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US importers from Asia are turning more to non-vessel operating carriers (NVOs) to secure slot capacity in a tight market, as reflected by NVOs boosting their share of the trade by three percentage points — to 46 percent — in the first five months of 2020 over a year ago.
Carriers from early February through May cancelled 203 sailings in the eastbound trans-Pacific, as consumer demand cratered due primarily to the economic impact of COVID-19. US containerized imports from Asia declined 9.8 percent in the first five months of the year, according to PIERS.
In the previous four years, NVOs’ share of bookings in the eastbound trans-Pacific held firm at 43 to 44 percent, even as total imports from Asia increased steadily from 5.5 million TEU in January-May 2016 to 6.3 million TEU in the 2019 period.
In the first five months of 2020, US imports declined to 5.7 million TEU. Carrier-direct bookings from US importers declined 14.1 percent, while bookings made through NVOs dropped only 4.1 percent, according to PIERS.
It has been stated that the blank sailings due to COVID-19 have helped boost NVO market shares so far this year. With many importers unable to get their shipments on vessels operated by their core carriers, they had no choice but to seek additional vessel capacity by turning to NVOs.
Additionally, the carrier representatives noted that they seek a mix of direct bookings from beneficial cargo owners (BCOs) through annual service contracts, and they also supplement that volume with NVO bookings.
Mitigating risk when capacity is tight
Many BCOs concentrate their bookings with several core carriers, but when those lines cancel sailings in Asia, the carriers strictly limit their customers to the minimum quantity commitment (MQC) in their contracts with the carriers.
However, carriers with a higher percentage of BCO-direct bookings said those shippers usually do not require the value-added services NVOs offer, and charge for, because those retailers and BCOs handle those functions in-house. Larger retailers are usually more concerned about consistent pricing throughout the year, and they achieve that by moving a large percentage of their cargo through annual service contracts.
NVOs have carved out their place in the market by offering value-added services. Rather than having to look over every carrier’s website when scrambling to find space on vessels, BCOs can go to an NVO and get visibility to capacity availability in the entire trade, he said.
Marine terminal murkiness
Lack of shipper visibility into the status of their shipments once they are discharged at a US port also drives some of the gains NVOs are realizing. BCOs and truckers in Southern California have raised their concerns about gate closures and unscheduled cut-offs in receiving empty containers to the Federal Maritime Commission, which recently published guidelines urging carriers and terminals to provide greater advance notice of operational changes.
Terminal operators are also responding to the concerns of BCOs and truckers by providing greater advance notice of gate closures and other operational changes, such as a sudden direction from the ocean carrier to cut off the return of empty containers to a terminal. Some terminal operators will continue to accept empty returns for truckers that have already booked an appointment regardless of the directive from the carrier.
Capacity limitations due to blank sailings are the main drivers today for the increase in use of NVO services, BCOs say.
Carrier and NVO sources said the growth in NVO market share this year is due mostly to decisions made at the BCO level. Carriers have historically differed in their reliance on bookings made through NVOs, and PIERS numbers for January-May generally showed those ratios have remained about the same.
Cargo Clogs U.S. Airports as Freighters Increase
Cargo congestion is a big problem behind the scenes at some major U.S. airports. The coronavirus forced big industry changes that have exacerbated existing inefficiencies due to poor coordination and infrastructure:
• Ground handlers are understaffed and big freighters are dumping cargo faster than they can process it.
• The lack of passenger flights has changed the entire dynamic of cargo handling at airports.
• New technologies are helping to improve communication among airliners, shippers and trucking companies.
International passenger terminals may have little traffic, but at some airports there is so much cargo that businesses can wait days for medical supplies and other imports arriving on big all-cargo planes.
The unusually heavy cargo volume, driven by a surge in medical supplies to combat the coronavirus pandemic and e-commerce orders from homebound consumers, has exposed systemic inefficiencies at major hubs in Chicago and Los Angeles, as well as John F. Kennedy International Airport in New York.
For airport handling agents, the coronavirus is a double-edged sword. More business is pouring in, but COVID health precautions, changes in normal cargo flows, staffing shortages and the added complexity of handling cargo-only passenger planes are combining to create operational havoc. Nearly all cargo terminals at these gateways are overwhelmed.
Freighter traffic, for example, is up as much as 50% at O’Hare International Airport, according to the Chicago Department of Aviation.
Although airfreight demand out of China has calmed substantially during recent weeks, presumably due to less need for urgent deliveries of personal protective equipment, U.S.-based terminal operators say they aren’t seeing a drop-off in medical supplies.
Firehose of freighters
Large airports were built to manage a mix of cargo from the bellies of passenger aircraft and freighters, but with international passenger traffic mostly suspended, freight is being dumped on warehouses all at once rather than arriving in smaller chunks via multiple, scheduled flights each day. Handling agents, who have built their business on belly freight, are either not busy or struggle to get shipments out the door.
The traffic shift has created confusion among shippers and trucking companies accepting freight because it may go to a different agent than normally serves a specific airline.
Warehouse workloads have also increased because of new ways goods are being loaded on all-cargo aircraft and passenger planes rushed into service as mini-freighters in response to a shortage of cargo capacity.
Large shippers typically tender whole pallets to freighter operators and widebody passenger carriers. However, airlines have so much freight business recently that they arrange the shipments into smaller units themselves to make sure they utilize every inch of onboard space.
Many passenger airlines are trying to maximize yields by storing boxes of face masks and other light products in the cabin, often on the seats and floor space and in overhead bins. All those loose items have to be carefully moved one by one through the narrow aisles and cabin doors, requiring extra time and manpower. Unloading techniques used by airlines and ground agents include “bucket brigades” to hand-pass boxes to the exit, or sliding in a manual, roller conveyor, and deploying catering trucks with lift capability to lower the boxes to the ground.
It can take two to three hours to unload a passenger freighter with cargo in the cabin, compared to 20 minutes or so for planes with only palletised cargo. Warehouse personnel then have to build skids and shrink wrap them for delivery.
Many ground handlers are doing this extra work while short-staffed. They reduced their ranks because there was little passenger baggage to handle and fewer planes to refuel. Warehouse operations are also taking longer because personnel are adhering to social distancing policies.
CBP Makes It Easier for Shippers to Obtain Manifest Data Confidentiality
U.S. Customs and Border Protection (CBP) says its new automated tool allows importers and exporters to apply and receive approval for their vessel manifest confidentiality requests from the agency within 24 hours.
Before CBP deployed the new online application, shippers had to submit their confidentiality requests to keep their names and addresses off the public manifest record to the agency by mail, fax or email, which often required the agency 60 to 90 days to process.
In addition, CBP said the new online confidentiality application for manifests allows companies and individuals to input all applicable name variations as part of their request. “This will enhance the requesting party’s ability to ensure that a name provided matches the name entered electronically in the Automated Commercial Environment (ACE),” the agency said.
CBP’s vessel manifest data, which is compiled daily, is available to the public for purchase and supplied on CD-ROMs. These CD-ROMs are available for specific days or on a subscription basis. Those importers or exporters that have requested confidential treatment of their shipment data in the manifests are not included.
The vessel manifest data includes vessel country codes, names and numbers; port of unlading; estimated arrival dates; bill of lading numbers; foreign ports of lading; manifest quantities and units; weight and weight unit; shipper names and addresses (unless confidential); consignee names and addresses (unless confidential); notify party names and addresses (unless confidential); piece counts; descriptions of goods; container numbers; and seal numbers.
Confidentiality certifications for importers and exporters must be renewed every two years from the date of validation.
U.S. to Review Tariffs on EU Goods
The Office of the U.S. Trade Representative (USTR) has added items valued at $3.1 billion to its list of European goods eligible for new duties – including black olives, beer and gin.
Also, USTR is considering raising duties on other items already impacted by the 301 additional tariffs from the previous published list, which can be found here.
Request for Public Comments on Initiation of Sec. 301 Investigations of Digital Services Taxes
The U.S. Trade Representative is initiating investigations with respect to Digital Services Taxes (DSTs) adopted or under consideration by Austria, Brazil, the Czech Republic, the European Union, India, Indonesia, Italy, Spain, Turkey, and the United Kingdom. The Office of the United States Trade Representative (USTR) is seeking public comments in connection with these investigations.
To be assured of consideration, written comments must be submitted by July 15, 2020. All submissions must be in English and sent electronically via Regulations.gov. To submit comments via Regulations.gov, enter docket number USTR-2020-0022. Reference the Federal Register Notice here and complete the form by clicking on the "Submit A Formal Comment" button.
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