Weekly Roundup – May 2, 2024

Welcome back to the weekly roundup, where we provide concise summaries of the most important supply chain and logistics stories of the week. Covering breaking news, emerging threats, and changing market dynamics, it contains all the news you need to maintain a competitive advantage.

FAK rate hikes holding, with strong demand into peak season predicted

Recent analysis from shipping consultancy MSI suggests that the turnaround in shipping lines’ fortunes will likely extend into the peak season. The excess container liner capacity absorbed by vessel diversions around the Cape of Good Hope, alongside robust global cargo demand, has enabled liners to maintain current freight rates. Anecdotal evidence shows that FAK rate hikes have been effective, and strong cargo demand across major trade routes (east-west and north-south) has contributed to this stability.

The Red Sea crisis is also preventing rate declines, with little expectation of resolution soon. However, concerns exist that if shipping resumes via the Suez Canal, there could be a rapid collapse in rates due to diverted capacity returning to the market. Despite this, optimism in the market is driving increases in charter rates and second-hand vessel sales, indicating confidence in sustained cargo demand. MSI anticipates continued rate increases through the second and third quarters, followed by a potential decline after Q3 due to new vessel deliveries.

Red Sea Diversions Spew Carbon Emissions Equal to 9 Million Cars

Ships avoiding Red Sea attacks by taking the longer route around South Africa’s Cape of Good Hope are emitting millions of additional tons of carbon dioxide, complicating efforts for companies to reduce supply chain pollution. This detour has led to an extra 13.6 million tons of CO2 emissions over four months, equivalent to the pollution of about 9 million cars in the same period, according to consultancy INVERTO.

Managing director Sushank Agarwal noted that these emissions make it challenging for companies to meet net-zero targets without costly emission reductions or carbon offset initiatives. This impact, although significant, is a fraction of the shipping industry’s overall emissions, with the International Maritime Organization working on a global carbon levy set for 2027. Meanwhile, reports from Xeneta indicate a 63% rise in carbon emissions for container shipping from Asia to the Mediterranean last quarter due to longer routes and increased ship speeds.

Global liner growth projections built on low volume comparisons

Xeneta’s chief analyst, Peter Sand, cautioned that early growth projections for this year’s liner shipping might be skewed by comparisons to the sluggish global economy of the past two years, leading to distorted statistics. Sand highlighted that weak volumes and underlying overcapacity in the industry are masked by the Red Sea crisis absorbing excess tonnage. Xeneta anticipates global growth to be limited to 2.5%-3% this year. Meanwhile, MSI’s April report projects significant growth in global liner shipping for 2024, with strong year-on-year increases in demand seen in various trade routes.

US imports from East Asia surged by 30.4% in February, and MSI expects a 7.5% growth in this trade for the full year. However, Sand noted that despite this growth, the Pacific eastbound trade may not fully recover to 2021 levels. Additionally, MSI forecasts modest growth in Europe to the US trade and a 4.2% growth in Asia to Europe trades due to sluggish economic growth in western Europe.

ONE reports 2023 profit collapse due to rates decline, but volumes were up

Japanese container line Ocean Network Express (ONE) has reported a financial boost from the Red Sea crisis in its 2023 annual report, showing a predicted profit increase for 2024 to around $1 billion, surpassing 2023’s earnings. Despite overall sluggish demand on key trade routes like transpacific and Asia-Europe due to industry overcapacity, the crisis is expected to positively impact earnings. ONE carried over 12 million TEU in 2023, an 8% increase from 2022, with eastbound transpacific volumes growing and vessel utilisation improving. However, the extended sailing distances due to the crisis increased fuel consumption.

The report highlights challenges in the Asia-Europe trade, with cargo movements affected by inflation and consumer spending stagnation. ONE’s fleet includes 235 vessels with a capacity of 1.84 million TEU, with additional vessels on order and under construction.

Maersk implements peak season surcharges worldwide

Maersk is introducing Peak Season Surcharges (PSS) for shipments from several Asian countries to destinations like Tanzania, Kenya, Angola, Cameroon, Congo, and more. Effective from May 6, the surcharge applies to dry, reefer, and 45 high dry containers, varying from $200 to $400 per container. Additionally, there are PSS adjustments for shipments from Far East Asia to the East Coast of South America and from Vietnam and Taiwan China to South America, ranging from $1,000 to $2,000 per container. Maersk is also implementing a PSS for shipments from North China and South Korea to India and Pakistan, effective from May 1, at $750 per container.

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