Category: Shipping

The views expressed here are solely those of the author and do not necessarily represent the views of FreightWaves or its affiliates. 

In order not to hold everyone in suspense – all of us hold the wild card at the end of a supply chain when we are in our role as retail consumers. We vote with our wallets and sometimes emotion and psychology can enter into the mix. Whims, fears, conspicuous consumption, keeping up with the Joneses, etc. all have a role to play in the retail sector.

Of course, some may feel that cold rationality governs their own purchasing decisions. This means spending one’s disposable income on a bundle of final goods and services that maximizes total satisfaction relative to the purchase cost. Furthermore, the marginal increase in satisfaction per dollar spent is equalized across every good and service in that bundle. Of course, this is economics jargon and it is hard to imagine typical shoppers replacing the fun of impulse buying with the fun of making calculations in order to optimize consumption at the margin. Perhaps casual shopping combined with differential calculus is just too much fun for one day?

In the new normal that is a world economy suffering through the COVID-19 pandemic, nothing screams non-essential production and consumption like retail fashion. This niche is not to be confused with haute couture; rather, a lot of it involves affordable, yet trendy, apparel stocked by market leaders such as Zara and H&M. These mainstays in downtown shopping districts and suburban malls are the retail face of the fast-fashion industry. The fast-fashion supply chain operates with high volume and quick deliveries across a global market while trying to survive on low profit margins. GlobalData Plc, a business intelligence provider, noted that apparel sales fell by 89% over March-April 2020 as the retail sector ground to a halt. To be sure, online sales rose, but only by about 20% and from a lower base in comparison to brick-and-mortar. McKinsey & Company forecasts a decline in revenues of 27-30% over 2019-20 across the fashion industry’s $2.5 trillion global marketplace.

Mandated sheltering-in-place and social distancing certainly eliminated any need to be in-style regarding one’s apparel. Those still wishing to look picture-perfect for their Zoom and Skype meetings have 50% less to worry about as long as the camera remains above their waists. All of this has been particularly tough for the fashion supply chain. Unlike backlogged foods and beverages, apparel cannot be so easily disposed of. What was in-style this season may take several cycles, if ever, to become marketable. Also, the abrupt cutbacks on fabric orders left upstream vendors (most of which are in Asia) holding their own excess inventories. With storefronts now beginning to re-open, the only means to move the backlog is through discount sales. 

Typically, the U.S. apparel and footwear industries face high tariffs on their imports (i.e., the equivalent of sales taxes reaching as high as 30% per unit). The Trump Administration instituted a temporary duty deferral program on April 18, 2020. While this was designed to provide relief for importers facing demonstrated hardships due to the pandemic, there is no indication that this program will be extended through May and into June 2020. Lobby groups are certainly asking for an extension. Of course, as a mere deferral program, any duties not paid after April 18 will have to be paid within 90 days of import entry. Retailers certainly need to hope that their stores will be open before the 90-day grace period ends.

It should also be kept in mind that the program only applied to normal trade duties – meaning those listed in the Harmonized Tariff Schedule of the United States (HTSUS). Other trade devices like anti-dumping and countervailing duties (i.e., special duties accessed as retaliation for specific trade offenses in the eyes of the United States) are not deferred. Also not deferred are any duties assessed under the auspices of Section 232 of the Trade Expansion Act of 1962 and Sections 201 and 301 of the Trade Act of 1974. Simply put, this means that most tariffs on Chinese imports, as part of the U.S.-China trade dispute, are payable by importers without relief. In fact, about 40% of apparel and 60% of footwear imports to the U.S. are from China.

It will probably take a while before the consumer market shifts some of its limited disposable income from groceries and cleaning supplies to fast-fashion. Compared to other retail sectors, apparel depends on some of the most fickle consumers. Cautious consumers holding all their wild cards means that retailers and their upstream vendors will need to be at the top of their game.

The U.S. Federal Maritime Commission (FMC) official in charge of monitoring the current U.S. supply chain impacts related to the COVID-19 pandemic said she has brought together myriad industry stakeholders to find immediate remedies to these problems and prepare for the reopening of the economy.

“We need to be ready in our seaports for the increased cargo that we know is coming soon,” FMC Commissioner Rebecca Dye told attendees of the virtual annual Agriculture Transportation Coalition conference on Wednesday, May 20.

“I believe that if we prepare now, we will be in a position to support the American economy when it comes roaring back very soon,” she said.

Scores of blank sailings by the ocean container carriers, temporary marine terminal closures and slowdowns, and upheaval in the intermodal transportation system started in March. Because of the pandemic’s rapid spread and imposition of government social distancing measures, the FMC mobilized to address the COVID-19 supply chain impacts.

The FMC’s March 31 order, known as Fact Finding 29 International Ocean Transportation Supply Chain Engagement, highlighted the commission’s statutory mandate to “ensure efficient and economic transportation system for ocean commerce.”

The order also stated that “the commission has determined there is a compelling need to convene new Supply Chain Innovation Teams to address these challenges.”

Dye, who was placed in charge of the fact finding, quickly established nine supply chain innovation teams which consist of representatives from the nation’s public port authorities, marine terminal operators, shippers, ocean transportation intermediaries, liner shipping companies, drayage trucking companies, longshore labor representatives, rail officials, and chassis providers.

The teams have, so far, identified four “urgent” problems, Dye said. They include difficulties with container returns to the terminals and carriers, confusion with export receiving dates from the ocean carriers, lack of reasonable notice of terminal closures, and need for wider distribution of information on blank sailings and East Coast skipped ports from the ocean carriers.

“The challenge that I find is that nobody ‘owns’ many of our problems,” Dye said. “So, I have enlisted the major carrier CEOs in the USA/North America to use their influence to lead on these improvements.”

She has also urged the country’s marine terminal operators and port authorities involved with the supply chain innovation teams to do the same.

Last year, she successfully concluded Fact Finding 28, spending the past two years with shipping industry representatives to develop the demurrage and detention fees imposition guidelines.

Dye said the purpose of the commission’s work is to find “forward leaning improvements to the [freight transportation] system.”

She said, “The freight delivery system is the very backbone of the American economy. Improving the performance of the freight delivery system in the United States boosts the vibrant export and import trades in our country.”

As a result of the Fact Finding 29’s supply chain innovation teams’ early work, the FMC announced on April 27 order that it would temporarily allow service contracts to be filed up to 30 days after they take effect to provide relief to shippers and ocean container carriers impacted by the coronavirus pandemic. This relief will remain in place through December 31, 2020, the FMC said.

The FMC has authority under the Shipping Act to make certain regulatory adjustments when necessary.

Dye told the Agriculture Transportation Coalition members, who honored her for steadfast work to improve the U.S. ocean shipping industry, that Fact Finding 29’s work is moving quickly. “I will update on our progress with regular press releases rather than a final report,” she said.

Supply chain management solutions provider project44 on Tuesday, May 19, said shippers will now have visibility to their global airfreight, groupage, and ocean container activities no matter where in the world.

The additional visibility into air and ocean freight transport modes complements project44’s truckload and less-than-truckload solutions and makes its platform global in scope for shippers and logistics services providers.

“Businesses need a unified view of their end-to-end visibility data for a flexible and agile global supply chain,” said Jeff McCandless, project44’s CEO, in a statement.

The Chicago-based company, which started six years ago, first tackled the trucking market and has since expanded across the spectrum of global freight transportation modes. “We realized a single mode or regional coverage cannot provide the full picture,” McCandless said.

project44 has built an extensive multimodal network that now reaches across more than 48 countries and operates in 16 languages. In addition to North America, the company has continued to expand its presence in Europe.

“To build a supply chain that can withstand today’s unexpected challenges and prepare our business for the future, we need to derive intelligent insights across our logistics network,” said Gregory Pritchard, head of global logistics at Chicago-based biopharmaceutical company AbbVie (NYSE: ABBV) and a user of project44’s platform. “This means one unified view into our shipments regardless of where it is or how it’s getting there.”

project44 pulls together and unifies various freight transport data through its application programming interface (API) tool. For example, the company said it has established connections to more than 100 airlines, allowing shippers to track their airfreight “from take-off to landing.”

The U.S. trade war with China and COVID-19 have reshaped the flow of supply and demand. While the trade war shifted the movement and volume of goods, the coronavirus has impacted the buying behavior of consumers. Now with the world in various stages of reopening, the big question that remains is will the consumer come roaring back?

One way to track this trend is by analyzing the volumes of containers. With a lead time of several months, retailers and manufacturers fill orders based on expected future demand. MarineTraffic supplied this exclusive data on the containership arrivals from Asia, North America and Europe. Since China was the first country to shut down and reopen, looking at the world’s largest consumer and manufacturing hub would provide some unique insight into this new pandemic normal.

Key points in the trade war as well as COVID-19 are marked to show how the flow of trade proves the intent of the Chinese government as well as the health of the Chinese consumer. Based on the containers, you can plot the progress or setback of trade talks, Phase One obligations and consumer buying.

The pop in the flow of the containers into China was the result of COVID-19 infecting the country during its Lunar New Year celebrations. The lackluster return of the Chinese consumer can be seen in the drop of containers. Consumer buying is something the Chinese government cannot control, but it can regulate the trade of grains, ore and energy.

Based on the imports of soybeans from China, the Phase One trade deal had no impact on the Chinese government’s buying behavior. In fact, China was more bullish in purchasing Brazilian soybeans than buying from the United States. These are delivered soybeans, not unshipped commitment orders. Those types of orders are the equivalent of promising to start a diet. You can always kick the can and start another day. Unshipped commitment orders can be cancelled or pushed to another time. The delivered shipments below show intent.

“The estimated amount of Brazilian soybeans exported to China in 2017 was 53 million tons,” explained Jesper Buhl, of BullPositions. “The combined Brazilian exports in 2018 and 2019 were 120 million tons. This strongly indicates China has turned to Brazil during the trade war period.”

In the United States, the shift of the consumer buying personal protection equipment (PPE), toilet paper and other essential items can be seen in the containership volumes. Retailers responded by either changing or cancelling orders of non-essential items. “We had about 60% of our orders of non-essential items canceled two months ago when the pandemic began,” said Brett Rose, CEO of United National Consumer Suppliers (UNCS).

UNCS, a supplier of products for Macy’s, Ross, 5 Below, TJ Maxx, Kroger, Stop & Shop and Amazon third-party sellers, is a great example of the pulse of the consumer. Based on orders, Rose said retailers have pivoted to accommodate both the needs of their customers and retail staff. “We have seen a massive increase in the number of orders for masks, thermometers and hand sanitizer. It’s the new norm for PPE,” Rose explained. “We are about 75% PPE and 25%  ‘regular’ goods.”

The large retailers are not the only companies changing. According to Freightos.com, small and medium-size businesses, especially e-commerce sellers, are filling the void left by the shuttered brick and mortar retailers. Imports over the last four weeks are up by 14% compared to 2019.          

“While PPE played a role, it’s certainly not the only factor,” said Judah Levine, Freightos Group Research Lead. “Though 7% of shipments were PPE-related, other well-represented segments included sporting goods (11%) and housewares (26%). Year-over-year, U.S. East Coast and West Coast rates to China are 38% and 25% below last year’s prices, respectively, reflecting the low capacity and high rates that followed the peak pre-tariff pre-ordering early in the U.S.-China trade war.”

Adil Ashiq of MarineTraffic warns the trade trends we are seeing now could be a sign of things to come. “U.S. trade through the first three months of 2020 fell 4.16%, though an increase of nearly 25% was witnessed in imports of medications compared with the same time period last year. We may see a decline in arrivals to the West Coast as of Week 17, 2020 onward, due to current U.S.-China trade talks.”

For a more pure-play look at the impact of COVID-19 on the flow of trade, you can turn to the European Union (EU). With no major trade wars impacting the region, you can see the same trade pattern, albeit at lower volumes. “Although many EU countries didn’t begin implementing stay-at-home orders until mid-February, concerns began several weeks before and the impact was soon realized by Week 10 of 2020,” said Ashiq. “Vessels continued calling into EU ports as the virus’ spread wasn’t as significant compared to the U.S. EU nations such as Germany and Italy recently reopened and are preparing for summer tourism; thus we are seeing a slight uptick of port calls, coinciding with port calls in the same timeframe of 2019.”

In the end, the lower volumes will impact the profits of those in logistics and management. As the world races for a cure and therapeutics, the world’s recovery depends on the confidence of a shaken consumer.

Emirates Group said revenue and profit declined for the fiscal year ended March 31 due to coronavirus flight restrictions, the planned closure of a runway at Dubai International Airport and the strong U.S. dollar.

According to the Dubai-based carrier, revenue at its cargo division, SkyCargo, fell 14% from the previous year to $3.1 billion.

SkyCargo transported 2.4 million tons of freight during the fiscal year, a 10% drop that it blamed on the combination of retiring one of its 12 Boeing 777 freighters, a drop in bellyhold capacity due to the runway closure and overall market weakness.

Emirates, which includes a massive passenger services division and airport ground handler Dnata, recorded an overall fiscal year net profit of $456 million, a 28% decline from the previous year.

“The COVID-19 pandemic will have a huge impact on our 2020-21 performance, with Emirates’ passenger operations temporarily suspended since 25 March,” warned Emirates Chairman and Chief Executive Ahmed bin Saeed in a statement.

“We continue to take aggressive cost management measures, and other necessary steps to safeguard our business, while planning for business resumption,” he said. “We expect it will take 18 months at least, before travel demand returns to a semblance of normality.”

Despite the financial toll from the recent international passenger travel restrictions, cargo transport has remained a bright spot for Emirates during the COVID-19 pandemic.

As of the first week in May, SkyCargo operated cargo flights to 67 global destinations. The airline said 58 of those flights were served by Boeing 777 passenger planes transporting only cargo. SkyCargo operated more than 2,500 cargo flights in April.

“Acting as a global conveyor belt for the transport of essential supplies including protective equipment, medical devices, pharmaceuticals and food, the air cargo carrier flew more than 1,650 flights on its Boeing 777-300ER passenger freighters and over 850 flights on its Boeing 777 freighters to over 80 destinations on scheduled and special charter services,” the airline said.

Emirates is owned by the Dubai government as part of the Investment Corp. of Dubai and as part of Dubai Inc.

The airline said it plans to continue investing in cargo services during fiscal year 2020-2021.

Last October, it started Emirates Delivers, an e-commerce service that helps small U.S. businesses consolidate online purchases for delivery to customers in the United Arab Emirates.

SkyCargo also enhanced its pharmaceutical transport services with the opening of new facilities in Chicago and Copenhagen.

Qatar Airways, one of the largest airfreight operators in the world by volume, on Sunday announced it is increasing cargo capacity for Scandinavian cities and launching an emergency air bridge between Vietnam and France using both freighters and repurposed passenger jets to haul freight.

Qatar has added five Airbus 350 passenger planes to haul only freight to Copenhagen. That is in addition to its thrice-weekly flights to the Danish capital increasing its total weekly cargo capacity for Denmark to more than 500 tons. The airline said the flights will support the country’s exporters moving goods, such as insulin, perishables and mail, to destinations in Asia, Africa and Australia.

The airline also added two freighter flights to Oslo, Norway, to its existing six weekly freighter flights and three passenger flights for freight only. Qatar also said it will operate one of its Boeing 747-8 freighters to the Norwegian airport every Thursday in May.

Sweden has also attracted additional Qatar freighter flights, including one last week that carried 103 tons of automotive, pharmaceutical and other cargoes for customers around the world.

Inbound flights to the three Scandinavian airports are carrying COVID-19 medical supplies, foodstuff, flowers, apparel and machinery parts, Qatar said.

Qatar also established an “air bridge” from Vietnam to France to transport more than 2,000 tons of COVID-19-related medical gear on behalf of the French Ministry of Health. This action will require 11 Boeing 777 freighter flights from Hanoi in May and four weekly, freight-only 777 passenger planes from Ho Chi Minh City until June, the airline said. Bollore Logistics is managing flight and distribution coordination.

Qatar Airways is operating a similar air link between China and France.

Since March, Qatar said it has transported more than 5,000 tons of medical supplies to France using its Boeing 777 freighter charters and scheduled flights.

Despite government quarantines and travel restrictions resulting from the pandemic, Qatar said it has continued to operate about 175 cargo flights per day. In recent weeks it has beefed up its freighter frequencies around the world.

The airline said it continues to monitor the pandemic and believes that by the end of June it will resume scheduled flights to about 80 international destinations, including 23 in Europe, four in the Americas, 20 in the Middle East and Africa, and 33 in Asia-Pacific.

Qatar said its “gradual expansion” of flights will initially operate between its Doha hub and major hubs, such as London, Chicago, Dallas and Hong Kong.

“We have built a strong level of trust with passengers, governments, trade and airports as a reliable partner during the crisis and we intend to continue delivering on this mission as we gradually expand our network,” said Qatar Airways Group Chief Executive Akbar Al Baker in a statement.

International Consolidated Airlines Group (IAG), the parent of British Airways, (OTCMKTS: ICAGY) announced a profit loss of 535 million euros ($576 million) for the first quarter of 2020, compared to a profit of 135 million euros ($145 million) for the same period last year.

The company also said that Luis Gallego, who heads Spanish subsidiary Iberia, will succeed CEO Willie Walsh on September 24. Walsh postponed his planned retirement in March to help the company through the coronavirus crisis.

Group airlines, which include Aer Lingus, Vueling and Level, are operating at about 6% of normal capacity, but Walsh said the airline plans to restore a meaningful amount of service in July, assuming quarantines and travel restrictions are eased. Nonetheless, Wash said, the second quarter is expected to be “significantly worse” than the prior three months.

Long-term prospects remain bleak, with the company echoing other airlines that passenger demand is not expected to catch up to 2019 levels before 2023 “at the earliest.” That outlook is forcing additional restructuring, including efforts to defer delivery of 68 aircraft. 

Cargo revenue for the period ended March 31 fell 10.5% to 246 million euros ($265 million), compared to the first quarter of 2019 at 275 million euros ($296 million), largely resulting from the near-complete meltdown of passenger flights due to the COVID-19 outbreak.

Asia-Pacific and Middle East revenue fell the most at 19.2% because of the initial spread of the coronavirus in China and the subsequent closure of factories.

Like many global airlines, IAG has continued to operate freighter flights and empty passenger planes for cargo during the first quarter, mostly to transport emergency medical supplies from Asia to Europe.

Between March 22 and April 26, IAG Cargo said it operated 350 additional cargo-only return flights, primarily on long-haul routes with passenger widebody aircraft.

“When large numbers of passenger flights were suspended, IAG Cargo took immediate steps to provide creative solutions for our customers,” IAG Cargo CEO Lynne Embleton said. “We adapted quickly, and we were one of the first airline groups to announce scheduled cargo-only flights using passenger aircraft. In doing so we have kept routes around the world open to cargo.”

The coronavirus pandemic’s global spread earlier this year put the brakes on many U.S. industrial project cargoes, but truckloads of behemoth wind turbine components continue to roll across the nation’s highways.

“Our wind turbine component load count for this year is up 36%,” said Gene Lemke, vice president of projects for St. Cloud, Minnesota-based Anderson Trucking Service (ATS), in a telephone interview with American Shipper. “It’s been a huge bright spot during these difficult times.”

Family-owned ATS, which got its start in 1955 hauling Minnesota-quarried granite slabs on flatbed trucks, began transporting wind turbine components nearly 20 years ago. The company estimates that today its equipment handles 30% of the total U.S. wind turbine market share.

“When we’re humming in wind, we’ll typically have 300-plus trucks on the road at one time between transporting all the turbine nacelles, hubs, towers and blade pieces,” Lemke said.

The U.S. wind energy sector anticipated a banner year in 2020 for construction of wind farms –  combinations of giant wind turbines spread across thousands of acres of open spaces –  which was stimulated by a significant federal production tax credit. The electric power generated by these wind farms is fed into utility power grids.

According to the Washington, D.C.-based American Wind Energy Association (AWEA), the U.S. wind industry installed more than 1,800 megawatts of new wind power capacity during the first quarter of 2020. That is more than double the capacity installed during the first quarter of last year, the association said.

Eleven new wind projects totaling 1,821 megawatts became operational during the first quarter, which power an estimated 560,000 American homes, AWEA said.

Also, during the first quarter, wind farm developers started construction on 4,124 megawatts of wind projects, bringing the total construction activity across the U.S. for 2020 to 24,690 megawatts. After several years of prospecting and preparing the sites, typical wind farm construction in this country generally takes six to nine months.

Logistics for wind farms

Lemke said most wind farm construction is presently concentrated in the “central corridor” of the country, running from North Dakota to Texas.

AWEA noted that Texas led the country in the first quarter of 2020 with 540 megawatts of new wind turbines installed, followed by Iowa, Illinois and South Dakota. “We have our fingers in a lot of them,” he said.

The U.S. supply chain of wind turbine components is both domestic and international. In recent years, most turbine manufacturers headquartered in Europe and Asia have set up parts production in the U.S. However, ample volumes of turbine components still arrive by ship at break bulk ports, such as Corpus Christi, Texas, and Vancouver, Washington.

The individual turbine components have also continued to increase in size and weight as the rated electric output of the machines has quadrupled to more than 4 megawatts in the past two decades. For example, one of Denmark’s Vestas 4.2-megawatt wind turbines has individual wind blades measuring 243 feet in length.

Transportation equipment, which is specifically tailored to moving these massive blades and tower sections, has subsequently evolved with the wind power sector, Lemke said.

ATS is no stranger to this demand. Around 2003, when it began to encounter turbines with tower sections 197-feet long and 15-feet in diameter and a turbine original equipment manufacturer’s requirement to move two, 127-foot blades per load, the company worked with trailer manufacturer Trail King to build a version of the “Schnabel” trailer. This multi-axle trailer suspends and locks components in place for transport. Its low profile allows these loads to safely transit under most U.S. highway overpasses.

The trailer equipment is also rugged enough to safely transport these outsized pieces along windy, dirt roads to remote wind farm installation sites.

Lemke said today it requires nine to 12 trucks to transport individual pieces of one turbine to a wind farm.

ATS also moves its specialized wind turbine trailers throughout the U.S., including transportation of some of this equipment last year from the U.S. West Coast to Hawaii onboard a Pasha vessel to erect a new wind farm on the island of O’ahu, Lemke said.

With nearly 60,000 wind turbines operating across 41 states and two U.S. territories, wind energy is now the largest provider of renewable energy in the country, supplying more than 7% of the nation’s electricity in 2019 or enough to power 32 million American homes, AWEA said.

According to AWEA’s 2019 Wind Powers America Annual Report, the U.S. wind energy sector supported a record 120,000 American jobs, 530 domestic factories, and $1.6 billion a year in revenue for states and communities supporting wind farms.

Wheeling through 2020

However, the association is concerned that COVID-19 is now “posing significant challenges” to the industry, resulting in slowdowns of domestic and international wind turbine manufacturing and wind farm construction due to social distancing measures required by public health officials.

AWEA’s current analysis suggests that COVID-19 is putting about 25 gigawatts of planned wind projects, valued at $35 billion, and more than 35,000 American jobs at risk.

“The industry will continue working with Congress and other renewable energy leaders to address the challenges of COVID-19 and to ensure projects have the flexibility to continue development,” the association said in an April 29 statement.

While COVID-19 may slow down wind energy’s growth during the second half of 2020, Lemke believes that turbine manufacturers and wind farm developers in the U.S. will continue to do their utmost to fulfill their slated projects to benefit from this year’s production tax credits.

“For us, the wind industry is going pretty strong,” Lemke said. “There is nothing to suggest that our role in this process will slow down anytime soon.”