In this week’s Roar: it’s getting worse in the Red Sea (and for rates), EU’s new Import Control System, a shift to air freight, December’s Global Shipping Report, and a look at supply chain dynamics.
The situation in the Red Sea is getting worse. U.S. and British forces struck back with missiles after Houthi rebels launched their largest attack on commercial shipping in the area to date last week These attacks targeted six vessels including oil tankers, container ships, a bulk carrier, a U.S. Navy destroyer, and a British Royal Fleet Auxiliary ship. The region remains highly unstable and the impact is being felt in the form of shipping delays, rising freight rates, and higher price of oil.
Starting June 3, 2024, the European Union will be implementing a new customs safety and security system — Import Control System 2 (ICS2). This is a new process targeting the entry of goods via any channel, water, road, and rail. This calls for additional data reporting requirements for each mode of transportation. Traders are being advised to prepare for that date if they want to spare themselves for delays due to noncompliance.
Expect to see a shift to air freight due to delays on the Red Sea. And expect to see freight rates rise significantly at the same time. While current air freight data doesn’t yet reflect the impact of what’s happening on the Red Sea, industry experts are predicting a surge in rates. However, it’s anticipated that the full impact on rates may take some time to be felt by the market. Regardless, shippers are advised to factor in this expected rate increase when planning their air freight shipments in the coming weeks.
The December Global Shipping Report is out, and it reveals a modest increase in US import container volume from November to December. Looking at previous years, December saw an increase of 9.2% when compared to December 2022, and 10.6% compared to 2019. The top East and Gulf Coast ports experienced the most significant growth, while the top West Coast ports saw declines. According to the report, there are several factors influencing import volumes. These include challenges posed by port delays, the impact of the drought at the Panama Canal and tensions at the Suez Canal, and upcoming labor negotiations.
Let’s talk about supply chain dynamics as inventory management is a key component of sound management. Specifically, the bullwhip effect and inventory accelerator. Traditionally, the bullwhip effect has been used to explain changes in inventory levels. However, there is an argument that the inventory accelerator offers a more accurate explanation. This is because it explains how changes in demand can lead to changes in inventory. For example, the surge in demand for building materials during the pandemic is an illustration of the inventory accelerator at work.
For the rest of the week’s top shipping news, check out the article highlights below.