Hello and welcome to the first installment of “Consolidated Regulatory and Supply Chain News”
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.
We hope this provides some additional information for your use and helps to grow your business and relationships.
Ocean Freight
Mideast
We are now several months into the instability of the Red Sea area, which continues to make negative headlines across the globe and impacting our supply chains.
By now, we have learned that some industry leaders are forced to temporarily shut down their assembling lines due to delayed shipments that must make its longer way around Cape of Good Hope (CoGH). This is first felt by JIT production which is often seen in the automotive industry but will soon spread across other industries as well.
International military efforts, led by the US and the UK, have so far not resulted in the liberation strike one has hoped for. Several experts describe the overall situation around Bab al-Mandeb strait as more dangerous than before recent intervention. There are some worrying signs that this conflict might spread into the Gulf of Aden and other parts in this region. Experts foresee the events will thus last longer and impact on the sailing schedules for the entire Q1 and into Q2 2024.
While operations teams at all Supply Chain companies are working on solutions to move cargo safely and quickly from A to B, most will see a temporary crunch in capacity on certain trades. However, this will only be short-lived if per expectation we do not experience a sudden increase in global demand. It is again hard to predict how long the space crunch will last but best guess is that situation will start ease towards the end of Q1, early Q2.
While we continue to hope for a sustainable resolution in the near future, the situation in the area 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 your logistics operations.
On 2nd January 2024, A.P. Moller – Maersk announced that it would pause all vessels bound for the Red Sea / Gulf of Aden in light of the recent incident involving Maersk Hangzhou and ongoing developments in the area.
The situation is constantly evolving and remains highly volatile, and all available intelligence at hand confirms that the security risk continues to be at a significantly elevated level. Many carriers are evaluating following Maersk and diverting south around the Cape of Good Hope (CGH) for the foreseeable future.
Categories across the consumer spectrum of products have been impacted by the attacks on shipping in the Red Sea. The result has been extended lead times for getting goods to market, as some retailers divert shipments around the CGH, while others opt for air freight. Either way, higher costs are being experienced, which must either be born by carriers and shippers, or passed on to the consumer.
Even as they struggle to cope with the crisis of the moment, retailers are adopting long-term strategies for adjusting to future disruptions. For some, that means shifting or diversifying sourcing among multiple regions — again, a high-cost move that nevertheless must be considered if retail supply chains are to be truly resilient.
Panama Canal
Maersk plans to eliminate Panama Canal vessel transits on a north-south service between Oceania and the US East Coast, citing the ongoing drought that has reduced ship transits and container carrying capacity through the waterway
East / Gulf Coast Ports
In a letter to the United States Maritime Alliance (USMX) and the International Longshoremen’s Association (ILA), NRF President Matthew Shay said the growing share of containerized imports moving through East and Gulf coast ports will be put at risk if contract talks do not resume shortly. He said NRF members will consider contingency plans if no progress on a new contract is made. Expectations are that if this is not resolved by October 1, the USMX will strike. This coincides with the start of the busiest shipping time of the year.
The US Labor Department released a final rule Tuesday that revises the guidelines used to determine whether workers are classified as independent contractors or employees. The rulemaking — opposed by many trucking organizations — could lead to a costly rethinking of how trucking and drayage companies use contractors, including many independent drayage drivers.
Air Freight:
Green Initiatives
- European Union negotiators this week reached a deal that spells out the sustainable aviation fuel (SAF) expectations for airlines on flights within and departing from the EU between 2025 and 2050. It is the second major environmental initiative to be imposed on the aviation industry this month following aviation’s inclusion in the European Emissions Trading System (ETS) last week.
- The green fuels law for aviation — known as ReFuelEU — stipulates that from 2025, all flights departing from an EU airport must use a minimum share of SAF, starting at 2 percent in 2025, rising to 6 percent from 2030.
- More than 100 warehouses in Southern California could be on the hook for hefty fines of up to almost $12,000 per day for being in violation of emissions-reduction requirements that went into effect in September. The warehouses must comply with the so-called Indirect Source Rule (ISR) implemented by regulators at the South Coast Air Quality Management District (AQMD). Warehouse operators risk daily fines of up to $11,700 for non-compliance. AQMD inspectors have visited 500 warehouses since enforcement of the warehouse specific ISR began four months ago; 109 notices of violation (NOV) were issued.
Union News
The International Brotherhood of Teamsters said Tuesday it had reached an agreement with DHL Express to end a 12-day strike at the company’s Cincinnati hub. The strike involved 1,100 DHL workers who are members of Teamsters Local 100 at the Cincinnati/Northern Kentucky International Airport. Picket lines were extended to other DHL facilities across the US, including Boston and Los Angeles, escalating the conflict.
Costs
Air cargo rates from Asia to North America continue to rise to levels not seen in more than a year as e-commerce volume fills much of the available capacity. But the online shopping demand is masking an underlying weakness in the general air freight market. The highest air cargo rates of the year from Asia to North America and Europe are riding not on demand, but on constrained capacity due to weather disruptions and too little belly capacity on the China-United States leg, according to Netherlands-based air freight analyst WorldACD. Asia-North America rates rose 7% even as volume dropped 2%, and the spot rate to Europe was up 7%, although with a 4% increase in tonnage, the analyst noted in its latest weekly update
Customs and Border Protection News
US Customs and Border Protection (CBP) has made clear to customs brokers they cannot use offshore data entry companies to perform a number of trade compliance processes for US imports. In a Dec. 19 ruling based on a request from Georgia-based broker Heizwerthy Customs & Freight Solutions, CBP said using an offshore and unlicensed third-party company to handle reviews of shipping documents such as bills of lading and commercial invoices would constitute a violation of US customs laws.
U.S. Transportation News:
Green Initiatives
- Biden-Harris Administration Finalizes Strongest Ever Greenhouse Gas (GHG) Standards for Heavy-Duty Vehicles.
The U.S. Environmental Protection Agency (EPA) announced March 29 final national greenhouse gas pollution standards for heavy-duty vehicles, such as freight trucks and buses, for model years 2027 through 2032. But at least one industry body has pushed back against the new rules. The EPA said the “Greenhouse Gas Emissions Standards for Heavy-Duty Vehicles – Phase 3” standards will avoid 1 billion tons of greenhouse gas emissions and provide $13 billion in annualized net benefits to society related to public health, the climate, and savings for truck owners and operators.
Challenging this proposal, Clean Freight Coalition (CFC) executive director Jim Mullen strongly criticized the standards in a March 29 statement. “Rather than mandating a new technology that carries with it exorbitant costs and operational concerns, policymakers should support lower carbon alternatives to diesel fuel that are currently commercially viable (such as biodiesel and renewable diesel).
CFC says the math just doesn’t add up, pointing to its recent study it says demonstrated that fully electrifying the nation’s medium- and heavy-duty commercial vehicles will cost motor carriers $620 billion in charging infrastructure alone. Further, that does not include the vehicle cost, which the CFC said increases by 2-3 times compared to a diesel truck. “For example, today’s diesel class 8 truck costs roughly $180,000 compared to an electric truck’s price tag of $400,000, and for motor coaches, today’s diesel costs $600,000 compared to $1.5million for battery electric – costs that will ultimately be borne on the backs of consumers,” the statement said.
“On top of the costs to the truck and bus industries, utilities and the government will need to invest $370 billion to upgrade their networks and the power grid to meet the demands of the commercial vehicle industry alone, putting the price tag for an electric supply chain at nearly $1trillion before one battery-electric commercial vehicle is purchased,” the statement went on.
Port of Baltimore Bridge Collapse
Details are beginning to surface regarding the Dali container ship that struck the Port of Baltimore’s Francis Scott Key Bridge on the morning of March 26, sending vehicles plunging into the water. To date there have been 8 deaths and multiple injuries. At least two people were rescued from the water after the Dali’s collision with the Baltimore bridge. One of those was said to have been seriously injured.
The incident is already leading to serious downstream effects for the Port of Baltimore, which handles more roll-on/roll-off volume than any other U.S. port. It’s also considered an important hub for steel, aluminum, sugar, vehicles, and agricultural equipment and containers.
Exporters could face higher trucking and rail rates if ships opt to not wait for the waterway to reopen (currently projected to take months at best, until 2025 at worst), and instead reroute to other ports like Norfolk and New York/New Jersey. Those alternative ports could in turn face some congestion or delays if the added volume floods in.
In total, an estimated 30 to 40 container vessels call the Port of Baltimore every week.
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