Freight forwarding mid-year 2015: What we’re watching

In January, the Cargo Services team looked forward into 2015 and outlined what we envisioned as the trends for the year. Topics included continued challenges at West Coast ports and the resulting ripple effect at East Coast ports along with alliances and a changing trade landscape. (READ THE JANUARY ARTICLE HERE.)

Six months into the year, we reviewed our forecast and industry activity impacting cargo. This is our update.

West Coast ports
The United States West Coast ports are nearly back to normal operations after a year of disruption resulting from labor negotiations between the Pacific Maritime Association and International Longshore and Warehouse Union. The contract was ratified in May. Last fall, cargo ships were lined up and dwelled for days until they could port to unload impacting supply chains.

While we see things getting back to normal, keep in mind it’s a new normal with possible standard dwell times up to five days due to larger vessels and chassis/trucker issues.

It's clear for now West Coast ports have lost business due to the 2014 labor negotiation problems. According to Piers, which monitors U.S. imports/exports, container volume at West Coast ports was down six percent from April 2014 to April 2015. It will be interesting to see if this trend continues with importers and exporters moving cargo to East Coast ports as well as the Canadian West Coast ports -Vancouver and Prince Rupert. 

Steamship lines are planning for the continued trend. They’ve added vessels and service slings to East Coast ports via the Panama Canal in anticipation of building volumes moving into late summer and fall peak season. Furthermore with the opening of the wider Panama Canal in 2016, carriers will take advantage of lower slot costs with larger ships up to 13,000 TUE, which is almost double the size of vessels currently moving through the Panama Canal.

The good news: Summer and fall supply chains should be much easier than last year.

Carriers: Rates and routings
Newer and larger ships are coming into service this year. In turn, rates have stabilized because of added capacity of larger vessels. Carriers are trying to implement General Rate Increases (GRI) monthly, but are finding it hard to justify with over capacity and profitable reports. We will be watching to see if carriers drop rates for West Coast services to gain back market share from East Coast ports and Canadian ports.

Steamship line alliances continue to take shape in the Asia-Europe and Asia–Trans Pacific and Trans Atlantic lanes. There are no details on rates or services yet.  It is expected that service between steamship lines will become more generic as time go by.

The good news:  Oil prices continue to remain low, which means carriers will be able to add to their own pocketbook at continued rates.

Trucking
United States truckload rates continue to rise. The increase is estimated at 3.8 percent year over year for April according to Cass Information Systems in its latest Truckload Line-Haul Index. Truckers are still faced with a mounting driver shortage. Electronic log requirements are being implemented, which could reduce truck turn times.

The good news: A driver shortage means a need for employees and jobs in the economy.

NEW: Pacific free trade agreement
A 10-year negotiation for a Pacific free trade deal may be coming to an end. According to Reuters, the United States is optimistic a deal to set up a free trade zone across the Pacific will be concluded soon, with sensitive issues likely to be ironed out when Congress resumes sessions.

“We are very much in the end-game,” U.S. Trade Representative Michael Froman told reporters after a two-day trade ministers’ meeting on the Philippine island of Boracay.

The 12-nation Trans-Pacific Partnership (TPP), which will cover about 40 percent of the world’s economies, took a major step forward in May when the U.S. Senate agreed to give President Barack Obama powers to speed up U.S. approval of trade deals.

The TPP, which will include economies from Japan to Chile, is part of Obama’s so-called pivot to Asia, a strategy to counter China’s rising economic and diplomatic influence. (READ MORE HERE.)