In 2023, ocean shippers saw ample capacity and falling rates. This year, however, that trend has reversed due to labor disruption, geopolitical issues, and rising demand.
Gary Frantz is a contributing editor for CSCMP's Supply Chain Quarterly and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The first two-thirds of 2024 hasn’t been particularly kind to shippers, global containership operators, and U.S ports. They’ve had to deal with rebel attacks on ships transiting the Suez Canal and the Red Sea, congestion at Asia-Pacific ports such as Singapore and Malaysia, a Panama Canal slowly recovering from last year’s drought, and more recently a three-day strike at U.S. East and Gulf Coast ports.
It’s a familiar picture: a maritime market experiencing high demand while dealing with geopolitical factors that have shifted global supply chains, upended normal operations, and sucked up available capacity. As a result, rates for container shipping have been on the rise and stayed stubbornly strong most of the year.
“We are seeing the exact same playout as during the pandemic,” observes Lars Jensen, principal with maritime consultancy Vespucci Maritime. “There is an overall lack of capacity.”
Red Sea reverberations
In this case, the biggest culprit is hostilities in the Middle East, which have forced containership operators to reroute Asia-origin vessels destined for Europe and the U.S. East Coast from the Red Sea to around Africa’s Cape of Good Hope.
Because going around Africa takes longer, capacity has been tied up, and carriers have needed to add more vessels so that they can maintain schedules. To illustrate this trend, Michael Britton, head of North American ocean products for Maersk, cites one example where if the containership operator had not added two vessels to a service, it would have been up to two weeks before another voyage was offered.
“How do we respond to a requirement to add two to three vessels to a string, so we can maintain frequency of sailings?” he asks. “Where does the extra capacity come from?”
Carriers like Maersk have just two options, Britton says. They can either go to the charter market, or they can pull ships from other parts of their network to fill in the gaps. According to Britton, the charter market is limited and comes with higher fixed costs. Furthermore, these additional costs are not just for a couple of weeks or months. In today’s market, with charter rates at a premium, those vessel owners typically demand—and get—multiyear contracts for the capacity. As a result, vessel operators have mostly taken the second option of pulling ships from other routes and redeploying them into the lanes serving Asia to Europe or the U.S. East Coast.
The route changes have caused transit times to increase by anywhere from seven to 10 days to the U.S. East Coast and by 14 to 28 days or more to some locations in Europe and the Eastern Mediterranean.
Compounding the problem is the fact that cargo that once was able to move on larger ships through the Red Sea now needs to be transshipped, which is the transportation of cargo containers from one vessel to another, while in transit to its final port of discharge. Transshipping commonly happens when the cargo can't reach its final destination through a direct route. “It takes more time to handle four smaller vessels than one big [one],” Jensen notes.
Nor have the new routes been easy on the ports. There have been reports that the irregular schedules have led to what is called “ship bunching,” when multiple vessels arrive within a short time of one another.
“Adding insult to injury, nothing runs on time,” says Jensen. “That makes it exceedingly difficult to plan yard layout, which reduces port efficiency [and delays ship loading and departure].”
Maersk, for example, has seen increases in congestion and waiting times at key hub ports and some Asian ports. “It’s a networkwide challenge, not just limited to the U.S. trades,” Britton says.
Rising costs
Additional costs are piling up as well. To make up for longer transits, ship operators are running vessels at faster speeds. That’s incurring higher fuel and other operating costs, which by some estimates are as much as $1 million per string.
Then there is the issue of containers. With longer transit times, containers are taking longer to get back to origin ports. “There is no use having a weekly sailing if I don’t have boxes to release to customers,” Britton says.
With the current trade lanes and transit times, it’s taking up to 24 days or more for boxes to return. “The only way to stay ahead of that and carry the same volumes is to buy and deploy more containers,” Britton notes. “You can either do one of two [things]: invest in capacity and higher operating costs or eliminate the service. If you want transit time and port coverage, that requires investment and higher operating costs—and with that comes higher rates.”
Pulling forward
At the same time that capacity has been tight, demand has also been on the rise. According to Britton, volumes have been higher than expected due to a return to normal inventory stocking cycles and continuing strong demand from U.S. consumers. He also notes that some China-based suppliers, seeing weakness in their own domestic markets, are pushing more into export markets than projected.
Finally, the longer transit times themselves have also been contributing to the increase in demand. “It’s making [businesses] order earlier to factor in those longer leadtimes or maybe pull forward some of the traditional peak season volumes we’ve seen,” Britton says. “There is some front-loading going on.”
That aligns with what shippers have been telling Port of Los Angeles Executive Director Gene Seroka. While the conflict in the Mideast hasn’t significantly impacted his port, Seroka says shippers are telling him that they are altering their ordering and supply chain timelines to accommodate the longer transit times.
A reversal
In all, 2024 has been a reverse image of where the market was nearly a year ago. In 2023, capacity was relatively available, rates were falling, and new ships were coming online at a rapid pace, foreshadowing a capacity glut. Shippers were haggling for the lowest rates they could find.
“October to November last year, rates were lower than prepandemic,” Jensen says. “At that point in time, the industry talk was how dumb the carriers were to overorder vessels.”
But now the shoe is on the other foot, according to Seroka. “New build capacity coming out of shipyards was thought to be a concern,” he says. “It has worked out to be just the opposite because so many of the new-build ships were put into service on these longer strings.”
Without that excess capacity, the ocean carriers might not have been able to manage the Red Sea crisis. “Imagine where we would be right now [if vessel lines had not ordered ships at the rates they did],” Jensen says. “We would not be able to service the global supply chain.”
The market for environmentally friendly logistics services is expected to grow by nearly 8% between now and 2033, reaching a value of $2.8 billion, according to research from Custom Market Insights (CMI), released earlier this year.
The “green logistics services market” encompasses environmentally sustainable logistics practices aimed at reducing carbon emissions, minimizing waste, and improving energy efficiency throughout the supply chain, according to CMI. The market involves the use of eco-friendly transportation methods—such as electric and hybrid vehicles—as well as renewable energy-powered warehouses, and advanced technologies such as the Internet of Things (IoT) and artificial intelligence (AI) for optimizing logistics operations.
“Key components include transportation, warehousing, freight management, and supply chain solutions designed to meet regulatory standards and consumer demand for sustainability,” according to the report. “The market is driven by corporate social responsibility, technological advancements, and the increasing emphasis on achieving carbon neutrality in logistics operations.”
Major industry players include DHL Supply Chain, UPS, FedEx Corp., CEVA Logistics, XPO Logistics, Inc., and others focused on developing more sustainable logistics operations, according to the report.
The research measures the current market value of green logistics services at $1.4 billion, which is projected to rise at a compound annual growth rate (CAGR) of 7.8% through 2033.
The report highlights six underlying factors driving growth:
Regulatory Compliance: Governments worldwide are enforcing stricter environmental regulations, compelling companies to adopt green logistics practices to reduce carbon emissions and meet legal requirements.
Technological Advancements: Innovations in technology, such as IoT, AI, and blockchain, enhance the efficiency and sustainability of logistics operations. These technologies enable better tracking, optimization, and reduced energy consumption.
Consumer Demand for Sustainability: Increasing consumer awareness and preference for eco-friendly products drive companies to implement green logistics to align with market expectations and enhance their brand image.
Corporate Social Responsibility (CSR): Companies are prioritizing sustainability in their CSR strategies, leading to investments in green logistics solutions to reduce environmental impact and fulfill stakeholder expectations.
Expansion into Emerging Markets: There is significant potential for growth in emerging markets where the adoption of green logistics practices is still developing. Companies can capitalize on this by introducing sustainable solutions and technologies.
Development of Renewable Energy Solutions: Investing in renewable energy sources, such as solar-powered warehouses and electric vehicle fleets, presents an opportunity for companies to reduce operational costs and enhance sustainability, driving further market growth.
“ExxonMobil is uniquely placed to understand the biggest opportunities in improving energy supply chains, from more accurate sales and operations planning, increased agility in field operations, effective management of enormous transportation networks and adapting quickly to complex regulatory environments,” John Sicard, Kinaxis CEO, said in a release.
Specifically, Kinaxis and ExxonMobil said they will focus on a supply and demand planning solution for the complicated fuel commodities market which has no industry-wide standard and which relies heavily on spreadsheets and other manual methods. The solution will enable integrated refinery-to-customer planning with timely data for the most accurate supply/demand planning, balancing and signaling.
The benefits of that approach could include automated data visibility, improved inventory management and terminal replenishment, and enhanced supply scenario planning that are expected to enable arbitrage opportunities and decrease supply costs.
And in the chemicals and lubricants space, the companies are developing an advanced planning solution that provides manufacturing and logistics constraints management coupled with scenario modeling and evaluation.
“Last year, we brought together all ExxonMobil supply chain activities and expertise into one centralized organization, creating one of the largest supply chain operations in the world, and through this identified critical solution gaps to enable our businesses to capture additional value,” said Staale Gjervik, supply chain president, ExxonMobil Global Services Company. “Collaborating with Kinaxis, a leading supply chain technology provider, is instrumental in providing solutions for a large and complex business like ours.”
The firms’ “GEP Global Supply Chain Volatility Index” tracks demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses.
The rise in underutilized vendor capacity was driven by a deterioration in global demand. Factory purchasing activity was at its weakest in the year-to-date, with procurement trends in all major continents worsening in September and signaling gloomier prospects for economies heading into Q4, the report said.
According to the report, the slowing economy was seen across the major regions:
North America factory purchasing activity deteriorates more quickly in September, with demand at its weakest year-to-date, signaling a quickly slowing U.S. economy
Factory procurement activity in China fell for a third straight month, and devastation from Typhoon Yagi hit vendors feeding Southeast Asian markets like Vietnam
Europe's industrial recession deepens, leading to an even larger increase in supplier spare capacity
"September is the fourth straight month of declining demand and the third month running that the world's supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies," Jagadish Turimella, president of GEP, said in a release. "With the potential of a widening war in the Middle East impacting oil, and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritize agility and resilience in their procurement and supply chains."
For example, millions of residents and workers in the Tampa region have now left their homes and jobs, heeding increasingly dire evacuation warnings from state officials. They’re fleeing the estimated 10 to 20 feet of storm surge that is forecast to swamp the area, due to Hurricane Milton’s status as the strongest hurricane in the Gulf since Rita in 2005, the fifth-strongest Atlantic hurricane based on pressure, and the sixth-strongest Atlantic hurricane based on its peak winds, according to market data provider Industrial Info Resources.
Between that mass migration and the storm’s effect on buildings and infrastructure, supply chain impacts could hit the energy logistics and agriculture sectors particularly hard, according to a report from Everstream Analytics.
The Tampa Bay metro area is the most vulnerable area, with the potential for storm surge to halt port operations, roads, rails, air travel, and business operations – possibly for an extended period of time. In contrast to those “severe to potentially catastrophic” effects, key supply chain hubs outside of the core zone of impact—including the Miami metro area along with Jacksonville, FL and Savannah, GA—could also be impacted but to a more moderate level, such as slowdowns in port operations and air cargo, Everstream Analytics’ Chief Meteorologist Jon Davis said in a report.
Although it was recently downgraded from a Category 5 to Category 4 storm, Milton is anticipated to have major disruptions for transportation, in large part because it will strike an “already fragile supply chain environment” that is still reeling from the fury of Hurricane Helene less than two weeks ago and the ILA port strike that ended just five days ago and crippled ports along the East and Gulf Coasts, a report from Project44 said.
The storm will also affect supply chain operations at sea, since approximately 74 container vessels are located near the storm and may experience delays as they await safe entry into major ports. Vessels already at the ports may face delays departing as they wait for storm conditions to clear, Project44 said.
On land, Florida will likely also face impacts in the Last Mile delivery industry as roads become difficult to navigate and workers evacuate for safety.
Likewise, freight rail networks are also shifting engines, cars, and shipments out of the path of the storm as the industry continues “adapting to a world shaped by climate change,” the Association of American Railroads (AAR) said. Before floods arrive, railroads may relocate locomotives, elevate track infrastructure, and remove sensitive electronic equipment such as sensors, signals and switches. However, forceful water can move a bridge from its support beams or destabilize it by unearthing the supporting soil, so in certain conditions, railroads may park rail cars full of heavy materials — like rocks and ballast — on a bridge before a flood to weigh it down, AAR said.
Imports at the nation’s major container ports should continue at elevated levels this month despite the strike, the groups said in their Global Port Tracker report.
To be sure, the strike wasn’t without impacts. NRF found that retailers who brought in cargo early or shifted delivery to the West Coast face added warehousing and transportation costs. But the overall effect of the three-day work stoppage on national economic trends will be fairly muted.
“It was a huge relief for retailers, their customers and the nation’s economy that the strike was short lived,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a release. “It will take the affected ports a couple of weeks to recover, but we can rest assured that all ports across the country will be working hard to meet demand, and no impact on the holiday shopping season is expected.”
Looking at next steps, NRF said the focus now is on bringing the International Longshoremen’s Association (ILA)—the union representing some 45,000 workers—and the United States Maritime Alliance Ltd. (USMX) back to the bargaining table. “The priority now is for both parties to negotiate in good faith and reach a long-term contract before the short-term extension ends in mid-January. We don’t want to face a disruption like this all over again,” Gold said.
By the numbers, the report forecasts that U.S. ports covered by Global Port Tracker will handle 2.12 million twenty-foot equivalent units (TEU) for October, which would be an increase of 3.1% year over year. That is slightly higher than the 2.08 million TEU forecast for October a month ago, and the strike did not appear to affect national totals.
In comparison, the August number was 2.34 million TEU, up 19.3% year over year. The September forecast 2.29 million TEU, up 12.9% year over year, November is forecast at 1.91 million TEU, up 0.9% year over year, and December at 1.88 million TEU, up 0.2%. For the year, that would bring 2024 to 24.9 million TEU, up 12.1% from 2023. The import numbers come as NRF is forecasting that 2024 retail sales – excluding automobile dealers, gasoline stations and restaurants to focus on core retail – will grow between 2.5% and 3.5% over 2023.
Global Port Tracker, which is produced for NRF by Hackett Associates, provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.