and alleged unfair detention and demurrage charges.

The new wrinkle in the MSC case is that BBBY’s estate is seeking compensation for lost profits and is asking for double reparations.

Shipping costs due to contract shortfall

BBBY’s estate said that MSC carried 1,686.5 forty-foot equivalent units fewer than its Minimum Quantity Commitment (MQC) in the 2021-2022 service contract.

“The additional incremental cost of replacing [the] shortfall … was at least $7,290,314 more than what [BBBY] would have paid had MSC honored its service contract.”

‘Astronomical’ lost profits

“The lost profits sustained by [BBBY] on a per-container basis substantially exceed the excess costs incurred by … purchase of alternative carriage,” said the BBBY estate.

It cited the case of OJ Commerce vs. Hamburg Sud, decided by the FMC in June, in which lost profits were equated with the average profits per container carried in the period, multiplied by the shortfall the carrier failed to carry.

It said the goods it sold in the 2020-2021 and 2021-2022 contract periods equated to an average profit of $66,924 per FEU for BBBY. Multiplying that by the shortfall under the 2020-2021 service contract, it calculated that “lost profits would have amounted to an astronomical $112,867,444.”

Peak season surcharges

“MSC also engaged in a practice of coercing [BBBY], and, upon information and belief, other shippers, to pay extracontractual prices and surcharges, including PSSs, as a precondition to MSC meeting even a portion of its service commitments under the … service contracts,” alleged the BBBY estate.

It claimed BBBY paid $5,523,788 above the rates it agreed to in its 2020-2021 service contract and $9,005,149 above the rates it agreed to in its 2021-2022 service contract.

Detention and demurrage charges

The BBBY estate said detention and demurrage charges were assessed “for a period of time in which [BBBY’s] ability to pick up containers at ports or return empty containers promptly was constrained due to circumstances outside [its] control, such as congestion at the ports and shortage of equipment.”

It said it paid a total of $23,220,491 in detention and demurrage charges to MSC in the 2020-2021 and 2021-2022 contract periods and argued that “a substantial majority of the charges … were unjustly and unreasonably assessed.”

Double reparations sought

On top of the base amount of its claims, BBBY argued that “in light of MSC’s willful retaliatory conduct alleged herein, complainant also requests that any award of reparations … be doubled pursuant to 46 U.S.C. Section 41305(c.)” of the Shipping Act.

The BBBY estate argued that “MSC took advantage of price inflation in the container shipping sector and unfairly exploited its customers.”

It said the ocean carrier’s “enormous windfall profits” allowed it to go on “a multi-billion-dollar ship-buying spree that has led to it becoming the world’s largest ocean carrier.”

It cited an unconfirmed report published in the Italian newspaper “Il Messaggero” that MSC had net profit of $38.4 billion in 2022 and cash reserves of $68.7 billion at the end of that year.

MSC disputes allegations ‘in their entirety’

While the unprecedented scale of the alleged damages was not revealed until Tuesday, the filing of the BBBY claim against MSC was expected.

As previously reported by FreightWaves, MSC said in an Aug. 31 filing in the BBBY bankruptcy case that it received an initial demand letter from law firm Huth Reynolds on April 28, five days after the retailer’s Chapter 11 filing.

BBBY, through Huth Reynolds, “accused MSC of certain violations of the Shipping Act … arising from MSC’s purported failure to fulfill its service commitments and its assessment of demurrage and detention charges — allegations that MSC disputes in their entirety,” said the ocean carrier.

BBBY’s bankruptcy plan specifically calls out container shipping cases and sets a formula for distribution of any future court winnings. The company hired Huth Reynolds on March 23 to handle claims against shipping lines — a month prior to its Chapter 11 filing.

In a section entitled “Shipping and Price Gouging Claims,” the bankruptcy plan refers to money obtained by litigating ocean carriers’ alleged failure to comply with shipping regulations and laws, “including pricing practices.”

Under the bankruptcy plan, 80% of any shipping and “price-gouging” judgments would go to first-lien and debtor-in-possession lenders, both administered by Sixth Street Specialty Lending, and 20% would go to the debtor or the successor entity.

Click for more articles by Greg Miller 

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Zim container ship diverts as threat to Israel-linked vessels mounts

There has been a surge of attacks and threats targeting Israel-linked ships, including one incident where the U.S. Navy came to the rescue.

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Following three attacks on vessels linked to Israel, a container ship operated by Israeli ocean carrier Zim has changed course and is taking the long way around Africa rather than transiting the Suez Canal and passing through the Bab el-Mandeb Strait off Yemen.

Ship position data from MarineTraffic shows that the Zim Europe, en route from Boston to Port Klang, Malaysia, passed through the Strait of Gibraltar and entered the Mediterranean on Friday. It continued due east until it was between Oran, Algeria, and Cartagena, Spain, then did an about-face on Saturday afternoon.

The container ship — which has a capacity of 5,618 twenty-foot equivalent units — headed back out to the Atlantic and down the west coast of Africa. As of Monday, it had passed Casablanca, Morocco, and was headed south at 16 knots.

map showing route of Zim Europe, leased by Israel-based Zim
Ship position data on the Zim Europe over recent days. (Map: MarineTraffic)

The voyage from the Strait of Gibraltar to Port Klang via the Cape of Good Hope is 56% longer than via the Suez Canal.

“In light of the threat to safe transit of global trade in the Arabian and Red Seas, Zim is taking temporary proactive measures to ensure the safety of its crews, vessels, and customers’ cargo by re-routing some of its vessels,” said the company on Monday.

“As a result of these measures, longer transit times in the relevant Zim services are anticipated, though every effort is being made to minimize disruptions.”

US Navy intervenes to rescue tanker

On Saturday, the product tanker Central Park was ordered by Yemen’s Houthi rebels to divert to Yemen’s port in Hodeida. The Central Park is managed by Zodiac Maritime, a company headed by Israeli shipping magnate Eyal Ofer.

The Central Park was told by the U.S. Navy destroyer USS Thomas Hudner to ignore the demand and continue its voyage, according to security company Ambrey.

U.S. Central Command (CENTCOM) confirmed that on Sunday, the U.S. Navy destroyer USS Mason received a distress call from the Central Park, saying it was under attack.

“Upon arrival, coalition elements demanded release of the vessel,” said CENTCOM. “Subsequently, five armed individuals debarked the ship and attempted to flee via their small boat. The Mason pursued the attackers, resulting in their eventual surrender.”

Early on Monday, “two ballistic missiles were fired from the Houthi-controlled areas in Yemen toward the general location of the USS Mason and Central Park,” said CENTCOM. “The missiles landed in the Gulf of Aden approximately 10 nautical miles from the ships.”

A new plot twist emerged later on Monday. A Pentagon press spokesperson told reporters that the five men who surrendered were not Houthis, they were Somali pirates.

This implies that either Somali pirates coincidentally hijacked a ship that was simultaneously being targeted by the Houthis due to its Israeli ties — or there is some other explanation, the most likely being that the Somali pirates planned to deliver the ship to the Houthis.

3 attacks so far

The boarding of the Central Park followed two other recent attacks on Israeli-linked vessels.

On Friday, the 15,264-TEU CMA CGM Symi was hit by an Iranian “kamikaze” drone in the Indian Ocean. A U.S. official told The Associated Press that there was damage to the ship but no injuries. The vessel is leased by French ocean carrier CMA CGM from Eastern Pacific, a company controlled by Israeli shipping billionaire Idan Ofer, Eyal Ofer’s brother.

On Nov. 19, the car carrier Galaxy Leader was hijacked by paramilitary forces descending from a helicopter. Video of the assault was posted on X, formerly Twitter, by Ahmed Saree, the spokesman of the Houthi army. The ship is now at anchorage off Hodeida.

The Galaxy Leader’s ownership is linked to Israeli businessman Abraham “Rami” Ungar. The ship’s 25 crewmembers — who are mainly Filipino — remain detained. Two other car carriers operated by Ungar’s Ray Shipping diverted their voyages after the Galaxy Leader hijacking, according to MarineTraffic.

Threat to Zim

On Saturday, the same day the Zim Europe changed course and headed around Africa, Saree posted a cryptic one-word tweet: “ZIM.”

Zim (NYSE: ZIM), whose stock hit a new all-time low Monday, is the most visible of the Israeli shipping companies and the most closely connected with the government. The government of Israel has a “golden share” or “special state share” in the company that ensures the government’s access to Zim’s fleet “in a time of emergency or for national security purposes.”

Social media and the Arab press have featured numerous false reports of Houthi attacks on Zim vessels over recent days. “We have seen several fake reports on social media. All Zim vessels are safe and accounted for,” Zim spokesperson Avner Shats told FreightWaves.

The Israeli liner operator has three services that transit the Bab el-Mandeb Strait: ZIM India Israel (ZII), ZIM India Turkiye (ZIT) and ZIM Mediterranean Premium Service (ZMP).

The ZII service uses space aboard vessels of Mediterranean Shipping Company (MSC). The ZIT service also uses space aboard MSC vessels, plus one CMA CGM ship.

The ZMP service is more problematic from a security perspective, as it uses multiple vessels with the word “ZIM” painted on the hull, including the Zim Europe. The ZMP service also uses chartered vessels that are not as easily identifiable as Zim tonnage, including one that was in the Red Sea and heading for the Bab el-Mandeb Strait on Monday.

Click for more articles by Greg Miller 

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Borderlands: Eternity Group Mexico unveils tool for shippers to monitor carbon footprint

This week in Borderlands: Eternity Group Mexico unveils a tool for shippers to monitor their carbon footprints; Finkargo closes a $20 million Series A funding round; cargo-partner launches a cross-border shipping solution; and SKU Distribution receives foreign trade zone status for its Arizona warehouse.

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Borderlands is a weekly rundown of developments in the world of United States-Mexico cross-border trucking and trade. This week: Eternity Group Mexico unveils a tool for shippers to monitor their carbon footprints; Finkargo closes a $20 million Series A funding round; cargo-partner launches a cross-border shipping solution; and SKU Distribution receives foreign trade zone status for its Arizona warehouse.

Eternity Group Mexico launches tool for shippers to monitor carbon footprint

Eternity Group Mexico recently introduced Elis Carbon Neutral, a digital tool focused on creating more environmentally sustainable global logistics operations.

Early adoptees of carbon neutral technologies could not only gain a competitive advantage but will also be leading the way to a greener and more sustainable future, company officials said.

“We’ve developed Elis to offer carbon-neutral solutions over the customer’s supply chain,” Nicolas Portenza, president of Eternity Group Mexico, told FreightWaves. “Due to the technology developed, I’m pretty sure we are the only player in Latin America with such a solution.”

The Mexico City-based logistics and transportation solutions provider is part of Hong Kong-based Eternity Group, a global freight forwarder founded in 1989. The Eternity Group operates 15 offices in China and Panama, shipping freight throughout Asia and to/from the Caribbean, as well as Central and South America.

Eternity Group Mexico launched Elis in 2019. The service is a cloud-based platform to track international freight shipments in real time between major markets from Asia to Latin America.

The addition of a tracking system came about as a way for Elis to help global shipping operations reduce their carbon emissions.

Elis Carbon Neutral uses blockchain technology, which allows for a measurement of energy output during transport. Elis also documents any carbon footprint reduction process employed by customers, which helps them obtain the necessary external certifications for carbon neutrality or carbon credits.

“Knowing the carbon footprint we generate through our activities allows us to become aware of our contribution to global warming and therefore be able to take action,” Portenza said. “We have decided to implement [Elis Carbon Neutral] so as to mitigate and offset the emissions from all our customers’ maritime operations.”

Ocean container shipping accounts for about 2.8% of all global greenhouse gas emissions annually, according to the United Nations Conference on Trade and Development.

In 2022, the global maritime shipping industry contributed about 858 million tons of CO2 emissions, compared with 739 million tons of CO2 emissions from air transport, said the Organisation for Economic Co-operation and Development (OECD).

“The results from the OECD’s estimation model show that around half of total emissions are from container ships and bulk carriers and another one-fifth are from the transport of fossil fuels (oil and liquefied natural gas tankers),” the OECD said in a report from June. 

In July, the International Maritime Organization announced new global emission-reduction targets aimed at reducing CO2 emissions from the ocean container shipping industry. The IMO said its aim is for the shipping industry “to reach net-zero GHG emissions by or around 2050, taking into account different national circumstances.” 

Finkargo closes $20M Series A funding round

Finkargo recently announced the closing of a $20 million Series A financing round led by QED Investors, with participation from Nazca, Quona, Flybridge, Maya and ONEVC.

The Mexico City-based company is an international trade platform for small and medium-sized businesses offering global sourcing, trade services and financing solutions.

The Series A financing will help expand Finkargo’s offerings into an integrated suite of trade services, such as supplier sourcing, product verifications, cargo insurance, foreign exchange and international trade data intelligence.

“While the global trade finance market sits at $5.2 trillion, there’s still a $1.7 trillion financing gap,” QED Investors Principal Camila Key Saruhashi said in a news release. “SMBs in Colombia and Mexico import over $30 billion in volume from Asia annually, but struggle to access capital to manage the 60- to 120-day gap it takes from payments to shipment arrival.”

Finkargo is an international trade platform founded in 2021 by Santiago Molina, Andres Ferrer and Tomas Shuk. The company has facilitated international trade solutions for over 250 customers and financed more than 2,000 import operations totaling over $200 million.

Cargo-partner launches cross-border shipping solution

Logistics provider cargo-partner has launched a cross-border road transport solution linking shipments between the U.S., Canada and Mexico. 

The company’s cross-border shipping services include transportation, storage and customs clearance, as well as custom-tailored solutions for cross-border truckload, less-than-truckload and specialized cargo across North America.

“We continue to grow our operations on all sides of the borders, so we have dedicated teams providing a variety of end-to-end solutions,” said Ralf Schneider, president of cargo-partner USA.

The company’s trucking services utilize warehouse facilities in Clarksville, Tennessee, and Chicago, offering 301,389 square feet of logistics space. In 2021, cargo-partner opened offices in Mexico City and Puebla, Mexico.

Austria-based cargo-partner has 4,000 employees at 160 locations in 40 countries.

SKU Distribution’s Arizona facility designated as FTZ 

SKU Distribution announced its facility in Chandler, Arizona, has been designated as a foreign trade zone (FTZ) 3PL distribution warehouse and fulfillment center.

Chandler is located about 23 miles southeast of Phoenix.

FTZs provide special customs procedures that help companies conducting international business-related operations. When a business operates under FTZ procedures, U.S. import duties don’t have to be paid on imported components entering their factories.

“The FTZ designation is a cash flow game-changer for businesses,” James Peacock, CEO of SKU Distribution, said in a news release. “This allows companies to import their products and defer their customs duties and taxes until their product leaves the zone (our warehouse) for domestic consumption.”

Chandler-based SKU Distribution, founded in 2016, is an international and domestic third-party warehousing, distribution and fulfillment provider. The company has about 50 employees.

Click for more FreightWaves articles by Noi Mahoney.

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‘Dire’ scenario for shipping lines more likely as spot rates fall back

Time is running out for container lines as contract rate renewal season nears and spot rates fail to recover.

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There’s a lot at stake for container lines’ 2024 bottom lines in the last few weeks of 2023. If lines can’t push up spot rates very soon, next year’s annual contract rates will reset much lower versus this year’s.

That scenario — which would have a very negative financial effect on liners — looks increasingly likely. Time is running out for a fourth-quarter rebound, and indexes show spot rates falling, not rising.

Shipping lines’ attempts to use general rate increases (GRI) this month to improve their negotiating hand for annual contract resets have failed. They have one last chance in December, but their track record of getting GRIs to stick has been poor.

Maersk CEO Vincent Clerc bluntly laid out the worst-case scenario during a conference call on Nov. 3: “If nothing has happened to the spot market during the [fourth] quarter, it would not be the trough, because that will mean there is a reset of [2024] contract levels down to those levels.”

He noted that there is a significant gap between contract rates signed earlier this year — which are about to reset — and current spot rates.

What happens in the current quarter with spot rates will have “a profound impact on what 2024 is going to look like,” Clerc continued. “If Q4 is not delivering some type of improvement, I think we’re looking at a pretty dire situation in 2024.”

Spot rates fall back again

The global composite of Drewry’s World Container Index (WCI) fell 6% in the week ending Thursday versus the prior week, to $1,384 per forty-foot equivalent unit. The global composite has given back all of its gains since the beginning of Q4 and is now down 1% versus Oct. 1.

Spot rate in USD per FEU. Blue line: global composite. Green: Shanghai-New York. Purple: Shanghai-Genoa. Orange: Shanghai-Rotterdam. Yellow: Shanghai-Los Angeles. Pink: Rotterdam-New York. (Chart: FreightWaves SONAR) 

All but one of the main east-west trade lanes is down from the beginning of the quarter, the Shanghai-Rotterdam lane being the exception.

Even in that lane, rates are declining. The WCI’s Shanghai-Rotterdam assessment was at $1,148 per FEU on Thursday, still up 9% from the beginning of the quarter but down 10% from the recent high on Nov. 9.

Shanghai-Los Angeles spot rates showed signs of life earlier this month but gave back the last of their quarter-to-date gains in the most recent week.

The WCI assessment of Shanghai-Los Angeles spot rates was $2,000 per FEU in the week ending Thursday, down 13% from the recent high in the week ending Nov. 9 and down 1% from the beginning of the fourth quarter.

Recovery not expected until 2025

If Asia-Europe annual contracts reset in the vicinity of Q4 spot rates starting in January, and if Asia-U.S. contract rates don’t improve — or fall further — when they reset in May, container lines would face steep losses in 2024, particularly given that costs are up 25-30% versus pre-COVID levels.

Container lines are still flush with cash from the COVID-era boom, so they should be able to weather the cash burn next year. But what if steep losses continue through 2025 or even 2026?

Clarksons Securities analyst Frode Mørkedal ran the numbers of Zim (NYSE: ZIM) in a client note on Wednesday. “Our analysis indicates that Zim’s quarterly cash burn rate is approximately $300 million, suggesting that its existing cash reserves could sustain operations for about nine quarters, or roughly 2.3 years.

“This duration should be sufficient to weather market challenges at least through 2025,” wrote Mørkedal.

“The key factor that could signal a market turnaround is a policy shift among liner companies, particularly in terms of profitability focus and ship capacity reduction.

“The main issue, in our opinion, is ship overcapacity rather than future demand,” Mørkedal continued. “We anticipate that a pivotal response to the current overcapacity issue will be implemented in 2024, with the goal of raising freight rates, potentially marking a significant turning point in the industry.

“The critical juncture at which fleet growth aligns with trade growth could occur around October 2025, implying a two-year contraction phase,” said Mørkedal.

However, that timeline assumes liners make the necessary capacity adjustments next year, whether through slow steaming, ship idling, scrapping and/or service cancellations.

Many pundits and industry executives expected shipping lines to make the necessary capacity adjustments this year. They haven’t. Scrapping and ship idling have been much lower than predicted.

Not only have liner companies not withdrawn older ships, they’re still ordering new ships. According to shipbroker reports, Ocean Network Express (ONE) just sealed an order for 12 newbuildings for deliveries in 2025 and 2026. The 13,000-twenty-foot-equivalent-unit vessels will be capable of using methanol as fuel, and the new series will have an aggregate price tag of just under $2 billion, according to Alphaliner.

Click for more articles by Greg Miller 

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Mississippi River isn’t rising but barge rates aren’t getting any higher

Mother Nature isn’t delivering significantly more water to the Mississippi but barge rates haven’t moved up.

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Water levels on the Mississippi remain low after a brief surge earlier this month, but rates for moving grain by barge on the river continue to defy any upward push.

The National Weather Service reported Wednesday that levels on the Mississippi River at Memphis, Tennessee, stood at minus 9 feet. Levels are expressed relative to a baseline. A reading of minus 11.52 feet last month was the lowest since recordkeeping began. The latest data from the National Weather Service does show improvement at Memphis over the next several days.

That negative 9 foot measurement recorded Tuesday was down from negative 7.63 feet on Nov. 15 and down significantly from negative 4.81 feet on Nov. 6.

Although this year’s water levels are on par with those of 2022, another year when drought impacted flows, barge rates are well below last year and have been in a relatively narrow range in recent weeks. 

According to the U.S. Department of Agriculture’s weekly Grain Transportation Report, the grain transport cost indicator for barge movements on the Mississippi was 275 for the week ending Nov. 15, the most recent figure available. The indicator is a percentage of the 2000 base year so 275 would be 275% of the base year.

A year ago, that indicator was 670. A month ago, it was 326 in the week ended Oct. 18 and was 366 a week before that. And for the week ended Oct. 19, 2022, it was a whopping 1,077.

There is other data that reflects that the barge industry is finding ways to move grain on the Mississippi and its tributaries without racking up enormous costs, many of which also are at low levels. 

For example, the USDA data said in the week ended Nov. 11, barged grain movements were 722,661 tons. That was an 8% increase from the prior week and 22% more than a year ago.

One potential reason for the ability of barge rates so far to defy the river’s reduced capacity is less grain is being exported. In the grain report published Nov. 9, the USDA quoted numbers on export sales that showed reductions in exports of wheat, corn and soybeans compared to last year, as much as 13%. If the grain doesn’t need to make it all the way down to New Orleans for export and instead remains in the U.S. for storage or processing, that could be putting less pressure on barge rates.

In its Oct. 19 Grain Transportation Report, the USDA noted the weak export market and the potential impact it was having on barge rates. 

“Up from earlier in the year, barge rates are still below average — likely reflecting low corn and soybean export sales to China,” the report said. “Despite low water levels in the Panama Canal, resulting in limited daily transits, ocean freight rates from the U.S. Gulf to Japan remain below average.” 

Mike Steenhoek, executive director of the Soy Transportation Coalition, has become one of the go-to voices on Mississippi River transport conditions. Earlier this month, when the river was rising, he sent an email blast noting that “due to the improved conditions, barge companies have increased the amount of freight (soybeans in our case) they are loading per barge.

“Channel width has also improved, allowing more barges to be attached together to form one unit,” he wrote. “That being said, we continue to see restrictions of approximately 15-25% due to the continued low water conditions.”

In a follow-up email, Steenhoek said this week there has been little change since that report.  “Barge companies continue to light load their barges and reduce tow sizes,” he said. “This obviously remains a concern for agriculture.”

American Commercial Barge Lines (ACBL), one of the biggest barge operators on the Mississippi, publishes regular updates on river shipping conditions. According to those reports, despite the continued low water levels, by some metrics shipping has improved.

For example, in its daily river conditions report for Oct. 19, ACBL reported that loading drafts northbound and southbound between Cairo, Illinois — where the Ohio River joins the Mississippi — and Vicksburg, Mississippi, were cut 28% and were reduced 24% between Vicksburg and the Gulf of Mexico. 

But in an update published Tuesday, the reduction was 24% northbound and 16% southbound between Cairo and the Gulf. ACBL said that results in a reduction of 400 to 600 tons per barge. 

Tow size limitations between the dates of those two reports increased slightly during that time, with some six-wide barges permitted. The limitation a month earlier was five-wide barges and that limitation does remain in effect for some shipments, ACBL said.   

More articles by John Kingston

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Yet another shipping ‘chokepoint’ risk as Yemen rebels attack

Panama Canal restrictions force more ships to transit the Bab el-Mandeb Strait off Yemen, where they face a hijacking risk.

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The Israel-Hamas war has raised concerns about future fallout for shipping at two “chokepoints”: the Suez Canal and the Strait of Hormuz. War fallout for shipping has now begun, but at a different chokepoint: the Bab el-Mandeb Strait.

With a ship-tracking website like MarineTraffic, you can see — even with the free version — the names of vessels, where they are and their stated destination. The destination declared for numerous vessels transiting the Bab el-Mandeb Strait, a 20-mile-wide waterway bordering Yemen that connects the Gulf of Aden to the Red Sea, now reads: “Armed Guard Onboard.”

Vessel operators appear to be using the destination declaration in their Automated Identification System (AIS) to communicate with potential hijackers in Yemen who are using ship-tracking websites. Their message: We have guns too.

(Selected destination declarations on MarineTraffic for ships passing through the Bab el-Mandeb Strait on Tuesday)

Brazen hijacking by Houthi militia

The Houthi rebels in Yemen had previously warned that they would target Israeli-linked ships. They followed through with that threat on Sunday.

Houthis hijacked the pure car and truck carrier (PCTC) Galaxy Leader, a vessel with ownership ties to Israeli businessman Abraham “Rami” Ungar. The vessel was on charter to Japan’s NYK and had 25 crew aboard from Ukraine, Bulgaria, the Philippines and Mexico. used satellite imagery to find the current location of the vessel. As of Tuesday, it was at anchorage off the port of Salif in Hodeida, Yemen.

Houthi rebels have targeted shipping interests before. In July 2018, the Houthis attacked two laden very large crude carriers, the Ghawar and Arsan, operated by Saudi Arabia’s Bahri, in retaliation for Saudi Arabia’s military support of the Yemini government. The tankers suffered minor damage and Bahri temporarily halted crude tanker shipments via the Bab el-Mandeb Strait.

The method of attack on the Galaxy Leader was different. Paramilitary forces were dropped from a helicopter onto the vessel’s deck, a method commonly used by Iranians for ship seizures in the Strait of Hormuz. (See video posted by the Houthis here.)

“Seizing a merchant vessel via helicopter is an Iranian modus operandi,” said ship security group Ambrey on Monday.

The Israeli government alleged that the hijacking of the Galaxy Leader was done by the Houthi militia “with Iran guidance” and characterized it as “an Iranian attack against an international vessel.”

Higher costs for shipping

The threat off Yemen is explicitly against Israel-linked ships in retaliation for Israel’s war with Hamas. However, there is clear potential for collateral damage, as shown in the case of the Galaxy Leader, where the charterer and crew members were not Israeli.

The hijacking is “raising concerns of broader supply chain impacts from the war,” warned Judah Levine, head of research at Israel-headquartered Freightos (NASDAQ: CRGO).

According to Clarksons Securities analyst Frode Mørkedal, “The impacts on shipping include increased insurance premiums due to heightened piracy risks, route diversions leading to longer transit times, and heightened security measures like employing armed guards. Such factors are likely to increase overall expenses and can be reflected in increased freight rates.”

Ambrey advised all shipping security officers “to check whether their vessels were affiliated with Israel through flag, ownership or management in the past two years. Those who are either affiliated now or who were affiliated recently are advised to conduct a transit risk assessment and to consider ballistic protection measures.”

High volumes of ship traffic transit the Bab el-Mandeb Strait. (Map of Tuesday’s ship positions by MarineTraffic)

Israel is a small country but plays an outsized role in ship operations and ownership. Many vessels have an Israeli connection.

Ungar’s Ray Shipping has a fleet of PCTCs, crude carriers and dry bulk carriers. MarineTraffic reported Tuesday that two PCTCs diverted from routes that would have taken them near Yemen: the Hermes Leader and Glovis Star, both managed by Ray Shipping.

Israel’s Idan Ofer is one of the world’s largest shipowners; Forbes puts his net worth at $14 billion. Ofer’s shipping interests include Eastern Pacific, which has a fleet of over 200 bulkers, container ships, car carriers and crude tankers (including numerous container ships and car carriers chartered to France’s CMA CGM). Eastern Pacific also owns a stake in LNG shipping company Coolco (NYSE: CLCO).

In addition, Ofer owns a stake in Israel-based XT Shipping; Ace Tankers, which operates chemical tankers; and 21% of container liner operator Zim (NYSE: ZIM), through Kenon Holdings.

Idan Ofer’s brother, Eyan, heads Zodiac Maritime, based in London. Zodiac employs a crew of over 2,500 seafarers and manages container ships, bulk carriers, PCTCs, liquefied petroleum gas (LPG) carriers and crude, products, and chemical tankers.

Zim is the most visible of the Israeli shipping companies and the most closely connected with the government. The government of Israel has a “golden share” or “special state share” in the company that ensures the government’s access to Zim’s fleet “in a time of emergency or for national security purposes.”

Zim operates a fleet of 129 container ships and 16 car carriers, plus 33 container ships on order. CEO Eli Glickman said during a Nov. 15 conference call that “despite war-related challenges, Zim’s operation and services everywhere, including to and from Israel, are continuing without interruptions.”

Nevertheless, Zim has long acknowledged the effect of geopolitical backlash in its filings, even before the war with Hamas. It conceded in its 2021 IPO prospectus that its “status as an Israeli company … has historically adversely affected our operations and our ability to compete effectively within certain trades.”

Yet another chokepoint risk for shipping

The Houthi attack creates yet another chokepoint-related issue for ship owners and operators. The global routing situation has become a minefield of geopolitical and weather-related issues.

In the Black Sea, shipping faces ongoing risks from mines and Russian missile strikes. The bulk carrier Kmax Ruler was hit by a missile in the Ukrainian port of Odessa on Nov. 8, killing a Ukrainian pilot and injuring three Filipino crew members.

In Panama, drought conditions are heavily restricting the passage of vessels through the canal. Restrictions “are taking a severe toll on … operations,” said ocean carrier CMA CGM on Tuesday when announcing a new transit surcharge effective Jan. 1.

Many of the bulk carriers that previously loaded U.S. grain, LPG and liquefied natural gas and transited the Panama Canal are now taking an alternate route through the Suez Canal. Container lines have also said they are considering shifts to the Suez.

The more ships that take the Suez route, the more that will be forced to make the transit through the Bab el-Mandeb Strait.

Click for more articles by Greg Miller 

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Creditor challenges bankruptcy plan of ILWU dockworkers union

Terminal operator ICTSI has not given up its quest for tens of millions in damages from the West Coast longshore union.

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One of the world’s largest and highest-profile dockworker unions, the International Longshore and Warehouse Union (ILWU), filed for Chapter 11 bankruptcy protection on Sept. 30, seeking to shield itself from a crippling damage award owed to Philippines-based International Container Terminal Services Inc. (ICTSI).

But the bankruptcy filing is not the end of the saga. The legal battle continues.

Under the proposed reorganization plan, the ILWU would give $6.1 million to terminal operator ICTSI, which is substantially all of its remaining cash, then “rebuild” over the coming years, finally closing the book on a courtroom fight with ICTSI that began in 2013.

The hearing to confirm the reorganization plan will not take place until February at the earliest. In the meantime, ICTSI is crying foul — and telegraphing arguments it will make to oppose the plan’s confirmation.

ICTSI has argued that ILWU’s bankruptcy filing is “what appears to be forum shopping” and expressed concerns that “the full nature and extent of the debtor’s assets have not been fully disclosed.”

ILWU — a small business?

The ILWU filed its case under bankruptcy law’s Subchapter 5, a streamlined process that applies to small businesses with debts of $7.5 million or less. (That ceiling was previously $2.7 million, but was raised in March 2020 as part of COVID relief legislation.)

A jury in Oregon decided in November 2019 that the ILWU owed ICTSI $93.6 million in damages for unlawful labor practices starting in 2013 at ICTSI’s terminal in Portland, Oregon.

A judge ruled in March 2020 that the award was too generous and set maximum damages at $19.06 million — if both sides agreed. 

ICTSI didn’t agree, so a new trial on damages was set to begin in February 2024, with ICTSI seeking $48 million-$142 million this time around. 

Because the damage amount had yet to be confirmed when the ILWU filed for bankruptcy, it didn’t count against the $7.5 million debt limit, and the ILWU, which has no bank debt, qualified under Subchapter 5.

Debt is deemed “liquidated” when the amount is legally certain. “This debt has not been liquidated,” said Judge Hannah Blumenstiel of the ICTSI damages during the initial Chapter 11 hearing in October.

“Eligibility [for Subchapter 5] is determined as of the petition date. And I don’t think there’s any argument to be made that this debt was liquidated as of the petition date.”

This month, a hearing before Blumenstiel on the ILWU case was preceded by a bankruptcy hearing for a pancake restaurant called Stacks. How can a union with 40,000 members serving ports from Los Angeles to the Pacific Northwest — whose president, Willie Adams, speaks with President Joe Biden — fall in the same category as Stacks?

The answer is that the ILWU bankruptcy case only applies to the union management division that lobbies and educates, which has four officers and 21 support staff. “The locals and affiliate unions are separate legal autonomous entities and are not debtors or otherwise involved in this Chapter 11 case,” said Adams in his affidavit.

ICTSI’s main focus now is to shed light on how separate these entities are for the purposes of the bankruptcy case, with the goal of derailing confirmation of the proposed plan.

Its implied argument is that the ILWU could have a lot more assets than it lists and shouldn’t be allowed to hide from the decade-long Oregon litigation using a bankruptcy shield for one portion of its structure.

Alleged ‘entanglement’ with Longshore Division

ICTSI specifically highlighted the ILWU’s Coast Longshore Division (CLD). According to the ILWU’s website, “The core of the union, historically, has been the Longshore Division.”

The terminal operator said in a filing on Nov. 9, “Discerning the true nature and extent of the relationship between the debtor and the CLD has predictably been a primary focus of ICTSI in the discovery process.

“The various overlaps in management, operations and potentially assets between the debtor and the CLD, and the absence of any mention of the CLD in the debtor’s schedules of assets and liabilities or statement of financial affairs, other than three transfers made within 90 days prepetition, are anticipated to arise in connection with plan confirmation.”

ICTSI said that the ILWU’s general counsel, Lindsay Nicholas, provided testimony at creditor meetings on Oct. 24 and Nov. 6 on the debtor’s connections to and interactions with the CLD.

According to ICTSI, Nicholas testified that the CLD is currenting paying ILWU legal fees on 11 of its 12 litigation cases — the ICTSI litigation being the sole exception.

“Nicholas testified that, for more than a decade, the CLD also paid the ILWU’s legal and defense fees incurred in connection with the ICTSI litigation. However, on the eve of the debtor’s bankruptcy filing, the CLD stopped such payments and that obligation moved to the debtor.”

ICTSI also pointed to annual financial reports called LM-2 forms that unions file with the Department of Labor. 

“Nicholas testified that the CLD historically listed the contingent liability associated with the ICTSI litigation on its own LM-2 forms,” but this was “transferred to the ILWU mere months before the debtor’s bankruptcy filing.”

“ICTSI is coming to appreciate the extent of the entanglement between the debtor and the CLD. ICTSI is further concerned that this type of entanglement and overlap could extend to other divisions and entities under the broader ILWU organizational umbrella.”

Click for more articles by Greg Miller 

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China and global trade: Why stimulus is MIA and risks are rising

The era of rapid Chinese growth and large-scale government intervention is over, says China Beige Book CEO Leland Miller.

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NEW YORK — China’s economy has played a central role in ocean shipping for two decades, driving goods exports aboard container ships, fuel imports aboard tankers, and imports of iron ore, coal and grain aboard bulkers. Whenever the global economy flagged over the years, there was China, jumping in with stimulus, saving the day for shipowners.

Now, the era of rapid Chinese economic growth and large-scale government intervention is over, according to Leland Miller, founder and CEO of China Beige Book, a provider of independent data on China.

During a presentation at the Marine Money Ship Finance Forum in New York City on Thursday, and in a subsequent interview with FreightWaves, Miller explained why shipping’s owners, investors and analysts need to recalibrate their thinking on China.

He further predicted that relations between China and the U.S. will continue to deteriorate.

“You can have a Xi-Biden summit and you can have a bunch of pandas come back this way from China, but that’s not going to stop what is happening,” he warned the day after America’s and China’s presidents met in San Francisco.

Miller told FreightWaves that he believes markets are heavily underpricing the risk of an eventual war between the U.S. and China, a scenario with enormous consequences for ocean shipping.

Sentiment missed the mark in both directions

“The markets are notoriously bipolar on China. Just look at 2023,” said Miller.

“At the beginning of the year, coming out of COVID, everybody was absolutely sure there was going to be a rally and huge economic growth, and of course that didn’t happen. Then the markets flipped in the other direction and by this summer, we were dealing with questions on whether China was collapsing and whether the property market could create a ‘Lehman moment’ for China. Of course China is not collapsing.

“It is amazing how sentiment went from extreme optimism to extreme pessimism and none of it was based on what was actually happening in the economy,” he said.

What was actually happening in the economy was much more nuanced. “There was a sequential recovery in everything but the property — it was better than 2022,” and that economic activity was much weaker than expected but not cataclysmic. “The markets are just getting around to this conclusion months later,” he said.

Numerous shipping stocks have followed the same basic pattern as China sentiment this year: rising sharply in January and February on expectations of a post-COVID reopening boost from China, then falling back starting in March after it became clear that the China boost wasn’t coming.

‘They are not going to push the stimulus button’

China’s much-weaker-than-expected recovery has fueled months of speculation that the central government will pull the trigger on large-scale stimulus, spending its way out of low growth as it has in the past and indirectly subsidizing shipowners yet again.

Shipping analysts continue to highlight stimulus potential. “We are optimistic that Chinese infrastructure stimulus spending and further efforts to stabilize the property market will result in stable Chinese iron ore demand in the coming quarters,” wrote Deutsche Bank analyst Amit Mehrotra on Wednesday.

According to Miller, “There seems to be this belief that Xi Jinping sits in a room and there’s a button that says ‘stimulus’ on it and he’s just sort of circling around that button. And maybe he doesn’t do it today or tomorrow but it’s only a matter of time before he hits that button. Because for the last 20 years, what has China taught us? That they like high levels of growth and they’re eventually going to jam that button down and everything’s going to be OK.

“They are not going to push that stimulus button,” asserted Miller.

“Xi Jinping is no longer worried about high levels of growth. The Chinese economic growth model we were taught to track for the past 20 years is over.”

Lower structural demand for dry bulk commodities

The old model was for high growth, juiced by credit-fueled development in the property sector — “growth for growth’s sake.” The new model, he said, focuses on “slower but healthier growth, making China stronger from within, and distributing wealth more broadly.

“It’s not that growth is suddenly going to die, but it does mean that the economic growth model we grew up with is over. Analysts of China have been much too bearish cyclically [i.e., recent fears of a collapse] but far, far too bullish structurally.”

The Communist Party realizes it can’t take non-productive property development down too quickly, as property traditionally accounts for 25% of the economy. Therefore, it is culling weaker developers by allowing them to fail, then intervening with new credit before a contagion effect ensues. It is a gradual “cull the herd and ventilate” process to reduce property’s importance to the economy, which Miller believes will take over a decade to complete.

“What this means for commodities and metals is that China’s model focused on ‘build, build, build’ is gone, but that doesn’t mean the property sector is going to disappear and a country with 1.4 billion people doesn’t need to build stuff.”

Container exports, auto exports, crude imports

Meanwhile, containerized goods export data tracked by China Beige Book “have gotten really weak to the U.S. and pretty weak to Europe, but exports to Asia have held up quite well. China’s ability to export a lot to its Asian neighbors has continued to ramp up but its ability to keep up high levels of exports to the West is greatly diminished.

“When you look at the political environment, U.S.-China relations are getting uglier and uglier,” Miller added.

“I think the trajectory of the relationship does not just get worse but much worse in the coming years. I would expect more tensions and more export controls. A lot of the companies we work with are diversifying away from a complete reliance on Chinese markets and supply chains.”

Miller told FreightWaves that China’s now-booming automotive exports will be the next big trade flash point.

“The car exports are going to be the story of the next five years, the next chapter that is about to begin, because the EU and U.S. are going to move to ring-fence their markets from the Chinese. It’s going to become another trade war,” he opined.

FreightWaves also asked Miller about the surprisingly high volumes of crude oil China has imported this year, seemingly at odds with its weak post-COVID economic recovery.

“Why are crude imports so much higher if the economy is doing this? First of all, the economy was never as bad as people thought it was. It’s not collapsing. The property sector is not doing well but the rest of the economy is doing better, so you should expect more crude oil [imports],” he said.

“The second thing is that China has done a lot of strategic buying — crude bought at discounts, filling up inventories because they’re worried in terms of the Taiwan stuff. Is this sort of the end of that and will it be tapering off now? Maybe. If this continues for another six to 12 months, then we’ll be scratching our heads.”

War odds ‘much, much higher’ than markets imply

FreightWaves also spoke with Miller about the risk of a future war between China and the U.S. over Taiwan.

A common perspective from shipowners speaking at conferences is that such an event would be so calamitous that they can’t plan for it. There is also the view that fallout for both China and the U.S, would be so severe that it would be a case of “mutually assured economic destruction,” and thus, a deterrent to war.

“I do not agree with that,” said Miller.

“I think the odds of something happening before the end of the decade are much, much higher than the markets are giving credit for. The market understanding of this — that it’s way too damaging so it’s not going to happen — is just wrong.

“If you play economist war games, you can come to the conclusion that it would cost too much financially and there’s no way they’ll do it [invade Taiwan]. One problem with that conclusion is that Xi Jinping does not play economic game theory, and we don’t know what he’s going through domestically and with his military.

“The other problem is that to China, Taiwan is like Texas is to the U.S. If Texas was being pulled by somebody else, we would go to war, the consequences be damned.”

China Beige Book CEO Leland Miller speaks with FreightWaves CEO Craig Fuller at the F3 conference earlier this month.

Click for more articles by Greg Miller 

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