Asia – Northern Europe

• For the week after Chinese Golden Week, which will be 9-15 Oct, carriers have announced a record-high cut in capacity, as they want to cope with the fall in demand (cargo). From Asia to Europe, 41% of sailings that week (a total of 8), equally spread over the different alliances, will be blanked.
• The reason is of course overcapacity, which is in the market. Not only has the capacity gone up thanks to bigger vessels and less congestion, but the overall volumes have decreased on top of the additional space brought to the market.
• To compare, the EU import index (in volume) has increased month on month by 1.8%, but compared to the index year on year, it has dropped 59.3%.

(data sourced from Xeneta)

• Apart from the drop in volume and the capacity in play, several shipping lines have already sent a general message to the market stating that they need to increase their rates to a ‘workable’ level for them. This means it will remain feasible for them to keep operating vessels in this trade to, in the end, service the shippers and receivers of cargo. The rate increases are extreme, in some cases a 4-digit increase, compared to the current spot levels. It seems the shipping lines fear smaller increases would not have the required effect.

Transpacific

• On this trade, the blanking of the vessels is calculated to represent an even higher number than the Asia – North Europe trade. In the same week, the week after Chinese Golden Week, up to 50% of sailings (19) will be skipped. The difference in this trade is that the Ocean Alliance represents half of all blanks in the schedules.
• With the draft restrictions in the Panama Canal, analysts had predicted that the rates from Asia to North America's East Coast would increase. However, this has not been the case.

Transatlantic

• Also on this trade, the strategy of taking out capacity to stop the falling rates, or even to potentially increase the rates, has reemerged. Between Maersk and MSC alone, a whopping 43% capacity reduction will be phased in, which already started at the end of September.

Latin America

• The Panama Canal, which is the second busiest canal in the world for cargo transport, is suffering with the El Niño weather phenomenon, which is causing an ongoing drought in the area. Due to this drought, the allowed draft of vessels in the canal is reduced, as water levels are lower than they should be to cover for the maximum draft. From November 1st, the canal will allow a maximum of 30 booking slots compared to the already reduced capacity of 32 vessels per day (normally 34-36 vessels per day).
• Heavy protests in Guatemala City have shut down the operations in the port of Guatemala. Protesters have set up roadblocks, which prevent cargo from moving from and to the port. The protests are nationwide, as the local people want to show they do not trust the integrity of the election process in their country. President Alejandro Giammattei wants these protests to end and has announced a ‘crackdown’ with riot police to get the roadblocks lifted. Many fear this will only escalate the violence, and will incite the protesters.

Mediterranean / Black Sea:

• The ongoing situation between Russia and Ukraine does not look like it is going to end any time soon. In the Black Sea region some flows are rather ‘unaffected’ and it seems companies and current flows have adapted to the current situation. The railway connection from Asia to Europe and the Med, however, seems unlikely to be relaunched soon.
• The escalation in violence in Israel and Palestine has not yet had a great effect on global trade or even on Israel moving cargo from and to the country. It is very likely, however, that soon we will see some flows go down or shift to/from other areas. Some shipping lines have announced that they will temporarily not accept hazardous cargo for Israel. Air charters have peaked recently, because some do not want to take the risk of a vessel being diverted from the area. Zim, an Israeli shipping company, has warned customers of possible short-notice service interruptions, stating that the Israeli government can make use of its vessels and infrastructure IF needed. For the moment, the harbor infrastructure in Israel is not affected at all.

GCC

• According to a decree by the Dubai Maritime Authority (DMA), which governs ports, customs and free zones in the UAE, carrier or freight intermediaries (like NVOCCs and FFWs) will be barred from collecting THCs on behalf of the customers for payment to terminal operators. The new mechanism is set to begin on November 1st. The collection of payments will go directly via the Dubai Trade Platform. THCs are said to be the largest, and seen as the most controversial, part of all carriers' ancillary collections, as rates vary widely from terminal to terminal. With this decree, the DMA wants to create transparency in the logistics costs. Logistics service providers will have to publish their “local sea container charges” on individual portals for visibility. For LCL shipments it is not clear how this new decree will provide a solution, as on the collection platform LCLs have not been considered yet. The loss of margin for the shipping lines could result in an increase in ocean freight, although in the current market that seems rather unlikely to happen.

General

• ZEMBA has issued a tender for zero-emission container transport. An international group of 20 shippers has united 600,000 TEU to put in the market for ocean carriers to submit bids for, but they can only bid if they can ship the cargo with vessels propelled by a zero-emission fuel type. ZEMBA is an initiative of a few members of Cargo Owners for Zero Emission Vessels (coZEV). The most known members include companies like Amazon, Ikea, BP, Johnson Controls, MAN, Mitsubishi, Shell, and Yara. (For some reason the group also has Maersk and Mitsui Lines as members, even though they are, as far as we know, not cargo owners)
• China increases European presence but remains a minor player. As of September 2023, Chinese companies held investments in 31 container seaport terminals in Europe and the Mediterranean. Concerns over Chinese domination of the European terminals seem unfounded, however, as the Chinese state-owned players only control the full or a large majority in two European ports, Piraeus and Zeebrugge.
• MSC wins lawsuit in the U.S. Last year, MSC charged a congestion surcharge of 1,000 USD per container unit to their customer Sofi Paper Products, a U.S. producer of environmentally friendly cups and straws, due to the difficulties around getting containers loaded and discharged at the U.S. seaports. Following the enactment of the Ocean Shipping Reform Act (OSRA) of 2022, which aims to protect U.S. exporters through control and regulations by having clarity on costs, and preventing unfair and/or unreasonable practices, refusal of transportation services, or any other unfair methods from the shipping lines, Sofi filed a lawsuit against MSC. The FMC’s Office of Enforcement however dismissed the case, as Sofi could not sufficiently prove that the OSRA 2022 was violated. This ruling could be a setback for other lawsuits that might have been in the pipeline for other shipper.

• EU abolishes block exemption for liner consortia. The Consortia Block Exemption Regulation (CBER) has not been extended by the European Commission. The CBER was put in place so carriers could cooperate without formally applying for a waiver from the European anti-trust laws, if the partnership did not exceed 30% of the market share on a trade. The end to the exemption, which has run since 2009. does not mean that operational cooperation will be jeopardized, but carriers cannot agree to cooperate any longer without explicit approval from the EU. The 3 big alliances as we know them (2M, Ocean Alliance, and THE Alliance) will restructure in the near future anyway as MSC and Maersk already announced they were breaking up, which will most likely have a ripple effect on other carriers. On top of this, Simon Heaney, Senior Manager of Supply Chain Research at Drewry, said that: “By effectively coercing lines to operate independently, the logical conclusion is each carrier will have to downsize service portfolios in terms of frequency and connectivity. That would reduce, not increase, competition on a port-pair basis and push up freight rates.”

IMPORTANT NOTIFICATION

EU Emissions Trading System (ETS)

From 01/01/2024, the shipping lines will apply a new surcharge following new legislation from the European Commission for all cargo carried on their vessels from and to EU countries.

The EU wants to be the first carbon neutral continent in the world by 2050 (as agreed in the ‘Green Deal’).

One tool to reach this target is the Emissions Trading System (ETS). This is based on a “cap and trade scheme” wherein a maximum or cap is set on the total amount of greenhouse gases that can be emitted by companies inside the EU area within a year. Companies subject to the EU EUTS have to buy allowances (carbon credits) based on the amount of greenhouse gases they emit (1 ton of CO2 = 1 ETS Allowance).

The number of available allowances will decrease every year, driving the total amount of greenhouse gas emitted down toward the 2030 and eventually 2050 targets.

The EU ETS will apply to energy-intensive sectors, of which the maritime industry is one.

• In 2024, 40% of reported emissions will have to be converted into allowances.
• In 2025, it will be 70% of reported emissions
• In 2026, it will be 100% of reported emissions

Not every aspect has been finalized yet. Will transshipment ports be affected, and which ports will be on a possible list for allowed transshipments?

The effect of the ETS for customers/freight payers will be an additional cost. Several shipping lines have already reported some indicative numbers, though the amounts vary based on the current market value of the carbon allowances, fleet per shipping line, head- and backhaul and so on. CMA communicated a calculation with the knowledge they have today, and for Asia to North Europe the cost would be €25/TEU for a dry container. For Europe to North America East Coast, however, the cost would be €43/TEU. This is explained by the difference in vessel types used on the different trades. On the Asia-N.Eur trade you have bigger vessels to better spread the cost, and newer vessels which are often less polluting than the vessels used on the Transatlantic trade.

Every rate agreement which starts on 01/01/24 or later, and every rate agreement which runs beyond 01/01/24, will be affected by this new cost implementation. At the beginning of December, the shipping lines should be able to have more or less correct amounts to communicate to their customers.

Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) should not be confused with the ETS. The CBAM will impose a carbon levy on specific imported goods: iron and steel, cement, aluminum, fertilizers, and hydrogen. This mechanism addresses carbon leakage by ensuring imports adhere to emission standards applicable in the EU. Importers will have to pay for a CBAM certificate which is calculated on any difference between the carbon price paid in the country of production and the price of carbon allowances under the EU’s trading system (ETS). The CBAM will enter into force in the last quarter of 2023 as a transitional phase. This phase will serve as a learning period for all stakeholders involved, and allow all the information about the embedded emissions to be collected. From Jan 2026, importers will have to pay in line with the ETS.

Annex: General market takeaways

In the following graphs, we present a comparative analysis of the economic landscape between the present day and September 2020. These visual representations not only showcase the evolution of contract rates but also highlight the concurrent economic growth rates in various regions, as forecasted by the International Monetary Fund (IMF). This comprehensive perspective will shed light on the changing economic dynamics across the globe and help us better understand the trajectory of different regions in recent years.