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It will be a difficult second quarter for the world's largest container shipping company, with volume in April down sharply.
Maersk Line will cancel up to 140 sailings in the second quarter on the east-west trades as the carrier attempts to match its capacity with a predicted 20 to 25 percent decline in volume. It was a strategy that was successfully deployed in the first three months of the year as the coronavirus disease 2019 (COVID-19) began to decrease demand. The 90 sailings that were blanked as demand fell and the higher freight rates compensated for an increase in the price of low-sulphur fuel and allowed the carrier to report a profitable start to the year.
Yet A.P. Møller-Maersk CEO Søren Skou warned during the carrier’s first quarter results announcement that the second quarter would be heavily affected. Although visibility through the remainder of the second quarter and beyond remained low as a result of the pandemic, he said the carrier could already see volume has fallen by 20 percent in April and into the first two weeks of May.
“As global demand continues to be affected, we expect volumes in Q2 to decrease across all businesses, and it is our aim to pair the drop in demand one-to-one with reduced capacity in our network,” he said on an earnings call this week.
The decreased second quarter outlook by the world’s largest container carrier was in contrast to a first quarter performance that saw A.P. Møller-Maersk improving profitability by 23 percent to $1.5 billion. “The strong results were made during a quarter with sharp fuel costs increases derived from the industry’s switch to low-sulphur fuel and on the backdrop of a contraction in global trade due to lockdowns in most regions,” Skou said.
During the first quarter, capacity management saw Asia-North Europe rates increase by 0.3 percent, Asia-Mediterranean rates rose 14 percent, Asia-US West Coast freight rates were up 2.2 percent, and Asia-US East Coast rates rose 5.5 percent year over year.
Capacity cuts across alliances
Data from Sea-Intelligence Maritime Consulting shows the incredible number of blank sailings that have been made across the three container shipping alliances.
The 2M Alliance of Maersk Line and Mediterranean Shipping Co. has blanked 27 sailings on Asia-North Europe, withdrawing 511,940 TEU, while cutting 233,479 TEU from Asia-Med in 16 blank sailings. On Asia-US trades, 45 sailings have been blanked, withdrawing 369,432 TEU.
Ocean Alliance carriers (CMA CGM, Cosco Shipping, OOCL, and Evergreen) have now cancelled 28 sailings on Asia-North Europe comprising 437,031 TEU, and 16 sailings on Asia-Med, withdrawing 152,460 TEU. Asia-US trades have seen 60 cancelled sailings that have cut 578,115 TEU.
THE Alliance (Hapag-Lloyd, Yang Ming, and Ocean Network Express) has blanked 19 sailings of 297,100 TEU on Asia-North Europe, and 17 sailings on Asia-Med of 232,046 TEU. On Asia-US routes, 63 sailings have been blanked, removing 483,231 TEU.
Maersk’s total bunker costs increased 22 percent in the first quarter as the switch to IMO 2020-compliant low-sulphur fuel pushed average bunker prices up 32 percent. However, the costs were offset by bunker consumption declining 7.5 percent as a result of the extensive blank sailings and unit costs per container falling 2.3 percent.
Are these positive signals?
However, blank-sailing announcements have been waning. According to Alan Murphy, CEO of Copenhagen-based Sea-Intelligence, “Over the last week, carriers have only announced an additional six blank sailings across the main deep-sea trades, which clearly shows that we have reached a plateau, where carriers are now only blanking very few additional sailings, and for the moment are satisfied that the currently announced blank-sailings program is sufficient to underpin the freight rate levels.”
Looking at second-quarter impact, Murphy said that the Asia-North America West Coast cancellations are hitting Prince Rupert, Canada and Long Beach, California the hardest, “with both ports seeing a 20-25% reduction in port calls.” In the U.S. East Coast market, which is served both directly as well as by Caribbean transhipment terminals, they see the greatest blank-sailing impact befalling the transhipment hub in Freeport, Bahamas. “Carriers are clearly preferring direct cargo under the circumstances,” noted Murphy.
The slot utilization of the non-cancelled sailings is yet another important indicator. If, for example, 20% of the current week’s arrivals are cancelled and the slot utilization on the remaining 80% is actually down versus previous levels, it would imply increase blank sailings ahead. But utilization is not falling, according to one analyst. “Most sailings are very full and rolling cargo at this point,” he stated. “Premium [ocean] products, such as fast-boast services, are gaining even more share from air.” The analyst continued that “two extra loaders were deployed on the trans-Pacific eastbound to deal with surging demand.” An extra loader is an unscheduled extra sailing, the opposite of a blank sailing.
Lag effect on import volumes
Sailing cancellations to U.S. ports inherently limit the capacity of arriving cargo ships, and by extension, U.S. imports. However, there are lag effects in terms of how ocean schedule changes translate into the number of import containers on roads and rail.
After a ship arrives, a box in a premium service with priority discharge may get from the ship to the customs gate in a day, but it could take three to five days on a non-premium service. And containers could be in the yard for weeks prior to passing through customs if the consignee doesn’t pick up the box promptly. Even after a customs declaration is submitted, it can take another four to five days before it shows up in customs data platforms.
The number of customs filings surge in late April as cargo loaded just after the end of the China lockdown finally passed through the customs system (after being unloaded from ships that arrived at the U.S. docks earlier in April). The blank sailings are now pushing the customs numbers back down, albeit with a lag effect that should make the decline more pronounced by the end of the month.
The data also shows a continued very tight correlation between U.S. countrywide customs maritime import shipments and those specifically from China, confirming just how intertwined the two countries remain.
Major U.S. Ports Status Update
Ports of Seattle & Tacoma - The Port of Seattle Commission updated its 2020 construction plans in an effort to boost local COVID-19 economic recovery. Included in the 20 proposed projects are berth modernization, dock replacements and more. While the port is open for normal operations, Husky Terminal remains the only terminal open on Friday and Saturday. All terminals are closed Sunday.
Port of Los Angeles/Long Beach – Los Angeles Pier 300 terminal is implementing an “auto in-gate” program to improve operational efficiency and truck turn times at the currently manually-operated terminal. In a test of the program the past two months, the capacity of each gate lane was doubled, and trucker queue times improved by 84 percent. The terminal operator expects full implementation by June. Port operations are normal this week with only APM, Yusen and TraPac terminals open first shifts Friday. All terminals are closed seconds shifts Friday, as well as Saturday and Sunday.
Port of Oakland – While the Port of Oakland reported that exports edged up 1.4 percent in April, the port is preparing for a decline in import volume in May and April due to a 11 percent of scheduled calls being cancelled. ONE’s Aquila made the first call last week for the newly-launched Far East-Pacific 2 service directly linking Oakland and the Middle East. The port is open and all terminals are operational at this time, closed Saturday and Sunday.
Port of Houston – While the port did handle 5 percent more volume in April than it did in the same timeframe in 2019, the port had an overall decline in volume 12 percent year over year. Despite the decrease in volume, the port is continuing with expansion projects for infrastructure and capacity improvements. The port is operating normal business hours, and closed Saturday and Sunday.
Port of New York/New Jersey – The Port of NY/NJ has worked with CBP to establish four centralized examination stations for incoming medical cargo can be examined prior to entry into the country. The port also published a schedule of upcoming port briefings here. All terminals are open and operating as normal.
Port of Virginia – With almost a 16 percent decline in volume in April the port has changed truck and container yard hours to 1700 hours, Monday – Friday for Norfolk International Terminals (NIT), Virginia International Gateway (VIG), Pinners Point Container Yard (PPCY), Portsmouth Chassis Yard (PCY) and the Reefer Service Area (RSA). The new hours are effective May 18, 2020. Gate hours at Newport News Marine Terminal, Richmond Marine Terminal and the Virginia Inland Port are unchanged. All terminals are open and operating as normal otherwise.
South Carolina Ports – S.C. Ports Authority worked three of the largest vessels to ever call on the Port of Charleston in April, to handle a total of 76,152 twenty-foot equivalent container units (TEUs) despite monthly volumes being down year over year. SC Ports in Charleston, Greer and Dillon are operating normally for gates and vessels.
Port of Georgia – Container volumes in Savannah fell less than expected in April to 6.7 percent, better than initial forecasts of a 15 percent decline. However the port is preparing for a steep decline for May and June, with more than 60 voided sailings over the next 60 days. While some storage has been utilized, the port anticipates plenty of space available for incoming boxes. All terminals are open and operational at this time, with continued Saturday gate hours suspended.
USTR Announces Exclusions and Technical Amendments for Medical and Other Products
The United States Trade Representative (USTR) has announced additional exclusions from the Section 301 additional 7.5 percent tariff on List 4A goods from China. Included in the exclusions are medical goods such as plastic tumblers used in healthcare facilities, disposable ID wristbands worn by patients, and pill crushers in addition to motorcycle helmets, Bluetooth devices and other goods. See the full list in the USTR announcement here.
The exclusions are reflected in three 10-digit HTSUS subheadings and five specifically prepared product descriptions, which together respond to 27 separate exclusion requests. Importers should review the list for eligibility to obtain refunds of any tariffs paid on such goods since Sept. 1, 2019 and will extend until Sept. 1, 2020.
In addition, the USTR announced the following amendments:
• Technical amendment to Section 301 List 4A goods HTS code 6307.90.9889 for face masks and particle respirators. The technical amendment is changed by deleting “, single use” and inserting “and particulate facepiece respirators” in lieu thereof.
• Technical amendments for Section 301 List 2 goods. There are four technical amendments on four 10 digit HTS 3906.90.5000, 3917.32.0050, 8541.10.0080 and 9025.80.1000 ranging from increases in product value, product measurements, etc
• Technical amendments to Section 301 List 1 goods under HTS codes 8501.51.4040 and 8536.49.0065. The amendments include increases in product value and product voltage.
For assistance in applying for duty refunds, please respond to this email so we can manage the process for you.
EPA Moves to Require Advance Notice for Imports of Chemical Substances
The Environmental Protection Agency (EPA) is accepting comments through June 3 on a proposed rule that would require any manufacturers or importers of 20 chemical substances for an activity designated as a significant new use by this rule to notify the EPA at least 90 days before commencing that activity. The substances at issue are for use as or in chemical intermediates, car head lamp sealants, lubricants, coating polymers, tackifiers for synthetic automotive tire stock, adhesives, coatings, print resins, UV-curable inks, etc.
Under this rule, imports or manufacturing of these substances for a significant new use could not be commenced until the EPA has conducted a review of the advance notice, made an appropriate determination, and taken such risk management actions as are required by that determination. Importers would have to certify that shipments of these substances comply with all applicable rules and orders under the Toxic Substances Control Act, including any added or new requirements. In addition, any persons who export or intend to export any of these substances on or after June 3 would be subject to the export notification provisions of 15 USC 2611(b) and have to comply with the export notification requirements in 40 CFR part 707, subpart D.
BRi ERP and Order Management Program
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BRi Customer Solutions Team
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