Hurricane update: Impacts on the supply chain

Hurricane Ian, which has intensified into a major Category 4 storm, started coming ashore in Fort Myers, Florida, before noon. Transportation is starting to feel the effects, with road and port closures in effect.

Wednesday’s news on Hurricane Ian and its impact on various sectors of the freight industry from reports by the FreightWaves reporters and market experts, as well as pertinent social media posts. This file will be updated throughout the day as more news comes in, so please check back.

Hurricane Ian, which has intensified into a major Category 4 storm, started coming ashore in Fort Myers, Florida, before noon. Transportation is starting to feel the effects, with road and port closures in effect.

Here’s the latest as of 11:30 a.m.: 

Roads

Interstate 75 is not closed. A spokeswoman for the Florida Department of Transportation said a map of the state’s traffic at the Florida 511 site can show a road as closed if there is no traffic on it, which appeared to be the case earlier. But later versions of the map did not appear to show those closures. Other videos on social media suggest the interstate remains open.

There are other road closures. For example, the Sunshine Skyway bridge over the southern end of Tampa Bay, which is a part of Interstate 275, is closed. Florida Gov. Ron DeSantis said several local bridges are closed because of wind danger.

Florida has suspended tolls on certain portions of Florida’s Turnpike, including around the Tampa area and central Florida near Orlando.

Ports/airports

In addition to the Tampa-area ports that were closed Tuesday, Orlando International Airport closed at 10:30 a.m. Wednesday. Tampa airport has left behind a team to assess runway conditions and clear hazards once the storm passes.

Port Miami’s two main container terminals were closed Wednesday. Seaboard Marine said it will only be open for landside operations. 

Port Canaveral is closed and has ceased all waterside and vessel shoreside port operations until further notice.  

Jaxport in Jacksonville, Florida, was slated to close at noon Wednesday. 

Ship-position data shows that container vessels in the queue off the Port of Savannah in Georgia are weighing anchor and heading out to sea. 

Rails

CSX and Norfolk Southern haven’t closed their rail terminals yet, but things could change as Hurricane Ian approaches.

In a detailed Tuesday update, CSX (NASDAQ: CSX) said it was securing rail assets and it noted that customer shipments are likely to be delayed until the storm passes. Operations at several CSX intermodal terminals, Transflo transloading terminals and TDSI auto handling terminals have also been suspended.

CSX’s Tuesday update detailed which terminals have suspended operations. They include terminals located in central Florida and nearby Tampa.

“Additional terminal closures may be necessary as the storm tracks northeast across Florida. Current forecasts predict tropical storm force winds and potential flooding over much of the state. CSX will continue to monitor storm conditions and provide timely notifications of service impacts and terminal closures as warranted,” CSX said.

Norfolk Southern (NYSE: NSC) said it is operating as scheduled, although high winds and heavy rains could impact rail operations later this week. The railroad said in its service advisory that it is positioning generators and equipment in advance of the storm, and it will provide updates as conditions change.

Fuel

President Joe Biden issued a warning to oil companies Wednesday morning. “To the oil and gas industry, do not — let me repeat — do not use this as an excuse to raise gasoline prices or gouge the American people.”

A wholesale diesel price in the heart of the hurricane’s path did show a significant increase from Tuesday into Wednesday, but it’s an amount that can be explained by movements in the futures markets. 

The final part of the supply chain where oil companies set the price is the wholesale level. Decisions about retail prices are in the hands of the individual station operators. The average wholesale diesel price from Tuesday into Wednesday in Tallahassee, Florida, per the ULSDR data series in SONAR, rose to $3.344 from $3.222, an increase of 12.2 cents per gallon. 

But wholesale prices track both spot market prices and futures prices, which in turn are highly correlated, and the ultra low sulfur diesel price on CME Tuesday rose 13.08 cents per gallon. So the increase in the wholesale price in Tallahassee was actually less than the increase in diesel futures prices. 

A quick check of some retail prices shows no change. Pilot Flying J, which makes available a spreadsheet of all its prices nationwide, was showing a diesel price of $4.999 per gallon both Tuesday and Wednesday in Ocala, Florida, and $4.649 per gallon in Fort Myers.

Russian oil exports are still booming and EU is still reliant on Russia

The EU is going to ban imports of Russian crude and petroleum products. It still has a long way to go to find replacement supplies.

Tanker shipping has already seen a big trade shift in the wake of Russia’s invasion of Ukraine. But it’s nothing compared to what will happen when the EU bans tanker cargoes from Russia.

New data from commodity analytics firm Kpler confirms that Russian seaborne petroleum exports remain historically high and the EU remains a major buyer.

The EU has made some progress in weaning itself from Russia. But it has a long way to go and time is short. The EU ban on seaborne crude imports begins on Dec. 5, the ban on refined products imports on Feb. 5.

Given how high volumes remain today, these deadlines could lead to abrupt, wrenching and significant changes to global commodity flows.

Russian crude exports on the rise

Kpler’s data shows that Russia’s seaborne crude exports averaged 3.4 million barrels per day (b/d) during the seven months since the war began. That’s up 17% versus the same period in 2021.

chart showing Russian crude and products exports
(Chart: American Shipper based on data from Kpler)

Russia’s clean products exports averaged 1.4 million b/d in March-September, down 5.5% year on year (y/y).

Altogether, Russia’s crude and products seaborne exports averaged 4.8 million b/d in March-September, up 9% y/y. So, despite all the “self-sanctioning” rhetoric about not supporting the military aggressor, more Russian cargo is being loaded aboard tankers than before the invasion.

EU progress on replacing Russian crude

The EU is less reliant on Russian crude than Russian refined products (particularly diesel). Even so, Russia’s share of EU seaborne crude imports remains substantial, even after recent trade shifts.

Kpler data shows that EU countries imported an average of 1.2 million b/d of seaborne crude during the seven months since the war began. That’s down an average of 320,100 b/d or 21% compared to the same period in 2021.

chart showing EU crude imports
(Chart: American Shipper based on data from Kpler)

“EU members have materially cut imports from Russia, substituting barrels from the U.S. and elsewhere,” Reid I’Anson, senior commodity analyst at Kpler, told American Shipper.

The average volume of EU crude imports from countries other than Russia was 1.3 million b/d higher in March-September versus the same months the year before. This has been a big plus for tanker rates, as replacement cargoes are traveling longer distances.

Tanker demand is measured in ton-miles: volume multiplied by distance. By replacing (and heavily supplementing) short-haul Russian crude with longer-haul replacement crude, the EU has boosted tanker demand.

The shift away from Russia in the past seven months is dwarfed by what needs to occur starting Dec. 5, when the EU import ban hits.

To put the scale of the coming shift in perspective, the EU’s average crude imports from Russia in September are down 668,926 b/d from February, when the invasion occurred. That decline took seven months. Less than 10 weeks from now, the ban goes into force. At that point, EU crude imports from Russia need to fall by almost twice as much as they did in the seven months since the invasion.

The EU needs to bring the current market share of Russian seaborne crude — at 12% this month, according to Kpler data — down to zero.

EU still highly dependent on Russian distillates

While Russian exports of products to all destinations have moderately decreased since the war began, the EU has actually increased its products imports from Russia during this period.

“On the clean product side, EU members continue to import a lot of Russian diesel/gasoil [with] basically no cut in volume since the war began,” said I’Anson.

He explained that the EU’s replacement of Russian crude with U.S. crude has had the side effect of increasing EU demand for Russian diesel. It “reinforces the EU need for distillates given that U.S. crude imports are notably more light and sweet compared to Russian grades, and light grades yield more gasoline and light ends [versus distillates].”

Kpler data shows that EU imports of Russian clean products averaged 945,501 b/d in March-September. This is up 12% or 102,716 b/d compared to the same period in 2021.

And there’s yet another plus for product-tanker rates: The EU not only hiked its imports from Russia, it also increased imports from other sources further afield, adding to tanker ton-mile demand. Average EU imports of seaborne clean products from non-Russian sources were up an average of 193,381 b/d in March-September 2022 versus March-September 2021.

(Chart: American Shipper based on data from Kpler)

Looking forward, the EU import ban on Russian products appears much more problematic than the looming ban on Russian crude.

Over the past seven months, Russian seaborne products imports accounted for an average of 28% of total EU products imports — double Russia’s share of the EU’s seaborne crude imports during the same period.

Click for more articles by Greg Miller 

Ports, carriers prep for disasters — everything from hurricanes to fires

Port officials and carriers prepare for hurricanes and other emergency situations year-round.

When Hurricane Harvey wreaked havoc across the Houston area in 2017, Colin Rizzo had never seen anything like it before.

Rizzo is Port Houston’s director of emergency management and responsible for planning and directing the facility’s emergency and disaster preparedness. 

Harvey was a Category 4 hurricane that made landfall in Texas and Louisiana in late August 2017, causing catastrophic flooding and more than 100 deaths.

“Harvey was almost just the opposite [of other hurricanes] in that it was so widespread, but it wasn’t a wind event. It was a flood event,” Rizzo said. “Harvey was 50 inches of rain across the area. Our impact with Harvey was very different at the port because our terminals were damaged somewhat, but a lot of our employees were dealing with the destruction of their homes.”

Rizzo said the challenge with Hurricane Harvey was getting the port back in operation quickly, while making sure employees were cared for.

“The last thing employees wanted to hear about [was] ‘Hey, you need to come back to work tomorrow,’” Rizzo said. “We did a lot of outreach to our employees, finding out how many employees we had available to get back into operations. Our roads could be clear, ships could be coming in, but if we don’t have staff to man those gates or run those containers, it’s going to be worse than if we didn’t open.”

Officials at Crowley Maritime said it takes dedicated and trained personnel to make sure emergencies such as hurricanes don’t disrupt terminal or shipping operations.

“One of the important qualities is to have a good leader that can collaborate in an effective team,” Heather Harrison, Crowley Maritime’s director of corporate safety and quality, told FreightWaves.

Another trait that emergency response team leaders and members need is calmness, said Scott Hess, senior director of health, safety, security, environment and sustainability at Crowley Maritime.

“Some of the best incident managers that I’ve come across in my career are calm, they’re collected, they are open to suggestions, and they check their ego at the door,” Hess said.

As Ian moves toward Florida’s west coast as a Category 3 hurricane with a projected path through Tampa late Wednesday, FreightWaves spoke to several ports and a carrier about how they prepare and deal with disasters and major weather events.

Emergency teams help ports and ocean carriers keep supply chains moving

Emergency operations workers such as Rizzo, Harrison and Hess are essential personnel that work to make sure a port is prepared in case of any emergency or catastrophe.

Port Houston’s emergency operations team handles most of the prepping at the facility when a major storm is approaching. It is responsible for critical supplies, stacking loaded containers in a strategic fashion, organizing cranes to function as barriers and making sure all portable buildings are properly secured.

“In addition, they secure all terminal equipment, fill extra drums with fuel, lubricants, water and hydraulic fluids for use after the storm, board up all windows and keep all transportation vehicles supplied with fuel (boats, cars, vans, trucks), according to a blog post from Port Houston.

Rizzo said it takes a small army of port workers to make sure all the equipment and facilities are secured in the event of a hurricane or tropical storm.

“There would be hundreds of people working on our team to secure the port,” Rizzo said. 

Port employees must make sure to tie down crucial infrastructure like ship-to-shore cranes at the container terminals because it could take months to repair or replace them, Rizzo said. 

“You can’t take these huge cranes down and hide them from the wind,” Rizzo said. “Right now, if we had a storm on the way, one of the things that would be on my list would be what are we going to do about cranes and containers? Do we even have the room to stack these containers to three or four high? Are we going to tie them down harder somehow or shut down a little bit sooner and start filling our driveways with containers to protect the port?”

Once the port is secured, Rizzo said the facility has a team that would stay on-site for the duration of a hurricane or weather event.

“We have a small team, about 30 or 40 people and another 50 public safety people,” he said. “Our fire department would be here at full strength if not even higher, probably another 30 or so, and they would be on the fireboats to actually ride the storms.”

During Hurricane Harvey, operations at Port Houston were closed for about 10 days, as the storm dumped as much as 50 inches of rain in and around the area.

In September 2021, the Port of New Orleans was forced to shut down its container vessel operations during Ida, a destructive Category 4 storm that became the second-most damaging hurricane to make landfall in Louisiana on record, behind Hurricane Katrina in 2005. Hurricane Ida was responsible for about 90 deaths across the U.S.

Hurricane Ida knocked out power throughout the New Orleans area for several days between Aug. 30 and Sept. 4. While local officials did not call for a mandatory evacuation, some employees conducted operations while away from the port, Jessica Ragusa, Port of New Orleans spokeswoman, told FreightWaves.

“Safety of our employees was a top priority during Hurricane Ida,” Ragusa said. “Our designated essential staff reported to the port immediately while other essential staff who were able continued to work remotely to ensure business continuity.”

Ragusa said in the event of a storm, the Port of New Orleans works with its terminal operators, tenants and partners at the U.S. Coast Guard, Flood Protection Authority, and Army Corps of Engineers to ensure safety and secure cargo, rail and cruise operations. 

Ragusa said the port was able to resume limited breakbulk cargo and railroad operations about four days after closing. Container operations resumed after nine days.

“Though Hurricane Ida caused mass power outages throughout our region and closed the Lower Mississippi River to navigation, the port’s terminals and industrial real estate properties did not sustain major damage, due to their location within the $14 billion federal Hurricane & Storm Damage Risk Reduction System,” Ragusa said. “The river reopened just three days after Hurricane Ida made landfall.”

Emergency responders always prepare for disasters — even if there isn’t one

Emergency and disaster response isn’t just preparing for hurricanes and other major storms. It can be a daily and sometimes hourly job. 

Emergencies could encompass everything from fires on a container ship to a military chopper crashing near the Houston Ship Channel, as was the case in 2016.

“Safety is essential to everything we do,” David DeCamp, a spokesman for Crowley Maritime, told FreightWaves. “It’s not just a year-round job. It’s an hourly job. We operate in 36 countries and island territories, in ocean and land transportation, warehousing and port terminals. Safety is critical as a company of 7,000 people.”

Crowley is a privately owned and operated logistics, government, marine and energy solutions company headquartered in Jacksonville, Florida. 

Crowley boasts 19 terminals in the U.S., Caribbean and Latin America. The company also operates a fleet of 200 vessels, including container ships, roll-on, roll-off vessels, articulated tug barges, tugs and barges. Crowley also provides services to offshore energy installations, to operating and managing petroleum tank vessels.

Just like at Port Houston, Crowley officials said it takes a legion of personnel to get a facility or ship prepared for a hurricane or severe weather event. Since the company sports multiple terminals, as well as hundreds of ships, it could be dealing with several emergencies at any given time.

“When you’re in the middle of the ocean on a tanker, you’re the fire department. You’re the emergency response. You’re everything,” Hess said. “That kind of planning and prepping on the safety side of things has been ongoing throughout my career.”

Hess said it could also be that while one facility or ship at Crowley is seeing the end of a storm or emergency event, another facility or ship could just be at the beginning of another crisis.

“During Hurricane Irma, at one point we had 13 facilities in one level or another of the response,” he said. “Sometimes we’re in preparatory mode in some locations and in recovery mode at others at the very same time. So we’re actually bringing together those people so we can understand the effects rippling through the supply chain.”

Irma was a powerful hurricane that brought widespread destruction across Florida and parts of the Southeastern U.S. in September 2017. It caused about 134 deaths, including 92 people in the U.S.

Harrison said emergency preparedness training should be ongoing throughout the year for all employees, especially those in leadership roles.

“Safety leadership training for supervisors is important, so what that entails is building leaders in the company that have dedicated skills where you influence others to be safe,” Harrison said. “We do safety culture assessments every two years. We don’t just measure the safety culture as a whole. We go to different sites or even business units to say, ‘How is your culture when it comes to safety here? Do you have the right systems in place, and what does a little bit better look like?’ So [that way] we can address those and do continuous improvement.”

Click for more FreightWaves articles by Noi Mahoney.

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3 Tampa Bay area ports closed to brace for Hurricane Ian

The U.S. Coast Guard has closed three key ports around the Tampa Bay area in anticipation of Hurricane Ian’s landfall.

The Port of Tampa is under Port Condition Zulu and has closed in anticipation of Hurricane Ian’s arrival.

The Florida Ports Council said in a tweet that the U.S. Coast Guard has closed not only Tampa but also the Port of St. Petersburg and SeaPort Manatee, which is on the eastern shore of Tampa Bay, north of the Sunshine Skyway bridge

The closures occurred earlier Tuesday morning even as the latest track from the National Weather Service has the storm making landfall farther south toward Sarasota, Florida, rather than a direct hit on Tampa.

“In accordance with the current port condition, Port Tampa Bay has secured waterfront facilities and dock areas to remove debris and hazardous materials,” the Port of Tampa said on its Twitter feed.

Port Condition Zulu means the facility is shut down, gale force winds are expected within 12 hours but fueling operations can continue. 

“While the port’s waterways are closed, our port staff will continue to work to ensure we can reopen to full operations as soon as safely possible to support the community and region we serve,” the port said in a statement about its storm preparations.

The port’s statement mostly dealt with what it plans to do after the storm moves through. It said it has put together teams to “prepare to assess and quickly recover to ensure an efficient return to operations.”

Tampa is not a major container port. But it is a major port for fuel, mostly barged over from refining centers on the Gulf Coast, such as the New Orleans and Houston areas.

The state’s fuel supplies arrive 97% by barge, according to Ned Bowman, the executive director of the Florida Petroleum Marketers Association. Closures of ports will be a primary cause of tightening fuel supplies in the state, Bowman said.

Bowman told FreightWaves that supplies are “tight,” but he had not seen numerous outages. However, Patrick De Haan of GasBuddy, which tracks prices and supplies of gas and diesel, said in a tweet Tuesday morning that about 1-in-10 Tampa-area gas stations were out of gas. His reporting through his Twitter feed tends to focus on gas, not diesel.

There is no sign yet of increased prices. To the contrary, truck stop operator Pilot Flying J, which provides a downloadable spreadsheet of all its prices nationwide, is reporting that Florida outlets in Fort Myers and Ocala had both cut their prices 10 cents per gallon between Sunday and Tuesday. 

At Love’s, the company’s website says all its locations are open and “not affected directly by severe weather.”

More articles by John Kingston

How Hungary could stymie G-7 plan to cap Russia’s wartime windfall

The G-7 plan to squeeze Russia’s oil profits hinges on the EU revising its own sanctions — and those changes face opposition.

a photo of Russia currency; oil - G-7 sanctions loom

Sanctions targeting Russian oil exports go into effect in just 10 weeks, on Dec. 5. From a practical perspective, sanctions come into play sooner than that. Tankers can take up to a month to reposition for cargo loadings. Refineries need to plan for deliveries well in advance.

The G-7 sanctions plan, which would cap Russian oil export prices, faces a big risk even before it gets off the ground: It hinges on the European Union changing its own sanctions policy and enacting its own price cap to match the G-7’s.

To change the sanctions, the EU vote has to be unanimous. And it’s looking less likely this will happen anytime soon.

Bloomberg reported Monday that a price cap is not likely to be included in the seventh round of EU sanctions currently under discussion. Hungary and Cyprus are among those opposed, said Bloomberg.

This raises the risk that the tanker industry will face an unworkable morass of conflicting G7 and EU sanctions regimes in the months ahead.

If so, there could be a shortage of tankers able to obtain insurance for carriage of Russian cargoes. The very outcome the U.S. is scrambling to avoid could come to pass. Russian exports could fall too far and too fast, causing rising prices for American consumers.

EU sanctions went too far

On June 3, the EU adopted its sixth set of sanctions targeting Russia. The EU agreed to ban seaborne imports of Russian crude on Dec. 5 and Russian products on Feb. 5. In addition, EU companies would be banned from providing services for Russian exports of crude and products to non-EU countries after those two dates, respectively.

With over 90% of tankers insured by service providers in the U.K. and EU, the fear was that the EU sanctions went too far and would effectively block most Russian exports. U.S. officials addressed this concern while speaking at the Capital Link New York Maritime Forum on Wednesday.

“We think [EU sanctions] were a well-intentioned policy to reduce the Kremlin’s revenues in the context of the war, but in our view, it would meaningfully reduce the flow of Russian oil into the global market,” said Erik Van Nostrand, senior advisor for Russia/Ukraine policy at the Treasury Department’s Office of Economic Policy.

G-7 ‘relief valve’ to EU sanctions

To fix that perceived flaw, G-7 countries agreed on Sept. 7 to set a cap on the price of Russian oil exports

As with the EU plan, marine service providers in G-7 countries would be banned from facilitating Russian oil exports. However, the G-7 would allow its countries’ service providers — most importantly, U.K. marine insurers — to facilitate transport of Russian oil sold at or below a price cap set by the G-7.

“We view the price cap as an adjustment to the EU’s sixth sanctions package,” said Van Nostrand. “The goal is to allow oil to continue to flow. To keep energy affordable. But do so in a way that does not undermine the sixth sanctions’ goal of denying windfall profits to the Kremlin. What we’re doing mechanically is creating an exception to that ban on maritime services. The price cap is a relief valve for the sixth set of sanctions.”

What if EU doesn’t approve price cap?

But that relief valve won’t work properly unless EU sanctions are revised.

According to Michael Lieberman, assistant director for enforcement at the Office of Foreign Assets Control, “The idea is that the EU will adopt a cap similar to the G7. They will mirror each other.”

photo of G-7 ministers meeting to discuss Russia sanctions
G-7 finance ministers meet (Photo: AP Photo/Stefan Rousseau)

Van Nostrand said, “This will involve the reopening of the sixth set of sanctions. The exception for oil traded below the cap is the piece [of the EU sanctions] that needs to be changed.”

This is the exact proposal that’s now running into opposition from some EU members.

If the EU does not mirror the G-7 price cap by Dec. 5, crude-tanker cargoes that are “legal” under G-7 rules would run afoul of EU sanctions if service providers under EU jurisdiction were involved.

Most of the shipowner property and indemnity (P&I) insurance clubs are in the U.K., a member of the G-7, not the EU. But these P&I clubs are nonetheless exposed to EU sanctions.

According to guidance released by members of the International Group (IG) of P&I clubs, “Most of the clubs that comprise the IG are subject to the jurisdiction of the EU. All IG clubs, including those that are domiciled outside the territory of the EU, rely on a reinsurance program that is heavily dependent on the participation of reinsurers that are domiciled with the EU.”

Thus, U.K. marine insurers would face coverage restraints until EU sanctions are brought in line with the G-7’s. Because of the EU’s unanimous-vote rule, a single country such as Hungary — whose leader Viktor Orban is highly critical of Russian sanctions and has a contentious relationship with other EU officials — could theoretically stymie the G-7’s plan by refusing to back an EU price cap.  

Click for more articles by Greg Miller 

Ocean carrier MSC launching cargo airline with Atlas Air

Mediterranean Shipping Co. is taking to the skies with a new cargo airline, following on the heels of other ocean shipping lines with air divisions.

Rendering of an MSC Air Cargo jet. The company plans to start business in 2023.

Mediterranean Shipping Co., the largest container line in the world, announced Monday it will launch an air cargo airline next year in partnership with freighter operator Atlas Air, joining rivals Maersk and CMA CGM as ocean carriers adding private airlines to diversify their service capabilities.

MSC said Atlas Air (NASDAQ: AAWW) will operate four branded Boeing 777-200 freighters under a long-term contract that bundles leasing of the aircraft with full services, including crew, flight planning and maintenance. MSC Air Cargo will begin commercial service in early 2023 with a single aircraft. It will be responsible for selling the cargo space and determining the routes flown. 

Atlas Air is allocating four 777-200 cargo jets it ordered from Boeing in January to the MSC Air Cargo venture. It said the first plane is scheduled for delivery in the fourth quarter this year. The remaining aircraft will be received during 2023.

MSC said it appointed Jannie Davel, a former Emirates SkyCargo and DHL executive who most recently served as managing director-commercial at Delta Air Lines’ (NYSE: DAL) cargo division, to develop its air cargo business and roster. 

“This is our first step into this market and we plan to continue exploring various avenues to develop air cargo in a way that complements our core business of container shipping,” said MSC Chief Executive Officer Soren Toft in a news release.

The 777-200 is a large, twin-engine jet capable of hauling a maximum payload of 116 tons on long intercontinental trips.

“We are pleased to welcome MSC as a new customer and look forward to supporting MSC as it develops its airfreight business and further enhances its position as a global leader in transportation and logistics,” said John Dietrich, president and CEO of Atlas Air Worldwide Holdings. 

MSC made a joint bid with Lufthansa in January for ITA Airways, the state-owned Italian passenger carrier that emerged from the Alitalia bankruptcy. The Italian government did not accept the offer and is reportedly negotiating with other groups.

Ocean trend to air cargo

MSC is the latest ocean shipping line, flush with cash from more than two years of record profits, to offer air cargo service. The trend is part of a larger strategic shift by megacarriers to be one-stop logistics shops with the ability to provide integrated ocean, air, trucking, warehousing, freight forwarding and last-mile e-commerce delivery for large customers.

MSC is privately held and doesn’t report its finances, but using other carriers as a proxy would suggest that it has a very strong balance sheet it can deploy for investment purposes. 

Maersk is doubling down on air cargo this year after operating Star Air for many years as a contract airline for express carriers such as UPS and Royal Mail. It has reorganized the operation into Maersk Air Cargo, which is focused on selling air cargo services directly to customers. It recently acquired Senator International, a German freight forwarder that specializes in airfreight. Maersk Air Cargo is also making an aggressive push to enter the U.S. market with the purchase of three new 767-300 freighters from Boeing, which it is transferring to Amerijet to operate on its behalf between Asia and the U.S., as originally reported by FreightWaves

Last year Maersk leased three additional three Boeing 767-300 converted freighters and ordered two 777 long-haul cargo jets from Boeing. 

Meanwhile, French shipping giant CMA CGM last year launched an all-cargo airline and now has five Airbus A330 widebody jets. It also ordered four 777 freighters from Boeing, two of which were scheduled for delivery during the summer. Last November it placed an order with Airbus for four A350 extra-large aircraft and in May formed a cargo alliance with Air France-KLM.

The company also owns Ceva Logistics, one of the largest contract logistics providers in the world.

Maersk is different from MSC Air Cargo and CMA CGM Air Cargo because it has its own air operating certificate, pilots and mechanics, making it a pure airline.

Other ocean carriers with long-standing air cargo operations are Taiwan-based Evergreen, which owns EVA Air, and Tokyo-based NYK Line, the parent company of Nippon Cargo Airlines.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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Ports of Halifax, Saint John brace for approaching Fiona

The ports of Halifax and Saint John are taking steps to protect operations as Hurricane Fiona approaches Atlantic Canada.

A lighthouse at a pier's edge stands watch over a harbor.

Hurricane Fiona continues its march northward up the Atlantic Ocean, and the Canadian ports of Halifax and Saint John are preparing for its arrival.

“We are actively monitoring the forecast related to Hurricane Fiona and communicating with our partners. Our port community is well equipped to make operational decisions which will prioritize health and safety of our waterfront workers and visitors,” Port Saint John spokesperson Jane Burchill told FreightWaves. Port Saint John is in New Brunswick. 

The cruise schedule will continue to change with cancellations and additions, she said.

The Port of Halifax in Nova Scotia said Friday morning that vessel movements would be suspended as of 3 p.m. local time Friday and will resume when weather conditions allow. The port said pilot and terminal operations could be affected Friday and Saturday, and it recommended checking Environment Canada’s website for the most up-to-date forecast.

Source: National Oceanic and Atmospheric Administration

A hurricane wind warning is currently in effect in Halifax, with wind speeds north of 28 mph tonight before reaching greater than 75 mph around midnight, according to Environment Canada.

The National Hurricane Center of the U.S. National Oceanic and Atmospheric Association said the brunt tropical storm-force winds could reach Atlantic Canada at roughly 8 p.m. Friday. 

“Fiona is expected to affect portions of Atlantic Canada as a powerful hurricane-force cyclone tonight and Saturday, and significant impacts from high winds, storm surge, and heavy rainfall are expected. Hurricane and tropical storm warnings are in effect for much of Atlantic Canada,” the National Hurricane Center said Friday morning

The forecast includes large swells generated by Fiona, which are expected to cause life-threatening surface and rip current conditions, the National Hurricane Center added. 

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Click here for more FreightWaves articles by Joanna Marsh.

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.

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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.

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.

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