The first half of 2024 hasn’t been particularly kind to shippers, global containership operators, and U.S ports. They’ve dealt with rebel attacks on ships transiting the Suez Canal and the Red Sea, as well as extended transit times and higher costs for Asia outbound cargoes to Europe and the Eastern U.S, now diverted into longer routes around the tip of Africa. They’ve had to contend with congestion (although moderating) at Asia-Pacific ports such as Singapore and Malaysia, backing up cargoes headed for U.S West Coast ports; and with a Panama Canal slowly recovering from last year’s drought and the resulting low water conditions that have limited ship passages.
And not to be left out, they face the possibility of labor disruptions at U.S. East Coast and Gulf ports as negotiators haggle over a new contract.
It’s a familiar picture: a maritime market experiencing high demand while dealing with global geopolitical factors and supply chain shifts that have upended normal operations—and sucked up available capacity, which is pushing up rates for container shipping back toward record territory.
BACK TO THE FUTURE
“We are seeing the exact same playout as during the pandemic,” observes Lars Jensen, principal with maritime consultancy Vespucci Maritime. “There is an overall lack of capacity [globally].” In this case, the biggest culprit is hostilities in the Red Sea, which have forced containership operators to reroute Asia-origin vessels destined for Europe and the U.S. East Coast around Africa’s Cape of Good Hope.
As vessel operators have pulled ships from other routes and redeployed them into these lanes to maintain capacity and schedules, “that’s left no slack to address other issues,” Jensen explains. And where cargo once was able to move on larger ships through the Red Sea, “now it needs to be trans-shipped. That’s compounding the problem; it takes more time to handle four smaller vessels than one big [one],” he notes. “Adding insult to injury, nothing runs on time. That makes it exceedingly difficult to plan yard layout, which reduces port efficiency [and delays ship loading and departure].”
It’s a reverse image of where the market was nearly a year ago. Then, capacity was relatively available, rates were falling, and new ships were coming online at a rapid pace, foreshadowing a capacity glut. Shippers were haggling for the lowest rates they could find.
Now the shoe is on the other foot, Jensen says. “October to November last year, rates were lower than pre-pandemic [levels],” he notes. “At that point in time, the industry talk was how dumb the carriers were to over-order vessels. And yet here they are today, and we are able to manage the Red Sea crisis [with that formerly excess capacity coming to the rescue].
“Imagine where we would be right now [if vessel lines had not ordered ships at the rates they did],” Jensen adds. “We would not be able to service the global supply chain.”
PULLING FORWARD
Michael Britton, head of North America ocean products for containership operator Maersk, sees a market where volumes have been higher than expected. “Part of it seems to be a return to more normal inventory cycles after a period of heavy restocking in the first part of 2023,” he says. “Part of it also is strong demand from U.S. consumers continuing healthy spending,” he adds, noting as well that with some China-based suppliers seeing weakness in their domestic markets, more products are going into export markets than projected.
He also believes that the longer transit times for Asia to Europe and North America are influencing the timing for how businesses are ordering goods. “It’s making them order earlier to factor in those longer leadtimes or maybe pull forward some of the traditional peak season volumes we’ve seen. There is some front-loading going on,” he’s observed.
Adjusting to the impact of Mideast hostilities and other factors has come with challenges new and old, Britton says.
“How do we respond to a requirement to add two to three vessels to a string, so we can maintain frequency of sailings? Where does the extra capacity come from?” he asks. Carriers like Maersk have just two options, he says.
“We can go to the charter market, which is limited,” he explains. That also comes with higher fixed costs, and not just for a couple of weeks or months. In today’s market, with charter rates at a premium, those vessel owners typically demand—and get—multiyear contracts for the capacity.
“Or we can pull ships from other parts of our network and redeploy vessels to fill the gaps,” he notes. “We have to adjust and invest in the service to maintain the frequency that customers demand.” Britton cites as an example an instance where if two vessels were needed to be added to a service (to maintain schedule frequency), not doing so would mean that there would be up to two weeks in the schedule when no voyages were offered.
In the current market, transit times have increased by anywhere from seven to 10 days on the U.S. East Coast to as much as 14 to 28 or more to some locations in Europe and the Eastern Mediterranean. “We have also seen increases in congestion and waiting times both at key hub ports and some Asian ports that add to those already increased transit times,” he adds.
“It’s a networkwide challenge not just limited to the U.S. trades.”
Additional costs are piling up as well. Faced with diverting cargo into [lanes with] longer transit times (and to reduce the number of added vessels required per “string,” meaning an ordered set of ports at which a ship will call), ship operators also are running vessels at faster speeds. That’s incurring higher fuel and other operating costs that by some estimates are as much as $1 million per string.
Then there is the issue of containers.
With longer transit times, containers are taking longer to get back to origin ports. “There is no use having a weekly sailing if I don’t have boxes to release to customers,” Britton says. With the current trade lanes and transit times, it’s taking up to 24 days or more for boxes to return.
“The only way to stay ahead of that and carry the same volumes is to buy and deploy more containers,” he notes. “You can either do one of two [things]: invest in capacity and higher operating costs or eliminate the service. If you want transit time and port coverage, that requires investment and higher operating costs—and with that comes higher rates.”
According to Alphaliner’s Top 100 report (a ranking produced by AXSMarine with up-to-date data on containership capacity and ships on order) for July 18, Maersk had some 31 vessels on order, representing 397,498 TEUs [twenty-foot equivalent units]. So far this year, Britton says, the company has added about 200,000 TEUs of capacity, which comes out to about a 5% increase for the fleet to date. Overall, Alphaliner’s data places Maersk as the second-largest containership operator, with 713 vessels and 4,345,927 TEUs of capacity.
It’s a similar story at global containership operator Hapag-Lloyd. Comparing its fleet at the first quarter of this year versus last year, the company has added 30 vessels in its liner shipping segment. It’s also sent three older, smaller units to the scrapyard, confirms company spokesperson Tim Seifert.
“The Red Sea situation is certainly keeping us busy,” he notes, citing an instance late last year when one of its vessels transiting the Red Sea was attacked. “The safety of our people is … our highest priority,” he notes, adding that the company as of last December rerouted all vessels around the Cape of Good Hope. “We leave no stone unturned … to deploy adequate capacity to maintain regular sailings for our customers,” he says.
Seifert also noted the upcoming launch of the Gemini Cooperation initiative, an operational partnership Hapag-Lloyd is forming with Maersk that will start in February 2025. He says the partnership’s goal is to provide “over 90% schedule reliability once the new network is fully phased in.” Other key components include Hapag-Lloyd’s initiatives to further support customer efforts to digitize supply chains, “such as equipping our boxes with trackers,” and sustainability-related projects that will help shippers and the liner further decarbonize vessel and supply chain operations.
Hapag-Lloyd is listed in Alphaliner’s recent Top 100 report as the fifth-largest containership operator globally, with 285 vessels owned or chartered, representing 2,160,104 TEUs.
PORTS STEPPING UP
Port operators also have been adjusting to shifting global shipping patterns—and revisiting safety and operational contingency plans to ensure safe passage of today’s giant containerships in and out of ports.
Those plans came into stark relief when the 984-foot-long containership MV Dali crashed into a piling and brought down Baltimore’s Francis Scott Key bridge, sending a shudder up and down the U.S. East Coast. “Our first concern was for the workers that perished and anyone else who was injured,” recalls Mike Bozza, deputy port director for the Port Authority of New York and New Jersey. “We reached out and offered whatever help we could provide.”
That incident closed the Port of Baltimore for months, rerouting traffic to other East Coast ports. Bozza notes that as part of its initial response to the crisis, the NY/NJ port authority streamlined its process for Baltimore truckers to get on the port’s truck pass system, so they could obtain a “Sea Link” digital access card and be able to enter the port and quickly pick up freight. “We registered over 800 Baltimore truck drivers in the first month,” he says.
Initially, the Baltimore closure resulted in a bump of about 10% in volume, Bozza says. But since all the liner services that called on Baltimore also called on New York/New Jersey, “we had sufficient capacity, terminal space, and operating resources to absorb the [temporary] increase,” he reports, adding that of the 10 vessel lines that called on Baltimore, eight of them stopped at NY/NJ first. “It wasn’t a huge rerouting,” he notes.
Could an incident like that happen in NY/NJ?
Not likely, Bozza emphasizes. “We’re set up differently,” he explains. “Every vessel that comes into our terminals has two pilots, a harbor pilot and a docking pilot, and at least two tugboats. A ship the size of the MV Dali would have four [tugboats] on it.”
NY/NJ also is one of 12 U.S. ports that has a U.S. Coast Guard-operated vessel traffic service controlling transit through the harbor. Additionally, the footings that support the Bayonne Bridge, which spans the harbor’s entrance, are outside the navigation channel, Bozza explains. “The port is naturally a shallow harbor, so when you dredge [the channel] down to 50 feet, a vessel is not going to be able to get near the support structures. It would run aground first.”
What’s top of mind with the port’s stakeholders today? “They’re asking about the labor situation. They want some clarity on that and what to expect,” Bozza says, pointing out that while the port isn’t at the negotiating table, it is hoping for a quick resolution. The current contract expires Sept. 30.
WE’VE GOTTEN A LOT SMARTER”
On the U.S. West Coast, Port of Los Angeles Executive Director Gene Seroka says the port is running at about 75% of capacity and is well prepared to handle any surge in cargoes should East Coast labor matters cause diversion, and as congestion issues in Asia continue to diminish.
Pointing to lessons learned during the pandemic, Seroka says, “We’ve all gotten a lot smarter,” citing growing use of LA’s Port Optimizer tech platform as one example. Launched in 2017, Port Optimizer is a free real-time data portal that offers stakeholders visibility of cargo up to 40 days out, which helps with planning.
He expects a bump in port volumes as summer moves into fall and says he “feels good” about the port’s current performance metrics. Ships are being worked quickly and efficiently, and “rail dwell is just a bit over three days, which is better than before Covid,” he adds.
And while the Mideast conflict hasn’t significantly impacted the Port of Los Angeles, Seroka says shippers are telling him the conflict is causing them to modify their ordering and supply chain timelines given that routings out of Asia have 10 to 14 days more transit time. “A voyage that starts in North Asia [previously] had a 75-day trip. Today, that’s pushing more than 90 days.” Those longer transit strings mean ships burn about a million dollars more in fuel per vessel voyage, he notes.
“New build capacity coming out of shipyards was thought to be a concern,” Seroka adds. “It has worked out to be just the opposite because so many of the new-build ships were put into service on these longer strings.”
Overall, shippers are telling him the new routings have led to an uneven cadence of arrivals, “so there is more ship bunching because of schedule irregularities,” he notes.
What keeps port operators up at night?
“Nothing really keeps me up; I tend to be rather centered,” says Mario Cordero, chief executive officer of the Port of Long Beach. “If I had to pick something, it would be the whole question of uncertainty, how we address and respond to unexpected supply chain disruptions,” he says, adding that the Covid experience provided many valuable lessons.
“Shippers want certainty. Time is money. From a port perspective, we want to provide fluid cargo movement, consistency, and velocity—not volatility,” Cordero emphasizes. “That’s our focus, and we want to make sure that every day, we are checking the boxes and doing the work in those areas that need attention to ensure reliable scheduling, movement, and cargo availability.”
