Anticipated Shortages: Forwarders and shippers on the Asia-Europe route are preparing for shortages in ocean space and equipment in the coming weeks.
Extended Voyages: Attacks on commercial shipping in the Red Sea have forced vessels to reroute via the Cape of Good Hope, adding 6,000 miles and two weeks in transit time.
Impact on Rates: Over 360 vessels circumnavigating Africa have extended voyages, putting pressure on rates, with prices exceeding $5,000 per FEU in the FAK market, more than doubling in two weeks.
Pre-Chinese New Year Demand: Rising rates are attributed to the urgency to ship before the Chinese New Year, prompting shippers to accept elevated prices to avoid potential delays and equipment shortages post-holiday season.
Global Efforts and Concerns: The World Shipping Council, International Chamber of Shipping (ICS), and BIMCO express gratitude to nations condemning Red Sea attacks, emphasizing the need for global efforts to protect seafarers and international trade in the region.
Current Status:
Chassis challenges in the US in previous years were not a significant issue in 2023.
Chassis lessors need to quickly refurbish and upgrade fleets for the anticipated rebound in the international intermodal market.
Demand for chassis in 2023 depends on US container import volumes and their distribution among West, East, and Gulf coast ports.
Past Reflection:
Supply and demand equilibrium for chassis was reached in the US in the previous year.
New units ordered in 2022 were delivered, and new manufacturers entered the market.
Declining demand for new chassis led providers to focus on refurbishing existing units.
Concerns among truckers about delays in unstacking equipment when volumes rise.
Recent Developments:
Introduction of two new chassis pools in the Southeast in response to concerns.
TRAC Intermodal and DCLI opted to stack units to prevent idling.
Ongoing chassis cases involve appeals by Pitts Enterprises and CIE Manufacturing against duties imposed by US Customs and Border Protection (CBP).
Both companies have suspended importing new chassis pending case resolution.
Looking Forward:
Adaptability of operators and national lessors (Consolidated Chassis Management, TRAC, DCLI, Flexi-Van Leasing) to increased demand is crucial.
Pending chassis cases (Pitts Enterprises, CIE Manufacturing) against CBP duties are being closely monitored.
No set deadline for CBP to rule on the appeals.
Next Inflection Point:
Equipment demand rebound depends on port volumes and coastal distribution.
A resurgence of the West Coast's market share may strain the international intermodal network.
Maintaining market share by the East and Gulf coasts can better equip inland rail hubs for increased port volumes.
From January 2020 all ships and vessels operating anywhere in the world will be required to reduce their sulphur emissions. In order to meet the 2020 target, many shipping lines are implementing changes to their vessels now.
All ships and vessels are required to use fuel oil with a maximum sulphur content of just 0.5 per cent m/m.
Vessels will also be able to use an IMO (International Maritime Organisation) approved equivalent method such as exhaust gas leaning systems (known as scrubbers) providing of course that the resulting emissions meet the required target.
Ships, ports, refineries and fuel suppliers will need to make sure they are ready for the global implementation of this regulation.
The new limits aim to reduce the impact of sulphur oxide emissions from shipping for both the environment and human health.
The IMO was to have completed a full development plan for vessel implementation by October 2018, but this has been delayed. When it is finally released, it will be non-mandatory however, they expect it to be used by shipping lines to plan and then execute their transition into January 2020 full compliance. Further additional measures and guidelines will be announced by the IMO and then released to the market throughout 2019. Any vessels that are not retrofitted and/or compliant by January 2020 will be detained or the carrier be forced to pay yet to be determined penalties if caught. The overall result of any such action could be that if ships are removed from key trade lanes then then rates will only rise as space becomes critical.
It’s worth noting that for several years now there has been a low sulphur levy applied to fuel, which has been passed on to customers in various ways via either a bunker adjustment factor, emergency risk, or an emission control surcharge. The major change as we move into 2020 will be the quantum per container. Scrubbers can cost up to USD14 Million on a large vessel and take upwards of 2 years to install. With the process already underway globally, shipping lines are now imposing a cost recovery programme to fund this. On some markets a levy is already in place, but some carriers are still to decide, however are likely to do so within the coming weeks.
Now that you understand a little about what LSS is, let’s try and break it down how the charge will be levied. The world’s largest shipping line Maersk has estimated that cost to their business will be a minimum of USD200 million in fuel cost increases per year. Overall global costs are likely to rise by a staggering USD25 Billion. Regardless, the LSS charge is not a fixed amount, it will vary by carrier and also the specific shipping route. Deep sea movement will obviously be higher than shorter sectors, but early indications are that it could range anywhere from USD50 – USD300/TEU. Some carriers have already started to impose a fees, others have announced similar for exports.
Many high volume customers have contracts (named account) with locked in rates for the duration of the agreement. It remains to be seen if the carrier will try to adjust these levels in accordance with the LSS or wait until the end of the period before renegotiating then. For any non-contracted rates (FAK or LCL) the charge will either be included in the all-in rate, or more likely shown as a separate line item fee per cubic metre or container.
The current ECA (Emission Control Area) is not actually a surcharge, but rather an area in which carriers currently have to use fuel with a sulphur content in the range stated. Having said that, if you do see an ECA as a listed charge on your invoice it is basically an LSS fee.
FOB and any other terms of sale (prepaid or collect) have associated freight charges. The LSS is a cost from the shipping line and will therefore appear as a separate fee on the rated bill of lading and/or invoice based upon the shipping terms.
With steadily increasing international competition, businesses face daily pressure to keep pace. A company’s growth often depends on expanding into new markets, where managing a supply chain becomes even more difficult.
New products from unfamiliar markets add complexity to import/export operations, making consistent, on-time delivery a real challenge. For most businesses, their supply chain operations struggle to keep products moving steadily and maintain positive cash flow.
A complex array of sourcing options and evolving trade regulations together with balancing compliance and business needs make decisions daunting for even the most experienced supply chain teams. If you’re like most companies, the worldwide marketplace presents challenges you’re not prepared for.
Below are four of the most common global supply chain issues. Are any of these impacting your company today?
1. Higher International Shipping Volumes Increases Exposure to Trade Regulation Violations
Global trade regulations change frequently, and balancing compliance with business needs presents challenges to even the most experienced supply chain teams. In many cases, companies find they are ill-prepared to operate in the global marketplace.
With the threat of severe penalties for non-compliance, your compliance department plays a crucial role in your supply chain strategy. The real question is whether they can keep pace as your business grows and shipments increase.
The weakest link rule applies here: having a strong compliance team at one location means nothing if there are gaps in your company’s customs skills at other locations. Unless your company adopts automated solutions and enlists the assistance of supply chain solution experts, your business will face unnecessary exposure to significant risk.
2. Breakdowns in Cross-Border Shipments
The global nature of today’s business world means businesses must offer a diverse product line to meet the demands of customers in different countries. With goods going to and from multiple countries, it is imperative that companies stay on top of a dizzying array of trade regulations.
A single compliance mistake, such as missing the current regionally applicable classification and licensing requirements, can put a stop on your shipments and prevent them from crossing the border. The resulting delay compromises your entire supply chain and negatively impacts your bottom line.
3. Inconsistent Trade Practices Lead to Compliance Issues
International expansion often involves entering new markets or acquiring other operations. Each additional business arm can require a unique set of operating procedures.
Without strict adherence to standard operating procedures, companies quickly fall prey to decentralized trade practices, and inconsistencies begin to compromise supply chain operations.
Failure to adhere to SOP’s leads to inability to produce repeatable, measurable results. It’s only a matter of time before your supply chain becomes riddled with compliance breakdowns.
4. Inability to Keep Pace With Modern Customs Technology
The last decade has seen steady progress in the application of technology to customs requirements. Electronic systems are replacing older customs processes as automization becomes a priority for trade authorities around the world.
Modern initiatives implement different methods for fulfilling requirements, such as advance e-manifest filings and new licensing and documentation requirements. Companies are forced to change their procedures and even migrate to entirely new software platforms in order to comply.
Is there a solution?
One way companies are solving these issues is by turning to the expertise of 3PL’s to help develop a business strategy to manage the varied challenges of international trade and mitigate risk. Partnering with a 3PL and using C-TPAT certified customs brokers allow companies to address the areas where they lack international trade expertise.