I always make comments on here about the state of global trade, seeing things in real time before I realized what was going on, and how import metrics are key to the macro economy.

I thought some of the below talking points the MT would find interesting.

Ocean Carrier Discussion:
It’s tough to be a carrier in the post-COVID world. Record vessel capacity is being introduced into the trade as global demand weakens. Unfortunately, this is not the year to be adding vessel capacity. To complicate matters further, companies are de-risking and looking to move their sourcing from China to other countries. China has become the worlds manufacturing center and spent the better part of the last three decades upgrading their infrastructure to include the mega ports of Shanghai, Ningbo, and Yantian. Carriers followed suit building larger and larger vessels to the point that the shipping lines are dependent upon the hinterland factories. Will we see a day when there is no demand for these oversized China mega ports? The volumes flowing through these mega ports, are at risk of moving elsewhere, to countries that cannot host the very large container ships. How will the ocean carriers fill the larger vessels as volumes from China’s mega ports decline? The shipping lines will need to rethink their port rotations, adding additional ports to their string of vessels. This might not seem obvious today, but if China-U.S. tensions are not resolved, this will happen.
Carriers are responding to the weak transpacific trade in different ways. While Maersk Lines is focusing on the 1st mile, last mile business, MSC is expanding its footprint in Latin America. MSC has initiated slow steaming in most of their trades including Latin America, by adding ships which allow them to absorb some of their newly introduced vessel capacity. MSC continues to charter vessels thereby keeping the charter markets healthy. Is this an intentional move to keep carrier wanna be’s out of the market? CU Lines just announced this month that they are suspending their services and it doesn’t look like Transfar will return to the transpacific trade anytime soon. At the same time, it looks like CMA will soon surpass Maersk Lines in vessel capacity to become the second largest carrier. Yeeow, are we playing a game of musical chairs?

According to John McCown’s report for Q1 2023, the carriers made $13 billion. Though these numbers are down quite a bit from both Q1 2023 and Q4 2023, what did anyone expect with the rapidly declining rates? While the report noted that carriers may get through this year without losing money, I think that John noted the contract rates carrying the majority of carriers containers are above the spot rates. While this was indeed the case, I do not believe that accounted for the amended rates as carriers were pressured by the BCOs to reduce the contract rates in line with spot rates. And it certainly cannot account for the declining contract rates that are effective through the second half of the year. We shall soon see how this sorts itself out as we get the 2nd quarter numbers.

West Coast Labor Disputes:
Now that every media outlet has announced what we already knew from PMA releases, that a
tentative, and I emphasize tentative, deal has been made, let’s review where we are. First of
all, we have had many tentative so called deals where it was announced that the two parties
were close. Apparently, they were not close enough.
July 26th, 2022
February, 2023
April, 2023
Will we add June 2023 to the dates that were close but no conclusion? The contract is not yet
ratified. That will take another 30 to 45 days. The contract if ratified, will be good for another
6 years. According to President Biden, this agreement shows that the collective bargaining
process works. Yeeow, not really. Think about it. We have lived through 15 to 16 months of
uncertainty, had terminals closed due to labor slowdowns, and we finally, get a deal done. 15
months of uncertainty for a 72-month contract is not a successful collective bargaining process. Is it just me, or does the Union live in a different world? This is not so different
from previous negotiations. The 2015 negotiations had similar issues and resulted in
slowdowns and hindered productivity. Had they completed the negotiation before the
contract ended, then someone could say the collective bargaining process worked. What are
they thinking?

Don’t get me started on Biden’s comments about the ILWU getting the pay, benefits, and
quality of life they deserve. Everyone should deserve what they get, but ILWU pay is on the
upper end of the wage spectrum. And no expensive student loans for them. According to the
PMA website, the average full-time worker earns $207,000 per year. A clerk will average
$217,651 per year and a foreman $311,656 per annum. According to the U.S. Bureau of labor
statistics, the average wage for a full-time worker is $53,490 in 2023. According to the
leaked terms, the average ILWU worker will take a wage increase of 32% over six years.
This is on top of a much larger base than the average worker. Am I the only one who thinks
there is something wrong with this picture? This is what we get with the collective
bargaining process that works so well?

Now the question that remains now that the ILWU contract is almost done, is whether the
companies that shifted their business to the east coast will return to the west coast. There may
be a few issues with this scenario. The first issue is whether importers have already
concluded the new routings in their contract rates. Did companies who made the shift prepare
to come back by adding the west coast routings in their new contracts? The second issue is
how soon they will return. The contract is not yet ratified and given the back and forth,
importers may not trust the ILWU until it is done. This may take another 30 to 45 days which
will leave us in the end of July. Since bookings typically require 14 days prior to vessel
departure, the soonest we can see a shift in movement to the west coast would be vessels
arriving after September 1st. You will note below in this week’s blank sailing update that
26% of the west coast sailings are blanked vs only .08% on the east coast.