Hello and welcome to the third installment of “Consolidated Regulatory and Supply Chain News”
As the world continues to turn and change, so does the world of Supply Chain.
This update brought to us on a quarterly basis by RAF Solutions offers members of the EACC high level information on news that could affect the trans-ocean business of import and export to / from the U.S. This will mostly be organized by type of information (i.e. ocean freight, air freight, regulations on either side, etc) but there may be some crossover in sections since one new regulation could impact many areas.
East Coast Ports
The labor contract between the Port operators and the International Longshoremen’s Association expires, 1 October. Businesses are preparing for a strike by dockworkers on the East and Gulf Coasts if negotiations are not successful. With dockworkers imminent strike, businesses have been accelerating imports, redirecting cargo and pleading with the Biden administration to prevent a walkout. Many shipments have been diverted to West Coast ports, where dockworkers belong to a different union that agreed to a new contract last year. The ports of Long Beach and Los Angeles say they are already handling at least as many containers as they did during the pandemic shipping boom of 2021-22. There is concern that Unions on the West Coast will honor the strike by the East and Gulf Coast unions.
Despite measures being taken to minimize the impacts should a strike occur; a short strike could lead to significant impacts overall. Transportation analysts estimate that a strike could cost the economy $5 billion a day, or about 6 percent of gross domestic product, expressed daily. It’s estimated for each day the ports are shut down; it would take approximately six days to clear the backlog.
An example of impact, a little more than half of imported apparel, footwear and accessories come through East Coast ports. Last week, scores of trade groups sent a letter to the Biden-Harris administration, begging a deal between the I.L.A. and the United States Maritime Alliance, the group of companies that move cargo at ports.
The USMA has offered a 30% pay increase to the ILA but this has been rejected at this moment. Currently the Biden-Harris administration has said they will not intervein and force the unions back to work.
Red Sea
While the world continues to hope for a sustainable solution in the near future, the situation in the Red Sea region is constantly evolving and remains highly volatile. All available intelligence at hand confirms that the security risk continues to be at a significantly elevated level, and therefore has potential impact on logistics operations. Costs, sail times, and Insurance have all gone up an estimated 20% through this area. The impacts to all other areas around the globe will continue to feel the impacts also.
Panama Canal
Traffic through the Panama Canal continues to be restricted due to drought conditions. However, a new booking slot for the Newpanamax Locks was added in August to increasing total transits to 35 vessels per day.
The Panama Canal announced effective immediately, the maximum authorized draft allowed for vessels transiting the Neopanamax Locks will be 49.0 feet (14.94 m) (from 48 ft), based on the present and projected level of Gatun Lake for the upcoming weeks. This continues due to the prolonged drought affecting the levels of the Gatun and Alhajuela Lakes.
The rainy season is gradually bringing the reservoirs to its optimum levels
Air Freight and Capacity
Continuous demand is being driven by rocketing e-commerce, ocean shipping disruptions, and rising general cargo needs for high-tech semiconductors. Despite mixed economic signals, high demand is likely to continue into 2025. Not helping the situation, deliveries of widebody aircraft have slowed due to supply chain issues. Air freight capacity is expected to remain tight from cross border e-commerce demand and geopolitical tensions.
Asia Pacific and Middle Eastern trade lanes are driving international air trade growth. Low-value air export out of China skyrocketed on global markets. All of which is being reflected in Asia Pacific’s strong inbound and outbound air capacity requirement. This tremendous increase in air freight needs is being compounded by the 1-week holiday China will observe on Oct 1 and will effectively shut down flights and shipping. So much so that flights from China are currently going into a queue and are approximate at a 3 – 5 day wait. Longer for temperature-controlled flights.
Most major trade lanes show a positive year-to-date growth, driven by Asia Pacific and Middle East traffic. Global International air cargo capacity up by 8% vs. 2023 the last 4 weeks. Asia Pacific continues its strong performance inbound and outbound routes into Europe and Americas. Global air cargo rates defy seasonal trends, hitting their highest levels due to a supply-demand increases. Air cargo industry anticipates a booming peak season driven by holiday
Global air traffic continues to see significant growth, mainly impacted by the e-commerce boom and ocean shipping constraints. Cross border e-commerce demand continues to increase, estimated at levels 10x larger than pre-Covid. High-value goods, i.e. tech, pharma, perishables, are the key drivers. Strong year-end air cargo growth is anticipated.
US Trucking
Trucking Carrier capacity continues to remain tight across the US. Analysis point to several reasons. The increase in demand is both a result in the continued recovery from the pandemic and also a shortage of drivers. Additionally, with new regulations being put in place in California requiring electric trucks and now labeling independent CDL drivers as part of the gig-economy, only adds to the shortage.
Many carriers are concerned over the upcoming implementation of a new White House safety program called Clearinghouse II. There are currently over 175,000 CDL/CPL drivers with “prohibited” statuses in the Federal Motor Carrier Safety Administration’s Drug & Alcohol Clearinghouse. This will be a bigger problem for these drivers and their employers in the coming months. The FMCSA initially slated the Drug & Alcohol Clearinghouse regulation for a two-phase rollout. Phase one officially took effect on Jan. 6, 2021, introducing the Clearinghouse as a centralized database designed to record and track violations of the FMCSA’s drug and alcohol testing program by individuals holding a CDL. With phase two, also known as “Clearinghouse-II,” the FMCSA aims to remove disqualified CDL/CPL drivers from the roadways to boost safety and reduce DOT drug and alcohol violations as of Nov. 18, 2024.
What IS the FMCSA Drug & Alcohol Clearinghouse-II regulation? The FMCSA Drug & Alcohol Clearinghouse-II regulation requires State Driver Licensing Agencies (SDLAs) to remove commercial driving privileges from the driver’s license of any individual with a “prohibited” FMCSA Clearinghouse status until the driver completes the return-to-duty (RTD) process.
This means that drivers with unresolved FMCSA drug and/or alcohol Clearinghouse violations will lose or be denied the use of their CDLs or CLPs. Some SDLAs may begin this process before the deadline if they have the legislative authority to query the FMCSA Clearinghouse and act upon their findings.
The RTD process is a lengthy one with multiple steps that must be taken according to strict federal requirements. .
Labor
Forecasting the U.S. labor market presents a challenge. On one hand, substantial cooling with unemployment jumping from 3.5% to 4.3% in the last year. On the other hand, economic growth and rising employment. The latest unemployment rate declined from 4.3% to 4.2%, according to the Bureau of Labor Statistics.
The U.S. job market has slowed considerably over the past year or so, resulting in the Federal Reserve raising interest rates to in the hopes of bringing down inflation. If the labor market continues to cool at this rate many economists say the economy would likely be at risk of recession.
However, others say the U.S. job market is cooling at a worrisome rate but not to an extent that warrants panic – not yet. Their concern lies with the slowing momentum of key labor-market metrics such as unemployment, job growth and hiring. According to Biden-Harris spokesperson, the current level of job growth and unemployment is acceptable but other indicators don’t give confidence it will continue. Employers are hiring at their slowest pace since 2014, according to Labor Department data released this month.
Additionally, hiring hasn’t been broad-based either. Private-sector job growth other than healthcare and social assistance fields has been “unusually slow,” at roughly half of the previous year’s numbers. Workers are also quitting their jobs at the lowest rate since 2018, while job openings are at their lowest since January 2021. Quits are used as a rough measurement of workers’ confidence in their ability to find a new job.
Weather Impacts
Hurricane Helene has been the first major hurricane to hit the East and Gulf Coast this season. It made landfall at a Category 4 hurricane in Florida’s Big Bend and continued its course across Georgia and The Carolinas.
At the time of writing, it was too early to assess precisely major impacts, damage, or loss of life of Hurricane Helene.
A number of active systems in the Atlantic, Western Caribbean Sea and Gulf of Mexico are being closely monitored. The official Hurricane season ends in November.
This coincides with the Typhoon season in Asia. Asia has experienced several devastating Typhoons (particularly Philippines and Vietnam), with the most recent in September. There was little impact to China. However, as both of these countries are exporting more, the weather impacts from this region will remain a concern.
No major storms are being tracked in other parts of the world give rise for concern at this time.
Political Environment
The following are current points that could impact the future:
- First and foremost, on everyone’s radar is the election in November. While the election in November may not have immediate impacts as the actual transition (regardless of winner) won’t be until January, the results could start to impact companies decisions if they are concerned of the outcome.
- Along with this potential change in US policy, there have been major changes in the leadership and majority in several countries in the EU and UK. The UK, France, Denmark, Italy, Germany, Austria have all had shifts in their governments. These elections took place already and we should start to see any shifts in policy that will impact Supply Chains and Regulatory requirements.
- Considerable discussions of impacts of increased tariffs. While the Republican candidate has called for increased tariffs, the Democrat candidate has already endorsed some increases also. Results and impacts to be determined.
- In September, the UK, the USA and Australia signed a Memorandum of Understanding (MoU) on supply chain resilience. The MoU will establish a new trilateral collaboration that will strengthen strategic cooperation and address risks to critical supply chains. It will see the formation of the Australia-United Kingdom-United States Supply Chain Resilience Cooperation Group, designed to cooperate on data sharing and joint action to build resilience in priority supply chains. According to the UK Department for Business and Trade, this will enhance the mutual ability of all three nations to ‘identify and address risks, threats and disruption’ to critical supply chains. Additionally, the group is set to develop an early warning pilot focused on the telecommunications supply chain, deemed essential for today’s global economies.
- The Philippines is positioning itself as the next major manufacturing and logistics hub in Asia by leveraging its deepening ties with the United States. President Marcos, Jr of the Philippines, outlined this vision in Manila highlighting the country’s intensified defense and economic engagements with Washington. The US has pledged significant support to accelerate investments in the Philippines, particularly focusing on transport infrastructure, clean energy and semiconductor supply chains through the Luzon Economic Corridor. The total of the projects will be approximately $177B USD.
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