Under pressure shippers rely on ceasefire holding

Figure of the week

3.5% Amazon has added a 3.5% fuel and logistics surcharge for third-party sellers in the US and Canada in the midst of the energy crisis provoked by war in the Middle East. The surcharge is set to take effect on April 17.

Quote of the week

“The costs are rising, the routes are changing, and capacity is tightening. It’s all happening at the same time, and that’s a perfect storm for small businesses.” Brandon Fried, Executive Director of the Air Forwarders Association, warns that US small businesses have been particularly impacted by the Iran War.

Fuel concerns take centre stage for US shippers

As a tentative ceasefire between the US and Iran emerges, the main east-west trades were already largely shrugging off the effects of war . Rates were stabilizing after several weeks of rises but fuel prices and availability remained a major concern. Drewry’s latest WCI showed a 1% fall from Shanghai to Los Angeles and a 1% gain to New York. Overall, shippers have seen a 30% increase in spot rates since the end of February, according to Xeneta data. “Five weeks into the strain of Hormuz closure and spot rates on every major east-west trade lane have risen sharply, showing this is a conflict with global repercussions for ocean supply chains,” said Xeneta chief analyst Peter Sand. “No shipper is insulated from financial or operational risk. Far East to US West Coast, a trade which transits the Pacific thousands of miles from the epicenter of conflict, has seen spot rates climb 29% since the end of February.” In the last week, carriers have appeared to be trying to attract cargo rather than push rates higher. Many would only commit to seven-day rate windows to protect themselves against sudden spikes in fuel prices. Over the next couple of weeks, US shippers are likely to see the increased introduction of fuel surcharges. Even if the ceasefire holds it is likely to take months for fuel supply chains to return to normality . Meanwhile, the FMC refused yet another request from Maersk to be given an exemption to the 30-day waiting period before introducing surcharges. As the request was lodged on 11 March, the surcharges will come into force over the next week. Sand added that, as the conflict continues, surcharge rises are inevitable and now carriers are trying to manage rising fuel prices with slow steaming and alternative routings. If somehow the situation worsens they may well start to adopt large-scale blank sailings.

Air freighters confront fuel shock vulnerability

Concerns are growing around how war in the Middle East could potentially impact air freight operations, with fuel prices and fuel availability emerging as key issues around the world. The cost of jet fuel is around double what it was at the beginning of the conflict. Airlines are not only fighting eroded margins but are increasingly worried about securing supplies of jet fuel. So far, China and Thailand have suspended jet fuel exports. This has particularly impacted Vietnam, which sources two thirds of its supply from these two countries. Vietnam has, as a result, announced cuts in domestic flights, while refuelling restrictions are also being introduced in South Korea and the Philippines. “Right now the air cargo market is suffering from a supply issue, and this will be resolved, but the longer recovery takes is going to determine if it becomes a much bigger demand issue,” said Niall van de Wouw, chief airfreight officer at Xeneta. “Whether air freight benefits or suffers in the longer term is down to the length of the conflict.” A new concern for Trans-Pacific shippers is that key freighter aircraft like the Boeing 747-400F are particularly vulnerable to rising energy prices. “For less efficient aircraft like the 747-400F, the math is getting tight,” said Rotate analyst Archisman Acharya. “Global average profitability is approaching break-even and on lanes without strong yield growth margins have already turned negative.” The 747-400 freighter makes up a large part of many fleets, and is most highly represented on the Trans-Pacific. For the moment, low demand is limiting the fallout on the Trans-Pacific market. Last week even saw a small decrease in rates, but capacity remains tight, with average booking delays of nine to 10 days on the trade .

Under pressure shippers rely on ceasefire holding

US importers and exporters alike are finding life increasingly difficult as a result of the Iran war, according to a new report. AP found that shipping delays, complications, higher costs and increasing consumer wariness are all impacting small firms. As things stand, small business owners say supply chain disruptions do not rival those seen during the pandemic. But several expressed fears that if the war stretches on, that could change. One case in point was Birchbury, a Los Angeles-based footwear brand that manufactures shoes in Vietnam and ships to customers in the US, UK, Australia and Canada. Founder Matthew Tran said that his shipping costs had doubled since the war started, due to rerouting and higher insurance costs. At the same time, over the same period, lead times for shipping had increased by three to four weeks. “It is kind of like a traffic jam,” he said. “Even though it doesn’t seem like it would directly affect me, because I’m going from Vietnam to America, it does affect me when there’s more congestion.” Rising input costs as a result of disruption to fertilizer supplies were also beginning to become a concern, and higher fuel prices have led some businesses to consider ending free shipping . AP spoke to Abt Electronics in Chicago, which runs more than 650 delivery vans and trucks, using on average 25,000 gallons of diesel fuel and 30,000 gallons of gasoline each month. Co-president John Abt said he wanted to keep free shipping and delivery with a minimum order of $35, but he said it was becoming an “eye-opening” expense . Many shippers said the longer the war went on, the more likely it would become that they would need to make major changes .

🤔 Did you know ?

Around 18% of US trucking firms had parked trucks due to rising fuel costs, while around 45% said they were driving fewer miles, according to a new survey. The figures came from the US Energy Information Administration, which surveyed 540 trucking companies. Carriers on the spot market said they had only managed to recuperate around 50% of the higher cost of fuel from customers.

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