Maersk to Build Deep Water Ports in Vietnam
APM Terminals, the port operating arm of shipping company Maersk, has partnered with Vietnamese company Hateco to develop two deep water berths at Lach Huyen port in Haiphong City, Vietnam. The project aims to facilitate the direct import and export of goods between the north of Vietnam and European and American markets. APM will provide financial, operational, and technical support to the project, which is scheduled to be completed by the end of 2024, with the new terminal becoming operational by Q1 2025. The facility will have two berths accommodating up to 18,000 TEU capacity containerships. This announcement comes at the tail end of the largest U.S. business delegation to Vietnam. Senior executives from 52 U.S. firms, including Boeing and Netflix, traveled to Vietnam with a former Ambassador. Vietnam has emerged as an attractive destination for foreign businesses as its rapid economic growth and rising middle class continue to lure investors. As a result, U.S. imports from Vietnam in 2022 totaled $127.5 bn, a 25.2% increase over the year before, according to the U.S. Census Bureau.
White House Urged to Intervene in West Coast Port Labor Talks
More than 200 importers, exporters, logistics providers, and retailers have written to U.S. President Joe Biden to urge his administration to speed up the new labor contract agreement between the International Longshore and Warehouse Union and the Pacific Maritime Association. “While we appreciate that the parties agreed not to engage in a strike or a lockout, we are aware of several activities that have impacted terminal operations. We need the administration to ensure these activities do not continue or escalate,” the March 24 letter said. The call comes after the contract governing dockworkers from California to Washington state expired in July last year. While work has mainly continued without incident at the ports, tensions rose this week when the PMA alleged that ILWU’s local chapter members failed to stagger lunch breaks, causing delays at the Ports of Los Angeles and Long Beach. These delays have helped East Coast port volumes in the past year. “That cargo will not return to the West Coast until after a contract is final and approved by both parties. The longer there is no ratified contract only increases the probability that some portion of the freight will never return to the West Coast ports,” the letter said.
Dunavant Solution: We are continuing to monitor the situation and will post updates as they happen.
Retailers Saving Big on Ocean Freight Costs
As ocean container transport prices return to pre-pandemic levels, retailers benefit from huge savings and delay signing annual contracts to further bargain down rates. Importers and container lines typically finalize agreements for the fall shipping season by mid-April for contracts that take effect May 1. Still, this year companies are negotiating in a vastly different environment than last year when they paid record amounts to secure space on container ships. This year, ocean carriers need help to fill space on ships after a steep drop-off in cargo that began in the fall and continued into 2023, resulting in a fall of more than 90% from pandemic-era highs in spot market rates. On Thursday, the average spot rate to ship a container from Asia to the U.S. West Coast was $1,289, about $668 lower than the contract price, translating to millions of dollars in annual savings for midsize importers.
Shippers who had signed long-term contracts last year have been pushing for rate reductions or other concessions from ocean carriers, leading to protracted negotiations. Companies are also looking to avoid committing to long-term contracts if rates fall further, which keeps them locked into higher costs. This dynamic has led to a shift toward shorter-term contracts and the use of the spot market, which offers more flexibility but can be more expensive and uncertain. Despite the current low rates, shippers and retailers are still facing challenges with congested ports and supply chain disruptions, as well as higher costs for land transport and other logistics services. The situation is also complicated by ongoing labor disputes at some ports, which have led to intermittent slowdowns and delays in cargo handling.
Dunavant Solution: As the spot market remains low, we are constantly updating our rates to take advantage of the low costs while negotiating with carriers for contracts should the spot market rise.
Canadian Pacific-Kansas City Southern Merger
With conditions, the Surface Transportation Board (STB) has approved Canadian Pacific's proposed $31bn merger with Kansas City Southern. As part of the deal, the two rail firms will supply extensive data to the STB on issues raised during the approval process over a seven-year oversight period. These include ensuring that efficient interline operations at affected gateways are maintained and that fluidity and sufficient capacity are maintained in traditionally congested areas like Houston and Chicago. The companies must also monitor the Chicago suburbs for any merger-caused delays or disruptions of commuter rail service.
The STB said the merged Canadian Pacific Kansas City (CPKC) would offer new single-line options that would facilitate the flow of goods among Canada, the U.S., and Mexico and could shift approximately 64,000 truckloads annually from North America's roads to rail. However, the decision was not unanimous. Board member Robert Primus voted against the merger, arguing that it should have been scrutinized more closely due to current market conditions.
Inventory Glut Dampens Hopes for Freight Rebound
Freight companies are toning down their expectations for the second half of 2023 as growing economic uncertainty and signs of retailers becoming more cautious about placing big orders raise concerns about the direction of the economy. Logistics executives say that the volumes of goods moving through supply chains have tailed off more than expected to start the year, while broader indicators such as retail sales figures add to the uncertainty. Transport companies, from truckers to container shipping lines, have been pointing to an anticipated rebound in demand in the second half of this year as companies return to more typical, pre-pandemic ordering patterns. However, that prospect is looking more questionable as retail sales have declined, and more retailers and their suppliers display caution as they remain focused on keeping inventories in check.
Smaller companies are also working through significant stockpiles. At the same time, they navigate shifting demand as people return to the office and turn away from the comfortable leisurewear they favored while working from home during the pandemic. In addition, shipping figures are showing signs of weakening demand as companies hold back new orders and global trade volumes falter. However, some freight companies remain optimistic that demand will recover in time for the traditional fall peak shipping season.
Dunavant Solution: In this environment of uncertainty, Dunavant continues to work closely with existing and potential customers to explore options to lower costs and mitigate risk.