Maritime shipping wields a large impact
As the world becomes more familiar with globalization, it’s important to remember that ocean shipping significantly impacts most nations’ supply chains. When instability and unavoidable issues arise, it affects not only shipping rates but also strategy.
Continue reading to learn about events currently affecting maritime shipping and events on the horizon that may influence your shipping strategy.
3 major world events that are causing turmoil
In the past 3 months, three major world events have strongly influenced the maritime market. These include:
Attacks on commercial liners
The Red Sea is tucked between the Middle East and Africa. The passage feeds into the Suez Canal and off to the Mediterranean Sea, leading to Europe. Most ocean freight from Asia destined for Europe passes through this channel.
The continued missile attacks on commercial shipping vessels by the Houthis, a terrorist group backed by Iran in the country of Yemen, have ships avoiding this route completely, even with the presence of the U.S. Navy and other countries’ naval forces in the channel to counter the threat.
Instead, ocean liners are opting to sail around the horn of Africa to get to Europe, adding between 7 and 10 days to each trip. Because of this extension, ocean lines need more empty ships to fill to keep up with demand. Currently, due to a slight overcapacity of ships, this has not yet become a major disruption. However, ocean rates have still risen as a result.
Drought in the Panama Canal
As a result of El Nino and droughts this year, the Panama Canal, which divides North and South America, has lower water conditions. This has led to a weight limitation being put upon ships in the canal and has caused slower transportation times through this route.
Most of the U.S.’s East Coast-bound ocean freight from East Asia, including China, comes through the Panama Canal. This means slightly slower transit times and more limitations on ocean freight coming into the East Coast ports.
Shipping contracts are up
As a rule, all annual Transpacific service contracts expire at the end of April. Because there are only about a dozen main providers of ocean freight capacity, and lower margins have been seen over the last few quarters, these players may look to increase prices further.
Other world events that could fuel new tactics in maritime shipping
Aside from the above 3 major world events currently affecting global ocean shipping, the following are additional events on the horizon to keep an eye on.
Shrink in China’s economy
While the world’s second-largest economy is shrinking by levels not seen since Mao Zedong was in power, the historic turn could reorder the world economy. China’s share of worldwide GDP is on pace to shrink by 1.4% over the next two years.
Current leader President Xi Jinping has proposed having the state step in and control certain sectors of the economy, which could further impact growth. A lack of growth from such a big market may curb exports for global trade.
Real estate sector turbulence
As China deals with a slowing economy headed toward recession, the commercial and private real estate sectors are further driving a downturn worldwide. Commercial real estate seems to be troubled with vacancies amid a post-pandemic working era.
Couple this with the more than doubling of interest rates over the past year, which may cause more commercial real estate problems. Luckily, an economic downturn in China may not have as severe an impact as it may have had in the past. Although China is still a large shipper to the U.S., international investment in China is at a 30-year low, and nearshoring to Mexico has become the predominant tactic in avoiding disruptions like this one.
Nearshoring is revving up
Post-pandemic, many companies have shifted their strategies to boost nearshoring opportunities. This has been a driving force in Mexico, which has surpassed China’s reign as the largest importer into the U.S., further redirecting traditional trade patterns.
As nearshoring to Central America has become more popular and profitable, the number of exports from China to the U.S. has dropped in comparison. The shift in the origin of imports should impact shipping volumes for ocean and airfreight as demand for Asian-made products decreases. This could be good news for U.S. consignees, as they may get their products faster and with less disruption.
This also presents Asian manufacturers with an opportunity to establish production facilities closer to their key markets. Some of these manufacturers may invest in nearshoring locations, like Mexico, to benefit from closer access to new markets.
ArcBest can help with resources in Mexico and at the border
With these swift changes in trade patterns, ArcBest is positioned to help. Through our ArcBest International Mexican partner, we offer a full suite of logistics solutions in Mexico. Some of these benefits include cross-border transportation, gaining access to customs brokers, and legal consultancy on matters related to Mexican customs.
Mexico solutions include Mexican Motor Carrier, global ocean and air services, hazmat, reefers, intermodal, and bonded warehouse storage with domestic distribution.
What these events mean for maritime shipping
Although shipping volumes have dropped recently, there was a lift in volumes in November and December due to the typically stronger holiday season. Link this with instability throughout numerous international shipping lanes, and this may act as a perfect storm in the ocean freight world — with a rise in rates following a contract negotiation likely.
Ocean providers may seek to leverage these higher rates from the holiday season, coupled with lower capacity and troubling world event disruptions, to further increase rates and lock them in for the year.
Blank sailings are another practice to keep an eye on. All shipping companies are now regularly canceling planned sailings along transpacific routes, but this is likely to increase transpacific eastbound ocean freight rates primarily.
If shipping lines implement more blank sailings, capacity may be reduced while rates increase. As we approach the transpacific peak season (June-September), watch out for these potential rate hikes even if the natural demand is not there.
What can you do to avoid disruption?
With much fewer geopolitical barriers shipping from East Asia to the U.S.’s West Coast, you may be able to bypass these major impacts by diverting some of your ocean container shipments to these ports. Air freight is also an option, although it may be a pricier option.
ArcBest’s capabilities can assist with your international freight
With multiple solutions and capabilities, ArcBest is well-positioned to help with a smooth global shipping process. We can assist in diverting your East Coast-bound freight to the West Coast and utilize transload and expedited services to deliver your loads promptly.
All of this can be done through ArcBest with a single BOL, making the process easier to manage. Our team of professionals in every transportation sector will work together to ensure your supply chain runs smoothly.
FOR INFORMATIONAL PURPOSES ONLY: The information included in this article is intended for informational purposes only. Due to the unpredictability of the market, some of the information may be dated and may not reflect the most current developments.
