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The suspension of barge and feeder services in the Pearl River Delta during the busy shipping season ahead of Chinese New Year has left carriers struggling to meet the import and export demand from South China’s busiest ports.
Already swamped by sustained and heavy demand from European and US shippers, the suspension of feeder services linking the hubs of Hong Kong and Shenzhen to China’s inland manufacturing centres is further disrupting the regional supply chain.
Since barges perform the critical role of linking inland manufacturing centres with mainline ports, the suspension of services is especially troubling, as it will be difficult for shipping lines to meet current demands for import and export from both Hong Kong and/or Shenzhen.
Container Shortage Limits Storage Options
Asia–Europe supply chains are already overwhelmed by the strong demand that has brought on severe equipment imbalances, capacity shortages, and steadily increasing rates. This has encouraged some shippers to delay their cargo until after Chinese New Year, in order to try and avoid the sky high rates at the moment.
However, there is no guarantee that rates will decline after the holiday. The equipment shortages make it nearly impossible for shippers to store their cargo in containers, and doing so would incur huge costs.
Therefore, some shippers are choosing to store their goods in warehouses. This also comes at an additional cost, but will likely be less than paying for the current spot market rates.
US Bans Some Xinjiang Products Over Forced Labour Concerns
The U.S. will bar entry of all cotton products and tomatoes from China’s Xinjiang region, where it says Beijing is oppressing Muslim-minority Uighurs. The ban is the latest in a series of actions where the U.S. is raising pressure on China over some companies’ alleged ill-treatment of workers.
According to CBP, the goods to be detained at U.S. ports of entry in the so-called withhold-release order, or WRO, following the investigation include apparel, textiles, tomato seeds, canned tomatoes, and tomato sauce.
The action is a blow for the U.S. clothing industry, given that one-fifth of the world’s cotton comes from the region. Additionally, Xinjiang is China—and Asia’s—largest tomato production and processing region, generating about 70% of the country’s total shipments of the commodity.
DHS to Scan 100 Percent of Inbound Cross-Border Vehicle Traffic
New legislation will eventually require the US Department of Homeland Security (DHS) to use X-ray technology to inspect every car, truck, and freight train that crosses into the United States from Mexico or Canada.
Under the Securing America’s Ports Act (H.R.5273) - which was signed into law January 5, DHS will develop and implement “a plan to expeditiously scan all commercial and passenger vehicles entering the United States at a land port of entry using large-scale non-intrusive inspection systems, such as X-ray and gamma-ray imaging systems, or similar technology,” according to a Congress.gov summary of the bill.
Trucking Update: All Gas, No Brakes
U.S. freight rates surged in December, setting the stage for a powerful pricing tailwind in 2021.
U.S. freight rates surged in December, setting the stage for a powerful pricing tailwind in 2021, according to a monthly index published by freight audit and payment firm Cass Information Systems Inc. (NASDAQ:CASS) and released on Thursday.
The Cass freight expenditures index jumped 13% year-on-year, according to the index, which is based on about $28 billion in annual freight payments that Cass audits. The freight expenditures subindex, which measures changes in pricing action, rose 6.8% sequentially in November on a seasonally adjusted basis, according to the index. The shipments subindex rose 1.1% sequentially on a seasonally adjusted basis.
Rates were on the rise throughout December, in line with what has been a powerful spike in noncontract, or spot, prices throughout the second half of 2020. Spot rates had started to decelerate when President Donald Trump’s signing of federal stimulus legislation on Dec. 27 caused the market to gap higher, said ACT Research, which analyses the monthly Cass data.
The rapid increase in prices is most notable in Cass’ “implied freight rates” dataset, which divides expenditures by shipments. A positive implied rate indicates that rates are growing faster than shipments. In December, the implied rate rose 6% year-over-year, doubling the growth in November, according to the data.
On a non-seasonally adjusted basis, the shipments subindex rose in December by 6.7% year-on-year, picking up steam from the 2.7% year-on-year gain in November, according to the data. Based on a two-year “stacked” basis, which averages out the monthly activity for the period, the subindex is 1.8% lower than in December 2018, said Tim Denoyer, ACT’s lead research analyst and the report’s author.
Cass combines data from truckload — which accounts for half of the indexes — railroad, less-than-truckload (LTL) and parcel, among other modes.
The current upcycle, which began in the May-June period, “still has several powerful growth tailwinds” following a two-year freight downturn, Denoyer said. The recent injection of around $900 billion in stimulus, along with the prospects for more federal aid with Democrats soon to be in control of the executive and legislative branches, will boost GDP growth and, by extension, freight volumes and pricing, he said.
ACT recently raised its 2021 GDP growth forecast to 5.1%, following a 3.7% contraction in 2020.
With the expenditures subindex hitting record highs, the “transition from an early-cycle environment to mid-cycle environment is underway,” Denoyer wrote. The headline of the ACT report seemed apropos under the circumstances: “All gas. No brakes.”
The improvement in the shipments subindex can be tied to improving trends in the rail sector, especially in intermodal where volumes had a very strong finish to the year, ACT said. The volume gains are expected to carry over into 2021 as U.S. retailers push to replenish depleted inventory stocks and containership lines reduce their number of “blank” (or cancelled) sailings ahead of the Lunar New Year, which runs Feb. 12-26 and when virtually all Chinese factories close and workers scatter to their respective home cities and provinces, Denoyer said.
Cass’ Truckload Linehaul Index, which measures shifts in per-mile rates independent of fuel and add-on charges known as “accessorials,” rose 1.1% in December on a year-on-year basis. This followed a 0.6% gain in November, the first year-over-year increase in 15 months. However, truckload rates are quickly firming as evidenced by the 6% implied rate increase in December, ACT said.
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