Transport-Centric Macroeconomic Metrics: February 28, 2022 Update

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OCEAN CONTAINER RATES (Asia to US)

As we watch the global ocean container situation unfold, there are a few interesting backstories to keep an eye on:

1. End to End Solutions

Steamship lines are using their windfall profits to create end-to-end solutions for their customers through vertical integration and expansion of their freight service offerings.

For instance, A.P. Moller - Maersk has made numerous acquisitions in the past year, the most recent being the purchase of Pilot Freight Services, a last/middle mile transport company out of Pennsylvania.

Similarly, CMA CGM, who had previously acquired 3PL CEVA Logistics in 2019, spent $3 billion buying the CLS division of Ingram Micro, which focuses on omni-channel fulfillment.

Expect acquisitions, some breath-taking, to continue as the steamship lines look to de-commoditize their offerings.

2. Long Term Contract Focus

There is a conscious effort to focus more on long-term contracts. This will serve to shield the steamship lines from the volatility in the spot market and enable them to lock in long-term volume commitments.

Maersk, which allocated 50% of their capacity to spot just 2 years ago, is looking to lower that to 30% as they focus on long-term contracts with their very largest customers.

This will put smaller BCOs and forwarders at a disadvantage as they will continue to be reliant on the spot market, which will offer less reliable capacity at higher costs.

While shunning the spot market may reduce short-term profits, Maersk has stated that their average contract FEU will drive 90% more in revenue in 2022 than it did just 2 years ago. Expect other steamship lines to follow suit.

3. Discipline in Managing Capacity or Collusion?

Steamship lines, through the 3 major alliances, have become much more disciplined in managing capacity. This skill was honed prior to the pandemic but has been executed expertly during the crisis.

Even with horrendous service, steamship lines’ profits have soared. It is reported that the alliance members generated $200 billion in income in 2021. This has led to accusations of collusion and price fixing. As reported by FreightWaves, the U.S. Department of Justice last week established a working group to “share intelligence and coordinate investigations of suspected antitrust violations.”

In Europe, CLECAT, an association of forwarders, customs brokers and transport service providers see the vertical integration as an existential threat to their businesses and are asking the EU to investigate.

Spot Rates - FEU Container Rates: Asia to US East & West Coast Trends

Source: Freightos

Ocean spot rates, as reported by Freightos, have somewhat stabilized since November, albeit at ridiculously high prices. The China/East Asia to N. American west coast spot now sits at just under $15,900. To put this into perspective, the average East Asia to West Coast spot rate in 2018-2019 was $1,617, which represents an 883% increase over pre-pandemic rates.

BAF fees are through the roof as Very Low Sulphur Fuel Oil (VLSFO) hit an all-time high this week, and now sits about 60% higher than they were just 12 months ago. Additionally, carriers are aggressively, and some say, unfairly applying additional fees and charges.

The port congestion situation continues to be challenging. As of February 23, there were 66 ships sitting off LA/LB which is a significant reduction from December, when there were over 100. However, as importers look to bypass SOCAL, the congestion has spread to other ports. As we write this, there are 33 vessels waiting off Charleston, SC, 28 off Savannah and 19 off Houston.

As inbound sailings increase in April and May 2022, the congestion is expected to continue and worsen.

 

DIESEL

Diesel Price Trends

According to the U.S. Energy Information Administration (EIA), national diesel prices hit $4.055 this week.  The Gulf coast PADD was the lowest in the country at $3.79 while California diesel prices were the highest, at a startling $4.99 / gallon. This is the highest we have seen diesel since July 2014. 

The rise in diesel has been relentless over the past 16 months.  Since November 2020, weekly diesel prices have risen 71%. 

According to EIA data, national diesel prices have increased 52 of the last 68 weeks. 

In front of the US Senate is a bill (S.3609) to temporarily suspend the federal tax on gasoline, but that bill, in its current form, would not suspend the tax on diesel.   

At the root cause is oil’s surge. 

On Feb 24, 2022, WTI futures briefly broke $100 / barrel in reaction to Russia’s invasion of Ukraine. 

WTI now trades in the low $90s but analysts are predicting it to trade higher, and potentially, much higher. 

Russia is one of the largest exporters of both oil and natural gas, and a disruption of that supply will impact global prices. The impact to supply will be felt especially hard in Europe, where they are highly reliant on Russian oil and natural gas. 

US producers will likely be called upon to increase production, but that spigot cannot be turned on overnight, especially considering the current administration position on fossil fuels in general and fracking in particular.   

DAT DRY VAN

Contract Van Rates and Spot Van Rate Trends

Source: DAT

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Sources referenced in this post: Freightos, DAT, Freightwaves, WTI, OilPrice.com, U.S. Energy Information Administration, Congress.gov

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