MARKET BRIEF | November 2023
Coastwide Dockworker Strike Looming
The president of the International Longshoremen’s Association (ILA) acknowledged that union members must fulfill a commitment to outperform automated systems in containers moved per hour. Last month, negotiations between maritime employers and the union representing longshore workers on the U.S. South Atlantic and Gulf Coasts failed to reach an agreement on new pay raises. This setback has impeded progress in contract talks, prompting the union to caution its members to start saving money in anticipation of the potential for the first coastwide strike in 47 years (which would occur in 2024). During a meeting in Nashville for ILA locals along the aforementioned coasts, ILA President Harold Daggett emphasized that maritime employers must offer a significant increase in hourly wages before discussions on other contract terms can commence. He added that the ILA’s 45,000 members are prepared to strike if there is no signed deal in place before the current contract expires on September 30, 2024.
Container Market Not Showing Signs of Recovery
HMM delivered a somber evaluation of the container shipping market, revealing a substantial decrease in profitability. Despite a notable uptick in volume during the third quarter, earnings continued their decline from the record highs of the previous year. The demand for containers is anticipated to face downward pressure, lacking any positive signs of a resurgence in consumer interest. The pessimistic outlook is attributed to widespread inflation, economic deceleration, and escalating geopolitical situations. HMM’s third-quarter and nine-month results mirrored the trend seen in industry counterparts, such as Maersk and Hapag-Lloyd, with significant declines reported across all financial segments. The augmented volume was overshadowed by plummeting freight rates. Projections suggest a 60% drop in combined spot and contract rates this year, followed by an additional 33% decrease in 2024. Although the container shipping industry is expected to remain profitable this year, forecasts indicate an industry-wide EBIT loss of $15 billion in the coming year.
U.S. Shippers Expanding Private Fleets
Shippers in the United States are showing an increasing inclination towards taking charge of their freight operations, opting to utilize their privately-operated fleets despite a truckload market that works in their favor. This shift highlights the escalating significance of stability, consistency, and predictability in today’s interconnected, time-sensitive, and intricate supply chains. However, the transition to relying more on private fleets is not universal. Dedicated trucking presents itself as a popular alternative, and the existence of distribution networks may render the use of company-owned trucks less cost-effective for many shippers. Retail powers, such as Walmart, Dollar General, and Amazon, operate some of the largest private fleets. The expansion of private fleets seems to impact capacity in the broader truckload market, and could contribute to sustained pressure on rates, as fewer shipments are outsourced to for-hire carriers.
Maersk Cutting 10,000 Jobs
Shipping giant A.P. Moller-Maersk has announced that it will have to trim at least 10,000 jobs. Citing challenges with excess capacity, escalating expenditures, and diminishing prices, CEO Vincent Clerc acknowledged that the situation is more serious than originally anticipated. Like many companies in the ocean shipping industry, Maersk has been affected by subdued macroeconomic conditions, tepid volume demands, unprecedented pricing levels, escalating energy expenses, and geopolitical tensions. In response to the robust post-pandemic demand and favorable freight rates, the shipping industry has undertaken substantial investments in state-of-the-art container ships. The predicament is exacerbated by the arrival of other new vessels into the market, prompting concerns going into 2024, as declines have continued in retail, lifestyle, automotive, and technology verticals.
