Market Q4

We hope everyone had a lovely Thanksgiving and look forward to a great holiday season. Here are a few important market updates to put you ahead of the curve moving into 2024. If you have any questions or want more information, please don't hesitate to contact your salesperson.

Panama Canal

  • If you're not already aware, (it was on 60 minutes), the Panama Canal is further restricting vessels to 18 per day starting in February. Whereas earlier in the year it was a minor issue, we believe in 2024 it will become a major issue.
  • This is causing prices via the Panama Canal to increase in terms of ocean freight, but even more so in the form of an updated Panama Canal Surcharge.
  • Increases for some carriers will begin 12/15, and range now from $300-500
  • Presently, many contracts have included this, but I'd also expect carriers will have to remove it from included surcharges, or will make a concerted effort to do so.
  • This is also further disrupting schedules as carriers look for alternate routings via the Suez, (the next domino), but also possibly will remove service strings on this routing which would make sense and drive the business over the West Coast (WC). https://www.businessinsider.com/panama-canal-shipp...

Service Changes:

  • Carriers continue to reduce capacity in December and have made efforts to increase rates. So far to no avail, other than a possible weekly/bi-weekly uptick that will quickly fade.
  • We've attached the service rotation changes for December in the transpacific which, as you will see, are significant - blank sailings, as you know, have significant ripple effects on schedule integrity and loadable capacity - creating roll pools, a multitude of schedule delays and changes that overall are quite problematic for supply chain management.
  • This means flexibility and creative thinking/routing will be the key to success - we are here to work with you on the best possible scenarios for your company.
  • Rail service continues to be an issue on the West Coast (WC), which is nonsensical considering the volume/throughput reductions virtually everywhere.
  • UP did announce a rail spur/yard will be opening in Phoenix in 2024 which may or may not be helpful to those Distribution Centers (DCs) in Phoenix and the Southwest. It will depend on the price of the service and efficiency of the operation overall vs. what is now a reasonably priced and very efficient truck service from Los Angeles.
  • Houston/Gulf remains congested currently and has around 4 days delay with berthing.
  • West Coast (WC) is open and will likely be the recipient of a lot of cargo shifting from the Gulf and East Coast (EC) due to the Panama Canal EC ports having some minor congestion, mostly due to disrupted schedules and bunching.
  • EC ports are having some minor congestion, mostly due to disrupted schedules and bunching.

Market expectation for 2024:

  • 2024 demand is expected to grow by 2.5% (not too bad really and goes against the recessionary crowd).
  • Supply however is expected to increase by 6.5%, which is more than double the demand - 4% may not seem like much on the surface, but it is a massive gap in terms of supply vs. demand.
  • Currently the Top 10 carriers have approximately 6.1 million TEU on order, which is equal to 26 percent of their current capacity. Overall, the Top 100 has over 6,700 vessels active with a combined capacity of 28.3 million TEU and a total orderbook reaching 6.8 million TEU. BIMCO in its analysis has warned this could mean that overcapacity persists till 2030 or beyond.
  • Sea-Intelligence in October reported that it saw substantial overcapacity in the industry. They expected carriers would begin to announce additional blank sailing, “to counteract this supply-side growth.” Hardly any new blank sailings have been announced (in October, December is the start), and capacity growth for the remainder of 2023 is still quite excessive according to Sea-Intelligence in its latest analysis.
  • Carriers are caught between the two challenges. If they increase blank sailings to reduce capacity, it will not go down well with the shippers. Cutting capacity will leave shippers scrambling to manage these sudden supply-side disruptions. However, if they do not cut capacity and continue with the introduction of more vessels it will further erode rates.
  • Carriers will cut capacity in one or many ways - bet the house on that.
  • We do think that despite the capacity cuts the rates will remain in a similar state as they are now - with volatility at around 10-15% up or down depending on the lane, timing, and situation. We do not believe there needs to be fear that we will end up in another COVID-type scenario with astronomical rate adjustments. The capacity cuts will be to balance the supply/demand and prevent the rates from dropping to unsustainable levels which would then prompt more cuts/disruptions etc, which is bad for everyone.

Here are some detailed documents:

space situation as of 2023.11.27

TP Service Rotation

Panama Canal

MSC Customs

EditSign

Another year (almost) in the books and just like every year, we will continue to manage through the chaos and create value for our customers through collaboration and consistency. We hope you have a wonderful Holiday Season, and we hope we will spend time with each other soon!


- Matthew Crocker, CCO

News

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