Adapting to the Changing Logistics Landscape with Southern Star Navigation
Captain’s Log Bethany 🌎 Gabbett
As we sail further into Q3, the logistics landscape continues to evolve, brining both challenges and opportunities. With the potential for port strikes on the East and Gulf Coasts and the recent delay in Section 301 tariff increases, Souther Star Navigation is prepared to adapt and thrive amid these changes. At Southern Star Navigation, proactive planning and innovative solutions are at the core of our operations. Our dedicated team is committed to ensuring your supply chain operates smoothly, regardless of the obstacles ahead. We are collaborating with our network of carriers and partners to anticipate disruptions and implement strategies that keep your shipments on course. If you haven’t experienced our exceptional service, now is the perfect time to discover how Southern Star Navigation can elevate your logistics operations. Contact us to arrange a test shipment and find out why partnering with us is the best decision for your business. Let’s face the future with confidence and continue our journey to success together! ~Bethany Gabbett
USTR’s Decision on Hold
Section 301 Tariff Delay: USTR Postpones Decision
The Office of the U.S. Trade Representative (USTR) has announced a delay in the implementation of Section 301 tariff increases on various Chinese imports. Initially scheduled to take effect on August 1, 2024, these increases have been postponed as the USTR reviews over 1,100 public comments received on the proposed changes.
Details of the Proposed Increases
The proposed tariff increases, announced in May 2024, affect $18 billion worth of Chinese goods and include significant hikes:
Battery Parts (Non-Lithium-Ion Batteries): From 7.5% to 25%
Lithium-Ion Electric Vehicle Batteries: From 7.5% to 25%
Electric Vehicles: From 25% to 100%
Other Critical Minerals: From 0% to 25%
Face Masks/Respirators: From 0-7.5% to 25%
Ship-to-Shore Cranes: From 0% to 25%
Solar Cells (Whether or Not Assembled into Modules): From 25% to 50%
Steel and Aluminum Products: From 0-7.5% to 25%
Syringes and Needles: From 0% to 50%
Timeline and Next Steps
The USTR expects to issue a final determination in August 2024. If implemented, any changes will take effect approximately two weeks after the public notice.
Labor Disputes Escalate
Canadian Rail Strike Looms in August
A potential rail strike in Canada is likely to occur in late August as negotiations between Canadian Pacific Kansas City (CPKC) and the Teamsters Canada Rail Conference (TCRC) have reached a stalemate. The two parties are struggling to agree on a new contract for the engineers and conductors, with the gap between their positions remaining wide. CPKC’s CEO, Keith Creel, recently expressed concerns about the ongoing labor talks, acknowledging that reaching a resolution will be challenging. Meanwhile, the Canadian Industrial Relations Board is expected to announce by August 9 which goods must continue to move during a work stoppage to protect public health and safety. This decision could significantly impact the nature and extent of any potential strike.
If the strike occurs, it will shut down CPKC and Canadian National (CN) operations across Canada, severely affecting the country’s rail network and commuter services in major cities like Vancouver, Toronto, and Montreal. This comes at a time when CN has already lowered its financial outlook due to anticipated disruptions. Creel warned that a strike could damage Canada’s reputation as a reliable trading partner, especially after last year’s dockworkers’ strike that disrupted ports in British Columbia. Many customers might experience what Creel terms “labor unrest fatigue” as these disruptions continue to affect supply chains. Nevertheless, CPKC remains hopeful and committed to reaching a fair agreement, even though they are not willing to make a poor deal.
In contrast, the looming rail strike could open up opportunities for alternative shipping routes. CPKC is positioning itself to capitalize on potential dockworker strikes on the U.S. East and Gulf Coasts by promoting its ports in Lazaro Cardenas, Mexico, and Saint John, New Brunswick, as viable alternatives. Recent test runs have demonstrated the efficiency of these routes, with trains from Lazaro Cardenas reaching Houston in just over three days. Major shipping lines, including Maersk and MSC, are already expanding services to these ports, signaling a strategic shift that could mitigate some of the negative impacts of the strike.
Limited Options for US Importers
Shippers Face Port Strike Threat
Importers and exporters in the United States are worried about a possible strike at ports along the East and Gulf coasts at the end of September. The International Longshoremen’s Association (ILA) may strike if no agreement is reached. Shippers have limited choices to address this threat, and none are very promising. Some importers have already tried to send their goods early to avoid the strike, but it might be too late for others. The last chance to ship goods from Asia to arrive before the strike is mid-August. However, space for cargo on ships leaving Asia has been tight, although it might get a bit better in August.
Some shippers have considered alternate routes through Canada and Mexico, but these have challenges. Canada faces its labor issues, such as a possible rail strike, which complicates things further. Similarly, Mexico’s ports, although considered, are not easy alternatives due to longer transit times and limited shipping capacity. Meanwhile, the Biden administration has not provided any public reassurance about managing the situation, leaving importers feeling unsure about what to expect. The ongoing labor dispute over automation projects at the Port of Mobile, involving ILA and APM, adds to the uncertainty. As the contract talks continue to be at a standstill, US shippers face a tense situation with few options to rely on. Shippers are considering ways to cope with the uncertainty. Some are stocking up on extra inventory, aiming for at least two weeks’ worth of supplies, as a short work stoppage could be manageable. Even so, a strike lasting more than a couple of days could cause long delays, with some ports potentially taking a month to recover fully. A few shippers are considering using smaller ports that do not involve ILA labor, but this is a risky move. Some are also thinking of rerouting through Eastern Canadian ports or taking more goods through the West Coast, though each option has its risks and challenges. It’s a difficult time for shippers, with many unsure of how to avoid disruption as the potential strike draws closer.
Expansion Aims to Boost Capacity
Panama Canal Returns to Normalcy
The Panama Canal is on track to resume normal vessel transits, targeting 36 daily crossings by September. This increase follows significant rainfall in June and July, which has helped restore water levels needed for smooth canal operations. In ideal conditions, the canal can accommodate 40 to 42 vessels per day. To further enhance capacity, the Panama Canal Authority (ACP) is launching a $1.6 billion expansion project, including the construction of the Río Indio reservoir. This project is expected to boost daily transits by 11 vessels and provide additional drinking water to local communities. The expansion, planned for completion in 2030, aims to address water supply challenges due to unpredictable climate conditions. It will involve extensive social and environmental considerations, affecting nearly 13,000 residents across 200 villages. Although some residents have expressed concerns, many are open to participating in the process if their rights are respected. This expansion project has become a top priority following Panama’s second-driest year on record in 2023, which led to severe transit restrictions and congestion at the canal. The additional reservoir and associated infrastructure are designed to ensure long-term water availability and operational stability for both the canal and local populations.
E-commerce Demand Drives Rates
Air Cargo Peak Season Continues
Air cargo is experiencing a prolonged peak season as demand continues to surge, primarily driven by strong e-commerce growth and disruptions in ocean shipping. Key trade routes out of Asia remain busy, with air freight rates staying high despite earlier disruptions like the Microsoft IT outage in July, which caused significant flight delays and cancellations. According to industry reports, cargo load factors increased significantly during the outage but have since returned to normal levels. Spot rates for air freight from Shanghai to North America have consistently remained above $5 per kilogram since March, marking a nearly 25% increase compared to last year, while rates to Europe have risen by 44%.
The sustained high demand for air cargo is largely fueled by e-commerce in the US and Europe. Consumers’ online shopping habits have increased competition for aircraft space, not only with traditional goods but also with time-sensitive and perishable items. The shift from ocean shipping to air freight has been particularly noticeable on routes to Europe, as diversions through the Red Sea and unrest in regions like Bangladesh have led to backlogs at ports and airports. Middle Eastern routes, especially from the UAE, have seen air cargo rates surge due to ocean shipping delays and the resulting switch to air freight. For instance, rates from the Middle East and Central Asia to Europe increased by 126% year over year in July. This elevated demand shows no sign of slowing down, with expectations that the trend will continue into August and September. The ongoing summer vacation period is also contributing to cargo delays at major airports like Dubai, where passenger baggage is prioritized, further complicating logistics for regular cargo shipments. Despite these challenges, e-commerce and general cargo recovery have pushed air freight spot rates from Northeast Asia to North America and Europe to approximately $4.39/kg and $4.17/kg, respectively. This continuous growth in air cargo demand provides a significant boost for airlines, creating an unexpected yet favorable market environment.
Marine Insurance
Marine insurance is crucial for businesses involved in shipping goods internationally. It provides comprehensive coverage that safeguards shipments against various risks and uncertainties during transit by sea, air, or land. This type of insurance is essential for ensuring that businesses can recover financial losses from potential damage or loss of cargo. Importance of Marine Insurance: Protection Against Financial Loss: Covers the cost of goods lost or damaged during transit, ensuring businesses do not bear the financial burden alone. Risk Management: Helps manage and mitigate risks associated with transportation, including natural disasters, accidents, and piracy. Peace of Mind: Provides reassurance that goods are protected, allowing businesses to focus on operations without worrying about potential losses. Legal Compliance: Often a requirement in international trade contracts, ensuring that businesses meet legal and contractual obligations. Comprehensive Coverage: Includes protection against various risks such as theft, fire, and other perils specific to maritime transportation. For more information, call Southern Star Navigation at 833.782.7628.
In today’s fast-paced logistics environment, staying ahead of challenges like potential port strikes and shifting trade regulations is crucial. At Southern Star Navigation, we don’t just react to changes—we anticipate them. Our dedicated team is committed to keeping your supply chain running smoothly, no matter what obstacles arise.
From international ocean and air freight to customs brokerage and cross-border services, we offer comprehensive solutions that ensure your shipments arrive on time and intact. Our proactive approach and innovative strategies allow us to navigate even the most complex logistical challenges with confidence.
If you’re ready to elevate your logistics operations, now is the perfect time to partner with Southern Star Navigation. Let’s chart a course to success together.