China port threat could open new front in trade war

Figure of the week

10% With furniture accounting for some 10% of Trans Pacific volumes, new US import tariffs of 25% on kitchen cabinets, vanities and upholstered wooden furniture is likely to further suppress demand. Linerlytica said that tariffs would hurt already weakening cargo volumes and exert downward pressure on rates.

Quote of the week

“A weakened US economy plus a supply glut at sea? That’s a recipe for brutal rate wars, idle tonnage, and carriers scrambling to plug financial holes. The question isn’t if the storm hits, it’s how hard” Industry executive turned consultant Jon Monroe’s words predict tumultuous times for ocean carriers.

China port threat could open new front in trade war

Just as it was starting to seem that the USTR port fees would come into effect with relatively little direct impact on shippers, China has thrown a spanner into the works. Beijing has revised its international maritime transport rules to allow it to take retaliatory action against the fees – which specifically target Chinese-owned and operated vessels in the US. Options now open to China include charging special fees or restricting access to Chinese ports. China did not specify that the measures would be applied against any specific nation. What it did say, however, is that these countermeasures would be used against any country or region that imposes or supports discriminatory bans or restrictions on Chinese operators, vessels, or crews. There are, therefore, no prizes for guessing who Beijing has in mind as the likely target of the new measures. Why does this matter for shippers? On the face of it, even if China were to directly target US-owned or -operated vessels, the impact would be minimal. The US-flagged fleet accounts for only 0.6% of global deadweight tons, compared to 13.9% for vessels flagged in mainland China and Hong Kong. On the face of it the implicit threat from China appears to lack teeth. The problem is that China may decide to apply a wider definition of what constitutes a US vessel if it deems that financing, listing on U.S. exchanges, or chartering by US entities constitutes US ownership. In that case the impact could be much wider, according to Drewry. Vessel schedules between China and the US could be thrown into chaos if Beijing decides to take a wider interpretation of this question . Just as shippers are starting to adjust to the new tariff regime, they would be faced with a new set of supply chain challenges.

Carriers ready “shock and awe” to halt rate slide

Ocean carriers are hitting the “shock-and-awe” button in a bid to prop up rates as the contract negotiation season closes in. Yet another week of declining Trans-Pacific spot rates has seen carriers reaching for the last weapon in their armory — an aggressive program of blank sailings and capacity cuts. Hapag-Lloyd and MSC have both announced GRIs to apply from Oct. 15, with MSC promising that the rate increases would not last beyond Oct. 31. The other question, however, is whether they will stick at all, or whether the sinking market will simply refuse to sustain rate increases. The Loadstar quoted one shipper as saying, after receiving a GRI notification from MSC, “I’m not sure how long, or if at all, it will hold, but I am expecting a very aggressive push for a GRI to stick on Oct. 1 and Nov. 1, as we are in contract negotiation season.” The same shipper predicted that ocean carriers would attempt to give their GRIs some muscle by withdrawing capacity. Alphaliner has already noted that the number of idle container ships rose slightly in mid-September, with analysts reporting that carriers are planning to withdraw between 250,000 and 300,000 TEU of capacity for weeks 39 to 43. Already, idle tonnage has reached 0.8% of the global container fleet — its highest watermark in more than a year. Drewry’s figures showed another week of spot rate declines on the major east-west trades. Average spot rates on the Trans-Pacific are now below end-August levels, with any potential spike expected for early September more than canceled out. Vespucci Maritime CEO Lars Jensen said Maersk and Hapag-Lloyd had stepped up their blanking efforts after initially announcing three cancellations to the TP9/WB6 service across the Pacific, later deciding to suspend it entirely for Q4. Jensen told shippers to prepare for yet more blankings as China’s Golden Week holiday got underway .

Federal shutdown rings air freight alarm bells

The US federal government shutdown risks becoming a fresh source of supply chain disruption and causing delays and added costs , the Air Forwarders Association has warned. The association said it was deeply concerned about the impact of the shutdown on the nation’s air cargo system. As the shutdown entered its sixth day, air traffic control operations were under pressure. The association warned of a “real risk” of delays, disruptions, and added costs across the supply chain. “Freight forwarders depend on safe, predictable, and fully resourced aviation infrastructure to keep goods moving for businesses and consumers alike,” said the association, urging the government to resolve the impasse quickly. Time-sensitive and perishable shipments were most vulnerable to delays, the AFA said, but it added that even short-term interruptions could increase operational costs and force rerouting. The US government shut down on 30 September, following the Senate’s failure to pass a spending bill. Seven years ago during the last Trump administration, a federal government shutdown lasted for 35 days and was eventually resolved due to growing disruptions to US air travel. The extended disruptions could begin to affect sectors such as pharmaceuticals, manufacturing and retail. Air freight is particularly vulnerable to federal disruptions, as it relies heavily on federal resources. These vary from range from air traffic control to safety inspections and customs processing. Bottlenecks can quickly be created by reductions in staffing and once supply chain bottlenecks occur, they can be difficult to resolve quickly. Shippers should be keeping a type a close eye on developments and make contingency plans .

🤔 Did you know ?

The Port of Los Angeles’ new Pier 500 project is set to create two new births on 200 acres of land at the southern end of Terminal Island as the port strains at the limits of its capacity. Executive Director Gene Seroka said the expansion would enable the port to accommodate the the biggest next generation cargo ships, though it has not yet given any cost estimate for the program.

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