Market Update - Suez Closure Disrupts and Already Fragile Supply Chain

March 2021 Market Update

***BREAKING – SUEZ CANAL CLOSED TO TRAFFIC*** On Tuesday the containership Ever Given drifted off-course and ran aground in the Suez Canal, blocking the waterway. The canal is a key geostrategic chokepoint, with 12% of global commerce transiting the waterway. The canal is vital for vessel traffic linking North America and Europe with the Middle East and Asia. 

As of Thursday afternoon, 162 ships were stopped, unable to transit the canal. It is unclear how long it will take for the canal to become navigable again, though it is anticipated that carriers will make adjustments to their schedules to account for vessels stopped in-transit. Re-routings to or from the Mediterranean will require vessels to make the long journey through the Strait of Gibraltar and around the southern tip of Africa. 

Ocean Transportation

Global ocean freight rates continue to trend far above those seen a year ago due to high levels of consumer spending in the United States and a subsequent shortage of available shipping containers. According to Drewry, global spot rates for containerized ocean freight are up 207% year-over-year as of this week. The highest rate increases are in the East Asia – Europe trade lane, where rates are up by as much as 342%. Seven of eight key global trade routes experienced significant rate increases compared to this week last year. 

The combination of strong import volumes and severe weather has caused congestion to spread to infrastructure throughout the United States. Congestion has been reported by truckers at the Port of New York/New Jersey. Rail congestion has expanded beyond Chicago to include Memphis and Dallas. 

Terminal congestion continues to cause supply chain disruptions at the Los Angeles/Long Beach Port Complex. The port experienced a massive 43.3% increase in container volume year-over-year in February – the port’s highest ever YoY increase. At any given time, there are approximately 29-40 vessels off the coast of California waiting to enter the port. This has caused ocean carriers to overhaul their schedules and cancel sailings to account for vessels being anchored off California for days at a time.

Clients are recommended to begin coordinating ocean freight shipments with our operations team as far in advance of cargo availability as possible. Sailing schedules are frequently being adjusted by carriers. The time needed for carriers to confirm bookings has increased due to the high demand. Transit times are taking longer than usual due to the severe congestion in California as well as bottle-necks at the Suez Canal.

Airfreight 

International airfreight services continue to be impacted by the worldwide reductions in passenger flight schedules due to the COVID-19 pandemic. Data from IATA comparing January 2021 volumes with pre-COVID January 2019 volumes indicate demand for international airfreight growing by 8.5% for North American carriers, 6% for Middle Eastern carriers, and 22.4% for African carriers. This higher demand is continuing to push rates to above normal levels.

Major airlines have continued the trend of scaling back or closing entirely their customer service offices in the United States as part of cost-cutting measures. Airlines are outsourcing bookings and customer service to sales agents – some of which are not located in the country they are serving – that are struggling to keep pace with the strong demand and have limited operational insight. This is causing further delays in bookings, uplift, and troubleshooting.

Clients should continue to be prepared for flexible transit times on airfreight services due to these market trends. Any firm delivery schedules should be communicated to our operations team prior to booking. The use of express or premium services is strongly encouraged for any time-sensitive cargo.

Trucking

According to DAT, nationwide trucking rates for all equipment types continue to trend higher than levels 12 months ago by 19-34% due to shipping demand that outpaces the supply of trucks. Severe winter weather throughout the United States over the past month – particularly in the South, Midwest, and Rocky Mountain Region – have exacerbated the shortage of available equipment.

Clients should be mindful that the lead time for booking and dispatching trucking equipment – including LTL – is longer than usual due to the current market conditions. Please provide our operations team as much prior notice as possible to coordinate dispatches.