We’re a month into the New Year, and it looks like it’s going to be an interesting 2015 in the freight forwarding industry. So much of 2014 focused on West Coast ports International Longshore and Warehouse Union, Pacific Maritime Association labor relations negotiations and its ensuing port congestion impact on cargo.
Yet there’s more to that story. It’s the impact to East Coast and Gulf ports. Couple that with falling oil prices and a U.S. European trade agreement in discussion for headline stories alining to create an dynamic 2015. Here’s what we’ll be watching.
West Coast ports
Our team has been closely watching the West Coast labor relations situation. According to Piers, U.S. West Coast ports managed 47.6 percent of containerized trade from January to September 2014. That’s a lot of cargo.
In the spring 2014, the International Longshore and Warehouse Union and Pacific Maritime Association began negotiating a new contract. At first, signs were positive with healthcare discussed and apparently resolved. Discussions have not gone well since and ports are experiencing congestion with cargo ships lined up to enter and unload. This situation is coupled with chassis shortage challenges.
Earlier this month a federal mediator stepped in to manage a resolution. Fingers are crossed as we watch and wait for a resolution, as containers continue to move slowly through these key ports.
East and Gulf coast ports receive the ripple effect
According to the Bureau of Economic Analysis , exports increased $60 billion or 2.9 percent from November 2013 to 2014, and imports increased $82.4 billion or 3.3 percent during the same period. That’s good news. Given the situation on the West Coast that cargo has to move in and out of somewhere and it's the East and Gulf Coast that’s seeing an uptick.
The U.S. economy is strong and getting stronger. Shipping rates are stable. Oil prices are falling. East and Gulf Coast ports are seeing the impact. Large retailers are moving more of their Asian supply chain cargo through East Coast ports using Suez Canal and Panama Canal services. Importers have discovered Gulf Coast ports as another option using Houston, New Orleans and Mobile as a way around West Coast congestion.
According to Piers, East Coast ports’ market share has increased 1.6 percent since the end of the recession in 2010, while West Coast ports’ share has declined 2.1 percent. Five of the top 10 U.S. container ports ranked by volume were East Coast ports—New York/New Jersey, Georgia ports, Virginia, South Carolina and Jacksonville.
Oil Prices and impact on routes/pricing
Since 4Q 2014, consumers and businesses have felt the impact of falling oil prices due to over production. After hovering more than $100 a barrel, prices have fallen to under $80 per barrel. That impacts not only the price at the pump, but also the price at the port.
When prices were high, steam ship lines tried to conserve by slow steaming through lanes. That led to lower capacity, as ships took longer to arrive at port. Lower oil prices now mean there’s no need to slow steam. Ships are traveling faster through lanes and there’s more capacity, which could begin translating to lower freight forwarding costs.
A headline in the Journal of Commerce online edition January 19 sums up the situation: Asia-Europe rates face steep slump on plunging oil prices. The article quotes Freight Investor Services saying, “… planned hikes, which were announced in December, seem ‘increasingly wishful’.” It goes on to predict that rates could fall to levels not seen since a 2011 rate war.
Alliances role in 2015 oil pricing
The four alliances are distinct in terms of number and size of ships along with with services. These factors coupled with oil prices will impact they way they do business.
G6 and CKYHE have smaller ships giving them reason to sail faster given the lower oil prices. They need to maximize capacity to maximize revenue. An analyst at SeaIntel Lars Jensen is predicting this will happen before the summer season.
Jensen also says 2M and Ocean Three, with bigger ships, have an advantage with more services and capacity available to customers.
See the full article with Jensen’s comments by clicking here.
Out with the old, maybe not!
More ships are coming into the market in 2015. Carriers won’t be able to scrap much of their fleets because many of their ships are still too new. The outcome—we could see over capacity of ships in the marketplace.
Drewry has estimated 100,000 TEUs of scheduled new container ship capacity did not arrive on time last year and will spill into 2015. In its weekly Container Insight newsletter, Drewry said by the end of last year, the total global cellular fleet had a nominal capacity of 18.1 million 20-foot containers, up 6 percent on 2013. World container demand lagged behind at 5.2 percent.
Without the so-called “slippage” of 100,000 TEUs, the global fleet would have grown by a further 0.6 points to 6.6 percent in 2014.
U.S. and European trade alliance
Yes, trade alliances take long periods of time to work out and some times fall apart, but watch this story in 2015. The United States and the European Union (22 countries) are negotiating a Free Trade Agreement called the TransAtlantic Trade Investment Partnership (T-TIP). The results of past Free Trade Agreement changes showed an increase in 200 percent trade among the countries involved. As a result, speculators watching this proposed new trade predict a very welcome and positive impact to the European Union and the United States. Read more here.
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