[Freightos Weekly Update] Canada rail strike averted, but ILA action looms

Key insights:

1. Canada’s rail worker lockout was ended by government order last week, sending the parties to binding arbitration. The anticipation and one-day shutdown led to some diversions and backlogs, which are expected to take several days to clear.

2.  Ocean rates out of Asia to Europe and the Mediterranean have eased 8% since their July peaks, and are expected to decline further as demand decreases.

3. Prices to the US East Coast, meanwhile, have remained at their peak level since mid-July, possibly due to shippers rushing to get containers moved ahead of a possible ILA port worker strike in October.

4. Rates to the West Coast – which had eased about 20% from their July peak climbed by more than 10% last week on mid-month GRIs, but reports of some carriers offering discounts supports skepticism that these increases will stick.

5. An Indian port worker strike, called for Wednesday, could shut down the country’s twelve largest ports.

6. In Bangladesh, flooding has disrupted logistics operations still recovering from backlogs caused by the political turmoil in June and July.

7. The US CBP is reportedly increasing scrutiny on customs brokers and may tighten reporting requirements for de minimis imports as it seeks to regulate e-commerce imports from China.

8. E-commerce volumes have kept summer air cargo rates at levels usually reserved for peak season. Freightos Air Index rates out of China were above $6.00/kg to N. America last week and at about $3.50/kg to Europe.

Ocean rates - Freightos Baltic Index:

• Asia-US West Coast prices (FBX01 Weekly) increased 11% to $7,115/FEU.

• Asia-US East Coast prices (FBX03 Weekly) climbed 3% to $9,698/FEU.

• Asia-N. Europe prices (FBX11 Weekly) fell 4% to $7,965/FEU.

• Asia-Mediterranean prices (FBX13 Weekly) fell 3% to $7,099/FEU.

Air rates - Freightos Air index

• China - N. America weekly prices increased 15% to $6.12/kg

• China - N. Europe weekly prices fell 10% to $3.44/kg.

• N. Europe - N. America weekly prices increased 1% to $1.66/kg.

Analysis

The Canadian rail lockout of union employees that went into effect on Thursday and threatened to disrupt North American logistics lasted only eighteen hours. Friday’s order by the Minister of Labor ended the lockout and required the start of binding arbitration for the carriers and union. The Teamsters issued a strike announcement soon after, but rescinded it once the Industrial Relations Board affirmed the order on Saturday, and operations had resumed by Monday.

Anticipation of the lockout did result in some diversions away from Vancouver which contributed to worsening congestion at some terminals in Tacoma, and a backlog created by the one-day shutdown could take about a week to clear.

Meanwhile, the possibility of an ILA port worker strike in October at East Coast and Gulf ports in the US still looms. Some added urgency to ship goods from Asia in the hope of receiving them before the union contract expires may have contributed some additional upward pressure on spot rates to the East Coast in the last few weeks. While ocean prices from Asia to N. Europe and the Mediterranean have eased about 8% each from their July peaks, rates to the East Coast have remained at their peak level since mid-July. There are likewise reports of some pull forward of transatlantic volumes ahead of the possible strike, though rates on this lane have remained level.

Prices to the West Coast – which had eased about 20% from their July peak as carriers added capacity to the lane and demand may already be past its peak – climbed by more than 10% last week on mid-month GRIs by some carriers. More reports that carriers are offering some discounted rates relative to spot levels supports skepticism that these or further increases will stick.

If there is a strike in October though, rates to the West Coast would likely increase as shippers shift volumes away from the East Coast and as a backlog of containers and vessels at East Coast and Gulf ports ties up capacity.

In India, a port worker union representing 20,000 members is in last-minute negotiations with port operators to avoid a strike called for tomorrow, which could shut down the country’s twelve largest ports. A strike would create backlogs and congestion even as demand has eased and operations have improved recently, as reflected in some carriers deciding to cancel or reduce planned surcharges.

Logistics operations in Bangladesh, where ports were making progress clearing backlogs caused by the political upheaval in June and July, now face new challenges as devastating floods last week are impacting road logistics and slowing the transport of containers to and from Chittagong.

In air cargo, the US Customs and Border Protection is reportedly increasing its scrutiny and expectations of customs brokers and may tighten reporting requirements for imports entering via the de minimis exception, as it seeks to better regulate the flood of e-commerce shipments from China which arrive mostly by air.

Even with stricter requirements though, most observers expect B2C e-commerce shipments to remain a major factor in air cargo demand and contribute to a strong Q4 peak season for air. Though summer is typically slow season for air cargo, e-commerce volumes have kept space tight and rates at levels usually reserved for peak season. Freightos Air Index rates out of China were above $6.00/kg to N. America last week and at about $3.50/kg to Europe. With rates already elevated, expectations are for even higher prices and tighter capacity when demand increases later in the year.