Navigating Q3: Overcoming Disruptions and Ensuring Seamless Logistics
Captain’s Log
As we continue through Q3, we are navigating a complex landscape with agility and dedication. While the market faces potential disruptions, including port strikes and IT outages, our commitment to providing seamless logistics solutions remains steadfast. We are prepared to address these challenges head-on, ensuring your supply chain stays robust and reliable. Our team is working closely with carriers and partners to mitigate risks and secure your shipments. At Southern Star Navigation, we turn obstacles into opportunities, delivering on our promise to make the impossible possible every day. If you haven’t worked with us before, now is the perfect time to experience our unparalleled service and expertise. Stay resilient and let’s move forward together! Bethany 🌎 Gabbett Southern Star Navigation – Independent Landstar Agent
Potential Strike
Last Chance for US Importers
U.S. importers are facing a critical period to boost their stock levels before a potential strike at East and Gulf Coast ports. According to the Flexport Ocean Timeliness Indicator (OTI), the current lead time for shipping cargo from China to the U.S. East Coast is 61 days. Lars Jensen, CEO of Vespucci Maritime, emphasized that this week marks the “last chance” for importers to ensure their goods arrive before the current contract between the International Longshoremen’s Association (ILA) and the US Maritime Alliance (USMX) expires on September 30. The negotiations for a renewed contract have not yet started due to disagreements over port automation. Shippers with expedited shipping routes or shorter landside operations might still manage to move additional cargo, but they risk being impacted by potential labor disruptions. One large U.S. shipper expressed confidence that a strike might be avoided due to the upcoming U.S. presidential election, suggesting that ports might be pushed to compromise. However, if no agreement is reached, the economic impact could be significant and quickly felt, especially with the election just a month away. The OTI also noted that while China-to-U.S. West Coast lead time is around 40 days, congestion at European ports and previous delays around the Cape of Good Hope have caused China-to-Europe lead times to increase slightly.
Global Disruptions
Major IT Outage Disrupts Global Supply Chain
A recent global IT outage caused by a CrowdStrike software issue disrupted supply chains worldwide, with varying impacts across different sectors. Union Pacific’s freight network experienced some disruptions but returned to full operations by Friday afternoon. While ports from New York to Houston and Los Angeles faced temporary shutdowns, they mostly resumed normal operations by early morning. Europe’s largest port, Rotterdam, reported that some companies operating at its terminals were affected. Air freight was hit the hardest, with numerous global airlines grounding flights. The recovery for the air cargo system could span several days or weeks, although UPS’s airline continued to operate normally. This incident highlighted the vulnerability of both ocean and air supply chains to IT failures. Thousands of flights were delayed or grounded at major air freight hubs in Europe, Asia, and North America. The disruption comes amid rising global demand, with shipments increasing by 13% year-over-year in June. Despite the increased air freight supply, limited capacity has driven up costs for shippers. Concerns about air freight capacity have intensified due to the significant growth in e-commerce exports from China to Europe and the U.S. Airlines are expected to struggle with moving cargo that was delayed by the outage. While most U.S. freight railroads reported minimal issues, some ports experienced delays. For instance, the Port of Houston faced major system outages overnight but resumed operations with minimal delays by morning. Similarly, the Port of Los Angeles quickly recovered from a temporary terminal shutdown. Other major ports like Savannah and Virginia reported normal operations. Despite these disruptions, the overall impact on the supply chain was mitigated by rapid recovery efforts. The outage serves as a stark reminder of the need for robust IT systems and contingency plans in global logistics. The industry continues to adapt and overcome challenges to ensure the smooth movement of goods worldwide.
Rate Increase
Rising Air Cargo Rates Expected
Air cargo rates are set to remain high throughout the second half of 2024 due to disruptions in the Red Sea and additional U.S. tariffs on Chinese goods. The DHL Hong Kong Air Trade Leading Index (DTI) reached its highest level this year in the second quarter, driven by demand in European and American markets despite a decline in Asia-Pacific. The Hong Kong Productivity Council (HKPC), which conducts the quarterly air cargo market sentiment research, reports that ongoing ocean shipping disruptions and increased U.S. tariffs are putting upward pressure on air cargo rates.
Shippers are advancing orders ahead of the peak season to mitigate the impact of tariffs and avoid the congested ocean routes. The China-U.S. trade relationship remains uncertain, with 70% of surveyed air traders anticipating higher air trade prices. The recent U.S. tariffs on $18 billion worth of Chinese goods, effective August 1, have further complicated the situation, prompting traders to seek alternative markets or expedite shipments. The deteriorating security situation in the Red Sea, with attacks on commercial shipping, is forcing more urgent cargo onto air routes, contributing to the expected rate increases. Spot rates from Asia-Pacific to the U.S. have seen significant year-over-year growth, reflecting the strained supply chain.
Internet Restored
Bangladesh Cargo Backlog Eases
Cargo flows in Bangladesh have resumed after the government restored limited internet connections for essential services, including ports and airports. The country faced significant disruptions in imports and exports due to internet outages and a curfew enforced in response to student protests over job quota reforms. Although the curfew has been partially lifted, customs entries remain slow, causing a backlog of containers. At Chittagong Port, customs procedures restarted as soon as the internet connection was reestablished, with 2,500 TEUs processed by this morning. However, with a dozen containerships waiting at the outer anchorage and only a few trucks arriving with laden containers, the backlog persists. Similarly, Dhaka Airport’s cargo village is jam-packed with 3,000 to 3,500 tonnes of cargo that accumulated during the outages. Clearing this backlog could take more than a week, especially with the partial curfew and internet restrictions still in place.
Regulation Updates
FMC Clarifies New Container Rule
The Federal Maritime Commission (FMC) has clarified its stance on the new rule prohibiting ocean carriers from unreasonably refusing to provide vessel space for customers’ containers, emphasizing that it is not attempting to regulate rates. This rule, which takes effect on September 23, was mandated by the Ocean Shipping Reform Act of 2022. It aims to ensure fair access to cargo space and addresses situations where carriers unreasonably refuse to negotiate contract provisions regarding container vessel space. The FMC asserts that this rule provides a necessary framework for applying federal law to complaints and enforcement cases concerning cargo space accommodations.
Despite objections from carriers, the FMC maintains that comparing rates offered by carriers to current market rates is a valid method to assess the reasonableness of negotiations. The agency insists that this approach does not constitute rate regulation but rather allows the market to set rates while ensuring fairness. Additionally, the FMC requires carriers to file annual export policies detailing pricing strategies and service descriptions to help determine the reasonableness of their actions. While the FMC granted a request to amend the rule regarding the repositioning of empty containers, it clarified that any designation of sweeper vessels is subject to review to prevent unreasonable refusals of service.
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.
At Southern Star Navigation, we are committed to navigating these challenges and ensuring your supply chain remains robust and efficient. Stay informed and proactive with our latest insights and strategies. Visit our website to learn more about how we can support your logistics needs and help your business thrive.