Greetings from SILA Global!

We trust you had a joyful Christmas break surrounded by your loved ones!

As we conclude the year 2023, staying informed about developments in the global shipping and logistics sector becomes paramount. At SILA, our commitment is to keep you well-informed and provide expert solutions, ensuring you stay well-prepared to navigate the dynamic landscape of the shipping and logistics industry.

General Shipping Update

Improved prospects for future demand in both major and secondary trade routes are enticing ocean carriers back into the charter market, eager to secure available tonnage. According to various brokers, there is still a high demand for Panamax vessels in the range of 4,000 to 5,400 TEU, specifically needed for deployment in secondary or niche trades. The positive outlook has prompted carriers to intensify their rate restoration programs, leading to a notable enhancement in six-week booking visibility forecasts. The approaching Chinese New Year, starting on February 10, is expected to have an impact, but there is optimism about the strength of forward bookings from Asia, and the hope is that this trend will continue well beyond the holiday.

Despite December traditionally being a quiet month in the container charter market, brokers are reporting new inquiries almost daily, even in the midst of the holiday season. The surge in boxship demolitions, initially predicted for 2026 and 2027, has not materialized, as liner operators continue to deploy older vessels. This has resulted in an increase in the average scrapping age to 27.3 years, up from the 24.2 average observed between 2010 and 2020. Drewry’s forecast of 600,000 TEU demolitions in 2022 has not come to fruition due to various factors, including the reluctance of mainline operators to withdraw substantial capacity while still competing for market share.

Several carriers are contemplating the introduction of a peak season surcharge in January to reflect an anticipated tight booking situation before the Chinese New Year. This may also lead to the revival of premium surcharges on routes, last witnessed during the supply-demand crunch of 2021 and early 2022. Notably, Maersk has already initiated this by introducing a Premium Quality Container (PQC) surcharge of an additional $100 per 40ft for its Indian export services. The specifics of what shippers receive for the PQC, such as priority booking or guaranteed equipment provision, are not clarified in Maersk’s advisory, but it is described as an optional product selectable at the time of booking.

ANL has imposed temporary restrictions on certain reefer or time-sensitive cargo, preventing it from being transshipped over Hong Kong. Bookings for early next year have been suspended due to the expiration of local permissions under the Hong Kong Transshipment Cargo Exemption Scheme. This scheme typically covers six specific temperature-controlled commodities, including pharmaceuticals, medicines, frozen meat, and poultry. The disruption in transshipment coincides with increased cargo volumes moving between India and intra-Asia markets, driven by the trade diversification or China-plus-one trends in Asia.

To capitalize on the growing demand, even major mainline carriers are expanding their intra-Asia networks, connecting Indian ports and joining niche regional or feeder operators. Intra-Asia trade has consistently outpaced world trade growth in recent years, fueled by the economic expansion in China and India. India, in particular, remains a bright spot with increased consumption and economic growth, contributing to the overall surge in trade.

Red Sea attacks & Panama Canal drought

We want to bring your attention to recent developments impacting global trade and shipping, which may have implications for your investments.

The ongoing conflict in the Middle East has introduced significant disruptions to global trade flows, leading to a surge in shipping costs. Particularly, Iran-backed Houthi militants in Yemen have targeted commercial shipping in the Red Sea with anti-ship missiles and drones, aiming to exert pressure on Israel and its supporters. In response, the U.S. is coordinating an international naval force to ensure the safety of shipping lanes in the region.

The Red Sea, a crucial shipping corridor, is home to Egypt’s Suez Canal, handling around 12% of global trade flows and 21% of container-ship traffic. Major shipping lines such as Maersk, CMA CGM, and Hapag-Lloyd have temporarily halted transits through this area due to security concerns.

In a separate challenge, the Panama Canal, situated some 7,000 miles away, is contending with a drought. The region recently experienced its driest October on record since 1950, prompting authorities to limit daily canal crossings. By February, they plan to allow only 18 daily crossings, half of the normal capacity. The Panama Canal contributes to about 5% of global trade volume.

These disruptions have forced ships to take longer routes, impacting shipping times and reducing available supply. This, in turn, has offset the easing of port congestion witnessed in recent months, resulting in higher shipping rates.

The Baltic Dry index, tracking dry-bulk shipping rates, has more than doubled since the summer. Similarly, the Freightos Baltic Index, which measures container-shipping rates, has risen by 20% in the past two months, signaling potential opportunities for investors.

Container-shipping line stocks have experienced significant gains in response to these market dynamics. Maersk and Hapag-Lloyd have seen notable increases in their stock prices. Additionally, dry-bulk shipping companies such as Star Bulk Carriers, Golden Ocean Group, and Genco Shipping & Trading have witnessed stock surges as dry-bulk rates strengthen.

Speaking of opportunities, Genco Shipping & Trading, with its unique dividend structure tied to cash flow, currently offers a yield of around 6%. Analysts anticipate a rise in the payout next quarter, reflecting the company’s efforts to enhance its financial position.

As we navigate these dynamic market conditions, we remain committed to keeping you informed about developments that may impact your investments. Please feel free to reach out if you have any questions or if you would like to discuss your portfolio in light of these changes.

SOURCES:

• Red Sea attacks, Panama Canal drought: How trouble at two shipping choke points could impact global trade | Explained News – The Indian Express
• Shipping Is Disrupted by Red Sea Attacks, Panama Drought. It Means Higher Rates. (msn.com)
• The Red Sea Crisis (msn.com)
• Red Sea attacks: How will global trade be affected? (msn.com)
• Yemen’s Houthis claim responsibility for Red Sea container ship attack (msn.com)
• Saving Suez: As Red Sea attacks threaten global trade, what it means for India – The Economic Times (indiatimes.com)

Chinese New Year Holiday

Stepping into the new year of 2024, it’s crucial to be mindful of the upcoming Chinese New Year festivities, also known as the Spring Festival, which is a significant event that traditionally marks a period of heightened business activity and disruptions in the shipping and logistics industry. This festive season may impact shipping schedules, lead times, and overall supply chain dynamics.

Officially, China will have a 7-day holiday from Chinese New Year’s Eve to the sixth day of the lunar new year. In 2024, the New Year public holiday is from Feb. 9th to Feb. 15th and some companies may extend the holiday up to 16 days. During the Chinese New Year holiday, office buildings are closed. Shops may close for 1 to 3 days usually from New Year’s Eve to the 3rd day.

At SILA, we are proactively monitoring and adapting to potential challenges associated with the Chinese New Year, ensuring our clients are well-prepared for any adjustments necessary to optimise their logistics operations during this period. Stay tuned for further updates as we navigate through the implications of the Chinese New Year in the global shipping landscape.

To ensure smooth operations and to accommodate the potential disruptions during Spring Festival, we strongly recommend that you get your booking requests in early and be sure to request a minimum of 14 days of free time on containers. Ideally, we encourage seeking 21 days’ free time to allow for any unforeseen delays or increased demand during this festive period.

We wish you a safe & happy New Year!

Now, we bid farewell to 2023 and embark on the cusp of a new year, the team at SILA extends our heartfelt gratitude for your continued trust and partnership.

As we take a brief pause to celebrate the transition into 2024, we want to express our sincerest wishes for a safe, joyous, and prosperous New Year’s Eve. May this upcoming year bring you success, growth, and smooth sailing in all your endeavors.

Thank you for choosing SILA as your logistics partner. We look forward to serving you with even greater dedication and expertise in the coming year. Happy New Year!

Feel free to get in touch with our dedicated team for help and solutions tailored to your needs.

SILA Global Commercial Team
CCO – jason@sila.net.au
BDM – johann@sila.net.au | BDM – monowar@sila.net.au
T: (+61) 02 9556 4866 | E: sales@sila.net.au