Sea Level: the ocean blog

Ocean Market Trends Europe, June 2023

Contract market development

After sharp rate declines during the past few months, contract freight rates on some major trades stabilised and experienced a low-level turnaround. While others are still in decline, the major disruptions seem to be over for the time being. However, considering the latest freight tender outcomes, several providers are still offering rates far below market levels to win business.

Considering the long-term perspective, we looked at two major trades – Central East Asia to Northwest Europe, and Central East Asia to North America West Coast – and found some interesting trends. Setting January 2019 as the base index at 100, the rate levels on both trades finally reached similar prices levels, of around index 100. Also, the downward trend in rates followed a similar pattern.

Rate developments displayed below represent contract rate market trends. Individual freight rates can vary and may deviate. 

US West Coast Dockworkers

The biggest issue and risk factor for US related trades, especially for the West Coast, was the unresolved dispute on the labour agreement between the ILWU (International Longshore and Warehouse Union) and PMA (Pacific Maritime Association). Finally, it appears that both parties have reached an agreement this week, for the next six years, which will alleviate concerns about major disruptions in the supply chains.

Here are the key details and background information on the whole story:

West Coast Port Strike Update

What were the primary factors or events that triggered the dispute?

It’s been just over a year since the ILWU and PMA kicked off negotiations for a new labour contract. The current contract between the two parties expired on July 1, 2022 and the two sides have been in negotiation ever since.

The ILWU consists of approximately 22,000 dockworkers, stationed at 29 ports along the West Coast, whereas the PMA represents around 70 ocean carriers and terminal operators that operate within those ports. For a long time, the two organisations have been unsuccessful in reaching a consensus on various matters, such as salaries, benefits and the effects of automation on employment.

According to reports on the negotiations, one of the main points of contention was the use of automation on the docks, and this was tentatively resolved in late May.

Since last summer, this marked the first significant advancement in the negotiation process. Nonetheless, due to the absence of a contract since July of the previous year, dockworkers retained the ability to initiate a strike at any given time, and the standard arbitration procedures typically employed to settle conflicts were not applicable.

What prompted dock workers to strike again?

According to the PMA, the union has been involved in "coordinated and disruptive work actions" starting from June 2, 2023. These actions include instances of "withholding workers from marine terminals, impeding operations, and making baseless health claims."

The labour shortages resulted in disruptions to port operations in Seattle, Oakland, Long Beach and Los Angeles on June 11, 2023. As a consequence, numerous seaport operators reported limited weekend operations. The ongoing dispute has led to delays in cargo processing alongside intermittent work stoppages, which employees used as a means to express their frustration with the lack of progress in negotiations.

What has the situation been like over the past days?

Due to a significant number of ILWU dockworkers failing to report for their scheduled shifts, numerous terminals at the ports have experienced disruptions this month, leading to temporary port closures.

According to CNBC News, on June 11, 2023, there were eight cargo vessels waiting their turn to dock at the ports on the West Coast. Insufficient labour caused delays for two vessels at the Port of Long Beach and six vessels at the Port of Los Angeles. Despite being ready to depart on time, the PMA reported on Monday, June 12, that vessels at the Ports of Los Angeles and Long Beach missed their scheduled departures.

However, according to the Port of Los Angeles Executive Director, Gene Seroka, disruptions in the last six days at Los Angeles have been minimal and “given the circumstances, cargo is flowing pretty well”.

Strong strike support

The ILWU, representing more than 7,000 dockworkers employed by 49 member companies of the BC Maritime Employers Association (BCMEA), has disclosed that 99.24% of its members have voted in favour of authorising a potential strike, if deemed necessary. This includes the two largest gateways, namely the Port of Vancouver and the Port of Prince Rupert, situated on the West Coast of Canada.

The vote took place on June 9 and 10, 2023. Talks between the ILWU and BCMEA were underway, with a 21-day grace period under Canadian labour law. Both parties have mutually agreed to abstain from any actions until June 21, 2022. However, a strike could potentially occur as early as June 24, 2024.

The ILWU emphasises that any disruption in port operations would have severe repercussions on various sectors in Canada, including retail, manufacturing, critical minerals, agriculture, energy and automotive dealerships.

What are the consequences?

According to Descartes Datamyne, West Coast ports processed 40% of US container imports in the first quarter this year, down from 45% in the same period in 2019.

Because of disruptions, exporters have used the Panama Canal instead, to bring Asian-made goods directly to major East Coast and Gulf Coast ports, such as Newark, New Jersey, Savannah, Georgia, Norfolk, Virginia and Houston.

Shippers have encountered an unexpected challenge in recent weeks due to developments at the Panama Canal. The canal is experiencing a severe drought, which is anticipated to coincide with the arrival of the El Niño weather phenomenon, leading to the implementation of a series of draft restrictions.

Moreover, redirecting goods from the Pacific Rim to ports in the eastern United States incurs additional costs. As a result, businesses dealing with lower-margin products like shoes, inexpensive clothing, and ‘back to school’ items may consider raising prices to offset the elevated shipping expenses.

“Short-term effects include shippers adjusting destinations and order lead times to account for adjusted transit times,” said Spencer Shute, CSCP, principal consultant at procurement and supply chain consultancy Proxima. “Long-term effects are that other ports across the US, particularly East Coast (NY/NJ) and Gulf Coast ports have proven to be viable options for shipping containers. These ports have increased capacity, efficiency and will remain an attractive option for shippers to consider.”

A temporary shutdown of West Coast ports could, “result in massive economic loss and endanger thousands of manufacturing jobs”, said Jay Timmons, president of the National Association of Manufacturers.

Asked how the lengthy negotiations have impacted the broader supply chain, Shute says there’s been “limited impact” given the softening in the overall domestic freight market. However, he says cargo ships will likely see some “shift in travel patterns”, as shippers adjust some volume back to the West Coast. “Given the global state of freight, this should not cause disruptions”.

Last year, the National Association of Manufacturers published a report, which projected potential daily losses of $500 million and anticipated a hypothetical 15-day strike resulting in 41,000 job cuts. These figures were disclosed in June of the same year, during a critical moment of leverage for the longshoremen. At that time, there was a significant backlog of ships waiting to enter LA and Long Beach ports, and import volumes and the overall state of the economy remained relatively strong.

However, the current situation has changed. Vessels are not arriving as rapidly as they did a year ago, the backlog has been cleared, and many ships are now by-passing Southern California altogether. Instead, they are redirecting their routes to the Gulf or East coasts to avoid the mounting uncertainties surrounding the LA and Long Beach ports.

Tentative agreement solving the dispute

The Pacific Maritime Association and the International Longshore and Warehouse Union announced on June 14, 2023 a tentative agreement on a new six-year contract covering workers at all 29 West Coast ports. This is subject to ratification by both parties.

The ILWU and PMA have declined to provide details on the deal.

Following the intervention of US Acting Labour Secretary, Julie Su, who personally travelled to San Francisco, negotiations that experienced a standstill in early June have now regained momentum. The news of the tentative agreement emerges as a result of her involvement.

“Thanks to the hard work and perseverance of the leadership of the ILWU and the PMA, the tentative agreement delivers important stability for workers, for employers and for our country’s supply chain,” the Acting Labour Secretary said.

Ocean visibility

Insights leading to actions

Ocean logistics is still characterised by a lower rate of technology adoption, than several other industries.  As a result, the industry continues to face numerous, fragmented solutions, a reliance on manual processes and a general lack of data to make good decisions. Awareness of these challenges is widespread within the sector, and there is a shared understanding that those who can successfully embrace digital transformation will emerge as the frontrunners. The ability to access the right information at the right time and empower swift and decisive actions, is key. 

A vessel is typically like a bus, which goes the same route in a given period. If the bus gets delayed at one of the stops on its trip, it will typically be delayed for the next couple of stops. In addition, carriers sometimes decide to make a blank sailing and don’t call at some ports. As a result, your departure is delayed, with obvious knock-on effects. These decisions are often unknown for the freight forwarders and direct shippers, who are being confronted with sudden delays and have to face the consequences.  

Transporeon has now extended its Visibility Hub with powerful widgets that can be customised to highlight shipments that need immediate attention. Whether its organising backup shipments, accelerating port clearance and hinterland transportation, or ensuring that no time is lost in upcoming transshipments. 

Visibility Hub has been seamlessly integrated into the Transport Execution application hub. This means you can leverage the situational awareness provided, to trigger automated workflows or automated rescheduling of on-carriage transportation, and streamline your operations.